EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
by and among
SOFTNET SYSTEMS, INC.,
SSI MERGER SUB, INC.,
LAPTOP LANE LIMITED
and
R. XXXXX XXXXXXX AND M. XXXXX XXXXX
Dated as of February 9, 2000
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is
entered into as of February 9, 2000 by and among (i) SoftNet Systems, Inc., a
Delaware corporation ("SoftNet"), (ii) SSI Merger Sub, Inc., a Washington
corporation and a wholly-owned subsidiary of SoftNet ("Merger Sub"), (iii)
Laptop Lane Limited, a Washington corporation ("LLL") and (iv) R. Xxxxx Xxxxxxx
and M. Xxxxx Xxxxx (together, "Sellers").
RECITALS
A. SoftNet owns all of the issued and outstanding shares of
capital stock of Merger Sub.
X. Xxxxxxx collectively own an aggregate of 667,500 shares of
the common stock, without par value, of LLL ("LLL Common Stock").
C. SoftNet, Merger Sub and LLL deem it advisable and in the
best interests of their respective shareholders for Merger Sub to merge with and
into LLL pursuant to the terms of this Agreement.
D. Concurrently with the execution of this Agreement and as an
inducement to SoftNet to enter into this Agreement, shareholders holding
approximately 76% of the voting securities of LLL have entered into a Voting
Agreement with SoftNet, pursuant to which such shareholders have agreed, among
other things, to vote their shares in favor of this Agreement and the Merger (as
defined).
E. In the Merger, LLL will be the surviving corporation, the
shares of LLL will be converted into the right to receive consideration in
accordance with the terms hereof, and the shares of Merger Sub will be converted
into shares of Surviving Corporation (as defined).
F. It is intended that the Merger will qualify as a
reorganization under 368(a) of the Code.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which the parties hereby acknowledge, the parties
hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the following
meanings:
"Accountants" means KPMG Peat Marwick LLP, independent
certified public accountants.
"Affiliate" of a Person means any other Person which directly
or indirectly controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement of Merger" means the Agreement of Merger by and
between Merger Sub and LLL to be filed with the Washington Secretary of State.
"Ancillary Agreements" means the Employment Agreements,
Non-Compete Agreements, Registration Rights Agreement, Voting Agreements and
other agreements, certificates and documents required hereunder to consummate
the Closing.
"Assets" means all of LLL's and its Subsidiaries' right, title
and interest in and to the properties, assets and rights of any kind, whether
tangible or intangible, real or personal.
"Balance Sheet" means the balance sheet of LLL as of the
Balance Sheet Date.
"Balance Sheet Date" means December 31, 1999.
"Business" means the business of LLL and its Subsidiaries as
conducted on the date hereof.
"Business Plan" means the Business Plan, dated November 1999,
of LLL, a true and correct copy of which has been furnished to SoftNet.
"Closing" means the consummation of the transactions
contemplated by this Agreement on the Closing Date.
"Closing Date" means the date to be specified by SoftNet and
LLL, which shall be no later than the third business day following the
satisfaction or waiver of all of the conditions set forth in Articles VI and VII
hereof. It is the intent of the parties that the Closing Date be the date which
is forty-five days after the date hereof, or as promptly as practicable
thereafter.
"Closing Place" means the offices of Xxxxxx & Xxxxxxx, 000
Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, Xxxxxxxxxx, 00000 or such other
place as agreed to by the parties.
"Code" means the Internal Revenue Code of 1986.
"Consents" means any and all licenses, permits, franchises,
approvals, authorizations, consents or waivers from third parties (including
governmental authorities and parties to the Contracts) that are (i) required for
the consummation of the transactions contemplated by this Agreement or (ii)
necessary or desirable in order that SoftNet and LLL can conduct the Business
after the Closing Date in the same manner as before the Closing Date.
"Contracts" means all agreements, contracts, leases, purchase
orders, undertakings, covenants not to compete, employment agreements,
confidentiality agreements, licenses, instruments, obligations and commitments
to which LLL or any of its Subsidiaries is a party or by which LLL or any of its
Subsidiaries or any Assets are bound, whether written or oral, express or
implied.
"Court Order" means any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any Person or its property
under applicable law.
"Default" means (a) a breach of or default under any Contract,
(b) the occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any Contract or (c)
the occurrence of an event that with or without the passage of time or the
giving of notice or both would give rise to a right of termination,
renegotiation or acceleration under any Contract.
"Effective Time" means the time on the Closing Date when the
Merger shall become effective, which time shall be at 5:00 p.m., California
time, on the Closing Date, or such other date and time as the parties may agree
in writing.
"Employment Agreement" means the Employment Agreement to be
entered into between LLL and each of R. Xxxxx Xxxxxxx and M. Xxxxx Xxxxx,
substantially in the form of Exhibit A hereto.
"Encumbrance" means any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes any agreement to give any of the
foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof; provided, however, that Encumbrance
shall not include the security interest and liens granted by LLL to SoftNet
pursuant to the Loan Agreement (as defined herein) or Second Loan Agreement (as
defined herein).
"ERISA" means the Employee Retirement Income Security Act of
1974.
"Financial Statements" means the Balance Sheet and related
unaudited statements of income, cash flow and shareholders' equity for LLL for
the period ended on the Balance Sheet Date, together with the notes thereto, all
of which are attached as Schedule 1.1(a).
"Fixtures and Equipment" means all of the furniture, fixtures,
furnishings, office equipment, development tools and equipment, lab equipment,
database tapes, test tapes, test fixtures and equipment, computers and software
(including any source or object codes therefor or documentation relating thereto
and computer aided design equipment and software), and other tangible personal
property owned by LLL or its Subsidiaries, wherever located and including any
such Fixtures and Equipment in the possession of any of its respective suppliers
or other vendors.
"Founders" means each of R. Xxxxx Xxxxxxx and M. Xxxxx Xxxxx.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be in general use
by significant segments of the U.S. accounting profession, which are applicable
to the facts and circumstances on the date of determination.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976.
"Indemnifiable Amount" means those amounts for which the
Shareholders, SoftNet and the other indemnified Persons identified under Article
X hereof are entitled to indemnity.
"Inventory" means all merchandise owned and intended for
resale and all raw materials, work in process, finished goods, wrapping, supply
and packaging items and similar items, whether or not located on the premises,
on consignment to a third party, or in transit or storage.
"Leases" means, with respect to any Person, all leases
(including subleases, licenses, any occupancy agreement and any other agreement)
of real or personal property, in each case to which such Person is a party,
whether as lessor, lessee, guarantor or otherwise, or by which any of them or
their respective properties or assets are bound, or which otherwise relate to
the operation of their respective business.
"Liabilities" mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any Person of any type, whether accrued, absolute,
contingent, matured, unmatured, liquidated, unliquidated or otherwise, known or
unknown.
"LLL Material Adverse Effect" or "LLL Material Adverse Change"
means any effect or change which has, or is reasonably likely to have, a
material adverse effect on the condition (financial or other), Business, results
of operations, assets, liabilities, prospects or operations of LLL and its
Subsidiaries taken as a whole; provided, however, that LLL and its Subsidiaries
incurring losses from operating the Business in the ordinary course and
consistent with past practice at a rate per site substantially similar to the
losses incurred for the nine-month period ended December 31, 1999 shall not
constitute a LLL Material Adverse Effect or LLL Material Adverse Change.
"Loan Agreement" means that certain Loan Agreement, dated as
of December 6, 1999 between LLL and SoftNet.
"Merger" means the merger of Merger Sub with and into LLL in
accordance with this Agreement and the Agreement of Merger.
"NDA" means that certain Non-Disclosure Agreement dated
November 17, 1999 between LLL and SoftNet.
"Non-Compete Agreement" means the Non-Compete Agreement to be
entered into between SoftNet and each of R. Xxxxx Xxxxxxx and M. Xxxxx Xxxxx,
substantially in the form of Exhibit B hereto.
"Old LLL Options" means options to purchase LLL Common Stock
granted by LLL prior to the date hereof or other rights to or with respect to
options to acquire LLL Common Stock granted, awarded or earned pursuant to any
agreement, arrangement or commitment entered into by LLL prior to the date
hereof.
"Permits" mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, necessary for the conduct
or operation of the Business or ownership of the Assets.
"Person" means any person or entity, whether an individual,
trustee, corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority.
"Proprietary Rights" means all (a) U.S. and foreign patents,
patent applications, patent disclosures and improvements thereto, including
xxxxx patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, trade names and corporate names
and the goodwill associated therewith and registrations and applications for
registration thereof, (c) U.S. and foreign copyrights and registrations and
applications for registration thereof, (d) U.S. and foreign mask work rights and
registrations and applications for registration thereof, (e) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, research and development information, software, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information), (f) copies
and tangible embodiments thereof (in whatever form or medium) and (g) licenses
granting any rights with respect to any of the foregoing.
"Registration Rights Agreement" means the Registration Rights
Agreement, substantially in the form attached as Exhibit C hereto.
"Regulations" means any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, binding agency
guidelines, principles of law and orders of any foreign, federal, state or local
government and any other governmental department or agency, including
Environmental Laws, energy, motor vehicle safety, airport, aviation, public
utility, zoning, building and health codes, occupational safety and health and
laws respecting employment practices, employee documentation, terms and
conditions of employment and wages and hours.
"Related Party" means any Seller, any of the officers and
directors of LLL, any Affiliate of LLL or any Affiliate or immediate family
member of a Seller or the respective officers and directors of any such
Affiliate, or any Person in which any of LLL, any Seller or any Affiliate of any
such Person or any immediate family member of a Seller has any direct or
material indirect interest.
"Representative" means any officer, director, principal,
attorney, agent, employee or other representative of any Person.
"SEC" means the Securities and Exchange Commission.
"Second Loan Agreement" means that certain Second Loan
Agreement, dated as of February 8, 2000, between LLL and SoftNet.
"Securities Act" means the Securities Act of 1933.
"Shareholders" means the holders of shares of capital stock of
LLL on the Closing Date.
"SoftNet Material Adverse Effect" or "SoftNet Material Adverse
Change" means any effect or change which has, or is reasonably likely to have, a
material adverse effect on the condition (financial or other), business, results
of operations, assets, liabilities, prospects or operations of SoftNet.
"Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting and
economic interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
"Tax Return" means any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying requests for
the extension of time in which to file any such report, return, document,
declaration or other information.
"Taxes" mean any and all taxes, charges, fees, levies or other
assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, service, license, net worth, payroll, franchise and transfer
and recording, escheat/remittance or unclaimed property, or other tax of any
kind whatsoever imposed by the Internal Revenue Service or any taxing authority
(whether domestic or foreign, including any federal, state, county, local or
foreign government or any subdivision or taxing agency thereof (including a U.S.
possession)), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments.
"To the best knowledge" or "knowledge" of a party (or similar
phrases) means to the extent of matters (i) which are actually known by such
party or (ii) which, based on facts of which such party is aware, would be known
to a reasonable Person in similar circumstances; provided, that "to the best
knowledge of LLL" or "to the knowledge of LLL" means the extent of matters (i)
which are actually known by any of R. Xxxxx Xxxxxxx or M. Xxxxx Xxxxx or (ii)
which, based on facts of which any of R. Xxxxx Xxxxxxx or M. Xxxxx Xxxxx is
aware, would be known to a reasonable Person in similar circumstances.
"Voting Agreement" means the Voting Agreement between SoftNet
and each of R. Xxxxx Xxxxxxx, M. Xxxxx Xxxxx, Xxxx XxXxxxx, The Retail Group,
Inc. and G. Xxxx Xxxxxx, as Trustee, U/A Dated 10-23-85 FBO Descendents of
Xxxxxx X. Xxxxxx, Tax I.D. # 2206404863 (the "Mennen Trust") entered into on the
date hereof.
1.2 Other Defined Terms. The following terms shall have the meanings defined for
such terms in the Sections set forth below:
Term Section
Action 3.17
Additional Shares Exhibit D
Aggregate Holder Spread 2.11(b)
Aggregate Option Spread 2.11(a)
Agreement Preamble
Benefit Arrangement 3.19(a)
Belkin 5.13
Claim 10.2(b)
Closing Average 2.5
Closing Statements 7.18
Closing Stock Price 2.4(e)
CTI 5.13
Damage Threshold 10.2(e)
Damages 10.2
Diligence Date 11.1(a)(ii)
Diligence Documents 11.1(a)(ii)
Dissenting Shares 2.9
Employee Plans 3.19(a)
Environmental Condition 3.30(a)
Environmental Laws 3.30(a)
ERISA Affiliate 3.19(a)
Exchange Act 4.7
Exchange Agent 2.6(a)
Expense Schedule 7.17
Expense Shares 2.4(d)
Expense Threshold 11.8
Extended Diligence Date 11.1(a)(ii)
Financing Notes 3.2(d)
Financing Warrants 3.2(d)
Fully Diluted Common Stock Number 2.4(c)
Goal Date Exhibit D
Hazardous Substance 3.30(a)
Holder Shares 2.4(d)
Holder Spread 2.11(b)
Initial Shares 2.4(c)
Issue Shares 2.4(c)
JAMS 10.3(f)
Leased Real Property 3.9(a)
Letter of Transmittal 2.6(a)
LLL Preamble
LLL Chicago 3.7
LLL Closing Certificates 7.1
LLL Disclosure Schedule Article III
LLL Expenses 7.17
LLL Financing Agreements 3.2(d)
LLL Option Plan 2.14
LLL Securities 3.2(f)
LLL Warrants 3.2(b)
Mennen Note 3.2(e)
Merger Consideration 2.4(c)
Merger Sub Preamble
Multiemployer Plan 3.19(a)
New LLL Option 2.14
Offset Notice 10.3(a)
Offset Shares 10.3(a)
Operating Budget Exhibit D
Option Shares 2.4(f)
Option Spread 2.11(a)
PBGC 3.19(a)
PGE 7.5
Pension Plan 3.19(a)
Personal Property 3.9(b)
Placement Warrants 3.2(f)
Prentice 3.2(f)
Proposed Acquisition Transaction 5.4(a)
Purchaser Representative 5.12
RCW 2.9
Release 3.30(a)
SEC Documents 4.7
Sellers Preamble
Shareholder Representative 7.14
SoftNet Preamble
SoftNet Common Stock 2.4(c)
SoftNet Disclosure Schedule Article IV
SoftNet's Closing Certificate 6.1
Stock Spreadsheet 7.19
Surviving Corporation 2.2(a)
Washington BCA 2.1
Working Capital Loans 7.11
Welfare Plan 3.19(a)
1.3 Interpretation Provisions.
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(a) The words "hereof," "herein" and "hereunder" and words of similar import
when used in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, schedule and
exhibit references are to this Agreement unless otherwise specified. The meaning
of defined terms shall be equally applicable to the singular and plural forms of
the defined terms. The term "or" is disjunctive but not necessarily exclusive.
The terms "include" and "including" are not limiting and mean "including without
limitation."
(b) References to agreements and other documents shall be deemed to include all
subsequent amendments and other modifications thereto.
(c) References to statutes shall include all regulations promulgated thereunder
and references to statutes or regulations shall be construed as including all
statutory and regulatory provisions consolidating, amending or replacing the
statute or regulation.
(d) The captions and headings of this Agreement are for convenience of reference
only and shall not affect the construction of this Agreement.
(e) The language used in this Agreement shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against either party.
(f) The schedules and exhibits to this Agreement are a material part hereof and
shall be treated as if fully incorporated into the body of the Agreement.
ARTICLE II.
THE MERGER; CONVERSION OF SHARES
2.1 Filings. Subject to the provisions hereof, on the Closing Date, SoftNet,
Merger Sub and LLL shall cause the Agreement of Merger to be filed with the
Washington Secretary of State in accordance with the Washington Business
Corporation Act (the "Washington BCA"). If the Washington Secretary of State
requires any changes in the Agreement of Merger as a condition to filing or to
issuing its certificate to the effect that the Merger is effective, SoftNet,
Merger Sub and LLL will execute any necessary revisions incorporating such
changes, provided such changes are not inconsistent with and do not result in
any material change in any of the terms of this Agreement.
2.2 Merger. At the Effective Time, subject to the terms and conditions set forth
in this Agreement and in accordance with the Washington BCA:
(a) the Merger shall become effective, Merger Sub shall merge with and into LLL,
the separate existence of Merger Sub shall cease, and LLL shall continue as the
surviving corporation ("Surviving Corporation");
(b) the Articles of Incorporation of Merger Sub as in effect immediately prior
to the Effective Time shall be the Articles of Incorporation of Surviving
Corporation (except that Article I thereof shall be amended to read as follows:
"The name of this corporation is Laptop Lane Limited"), until duly amended in
accordance with applicable law;
(c) the Bylaws of Merger Sub as in effect immediately prior to the Effective
Time shall be the Bylaws of Surviving Corporation, until altered, amended, or
repealed; and
(d) each share of LLL Common Stock outstanding immediately prior to the
Effective Time shall be canceled and converted as provided herein.
2.3 Directors and Officers. At the Effective Time, the directors of Surviving
Corporation shall be R. Xxxxx Xxxxxxx, X. Xxxxx Xxxxx, Xxxxxxxx X. Brilliant,
Xxxxxx X. Xxxxxx and Xxxxxx X. Xxxxxx and the officers shall be as set forth on
Schedule 2.3 hereto, each such director and officer to hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the Articles of Incorporation and Bylaws
of Surviving Corporation and applicable law.
2.4 Conversion of Securities.
(a) Conversion of Merger Sub Shares. At the Effective Time, each issued and
outstanding share of capital stock of Merger Sub shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into and
become one fully paid and non-assessable share of the common stock of Surviving
Corporation.
(b) Cancellation of Treasury Stock. Each share of LLL Common Stock that is owned
by LLL or any wholly owned subsidiary of LLL shall automatically be canceled and
retired and shall cease to exist, and no shares of SoftNet Common Stock (as
defined herein) or other consideration shall be delivered in exchange therefor.
(c) Conversion of LLL Common Stock. Subject to the provisions of Section 2.5, at
the Effective Time, each share of LLL Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled in
accordance with Section 2.4(b) and Dissenting Shares (as defined herein)) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be canceled and extinguished and converted into the right to receive
that number of shares of Common Stock of SoftNet, $.01 par value per share
("SoftNet Common Stock"), that shall equal the quotient of (x) 750,000 (the
"Initial Shares") less the Expense Shares (calculated in accordance with Section
2.4(d)) and less the Holder Shares (calculated in accordance with Section
2.4(e)) and less the Option Shares (calculated in accordance with Section
2.4(f)) (such total being the "Issue Shares") divided by (y) the Fully Diluted
Common Stock Number (such quotient being the "Merger Consideration"). The "Fully
Diluted Common Stock Number" shall mean the total number of shares of LLL Common
Stock outstanding immediately prior to the Effective Time on a fully diluted
basis, including (i) the exercise of all outstanding rights and warrants to
acquire LLL Common Stock, regardless of restrictions on exercise or conversion
and (ii) the conversion of all outstanding securities and notes convertible into
LLL Common Stock. As of the Effective Time, all such shares of LLL Common Stock
shall no longer be outstanding and shall automatically be canceled and shall
cease to exist, and each holder of a certificate representing any such shares of
LLL Common Stock shall cease to have any rights with respect thereto, except the
right to receive, upon the surrender of such certificates, certificates
representing shares of SoftNet Common Stock, and cash in lieu of any fractional
shares of SoftNet Common Stock to the extent provided in Section 2.6(c) to be
issued or paid in connection therefor upon surrender of such certificates in
accordance with Section 2.6, without interest.
(d) Calculation of Expense Shares. The "Expense Shares" shall equal the quotient
of (x) the difference of the LLL Expenses less the Expense Threshold divided by
(y) the closing price of SoftNet Common Stock on The Nasdaq National Market on
the date immediately prior to the Closing Date (the "Closing Stock Price"). The
number of Expense Shares shall be rounded up to the nearest whole number.
(e) Calculation of Holder Shares. The "Holder Shares" shall equal the quotient
of (x) the Aggregate Holder Spread divided by (y) the Closing Stock Price. The
number of Holder Shares shall be rounded down to the nearest whole number.
(f) Calculation of Option Shares. The "Option Shares" shall equal the quotient
of (x) the difference of the Aggregate Option Spread less $30,000 divided by (y)
the Closing Stock Price. The number of Option Shares shall be rounded up to the
nearest whole number.
2.5 Adjustment to Initial Shares and Additional Shares. In the event that the
average of the closing price of SoftNet Common Stock on The Nasdaq National
Market for the fifteen (15) trading days immediately preceding the Closing Date
(the "Closing Average") is:
(a) less than or equal to $30 per share, the number of Initial Shares and
Additional Shares (as defined) shall be adjusted such that the sum of the
Initial Shares and the Additional Shares shall equal 1,333,333;
(b) greater than $30 per share but less than or equal to $40 per share, the
number of Initial Shares and Additional Shares shall be adjusted such that the
product of (x) the sum of the Initial Shares and the Additional Shares times (y)
the Closing Average shall equal $40,000,000;
(c) greater than $40 per share but less than or equal to $50 per share, the sum
of the Initial Shares and the Additional Shares shall equal 1,000,000; or
(d) greater than $50 per share, the number of Initial Shares and Additional
Shares shall be adjusted such that the product of (x) the sum of the Initial
Shares and the Additional Shares times (y) the Closing Average shall equal
$50,000,000.
In the event of any adjustment pursuant to this Section 2.5, the ratio of
Initial Shares to Additional Shares shall, as nearly as practicable, remain at
three to one. After any such adjustment, references herein to the "Initial
Shares" and the "Additional Shares" shall mean the Initial Shares and the
Additional Shares, as so adjusted.
2.6 Exchange of Certificates.
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(a) Exchange Agent and Procedures. ChaseMellon Shareholder Services, L.L.C., as
exchange agent (the "Exchange Agent"), shall mail as promptly as practicable
after the Effective Time to each holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of LLL
Common Stock, other than shares to be cancelled in accordance with Section
2.4(b), (i) a letter of transmittal (the "Letter of Transmittal") and (ii)
instructions for effecting the surrender of the certificates in exchange for
certificates representing SoftNet Common Stock. Upon surrender of a certificate
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by SoftNet, together with such Letter of Transmittal, duly
executed, and such other documents as may reasonably be required by the Exchange
Agent or SoftNet, the holder of such certificate shall be entitled to receive in
exchange therefor, no later than five business days following the surrender of
such certificate, a certificate representing that number of whole shares of
SoftNet Common Stock which such holder has the right to receive pursuant to the
provisions of Section 2.4(c), and the certificate so surrendered shall forthwith
be cancelled. In the event that any certificates representing shares of LLL
Common Stock shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the shareholder claiming such certificate to be lost,
stolen or destroyed, SoftNet shall issue in exchange for such lost, stolen or
destroyed certificate the shares of SoftNet Common Stock that such shareholder
is entitled to receive pursuant to Section 2.4(c) hereof; provided, however,
that SoftNet may in its discretion and as a condition precedent to the issuance
thereof, require such shareholder to provide SoftNet with an indemnity agreement
against any claim that may be made against SoftNet with respect to the
certificate alleged to have been lost, stolen or destroyed. The shares of
SoftNet Common Stock that each shareholder of LLL shall be entitled to receive
pursuant to the Merger shall be deemed to have been issued at the Effective
Time. If the shares of SoftNet Common Stock or cash in lieu of fractional
shares, if any, (or any portion thereof) is to be delivered to any person other
than the person in whose name the certificate or certificates representing
shares of LLL Common Stock surrendered in exchange therefor is registered, it
shall be a condition to such exchange that the person requesting such exchange
shall pay to SoftNet any transfer or other taxes required by reason of the
payment of the shares of SoftNet Common Stock or cash in lieu of fractional
shares, if any, to a person other than the registered holder of the certificate
or certificates so surrendered, or shall establish to the satisfaction of
SoftNet that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither SoftNet nor any other party hereto shall be liable to a
holder of shares of LLL Common Stock for any shares of SoftNet Common Stock or
cash in lieu of fractional shares, if any, delivered to a public official
pursuant to applicable abandoned property, escheat and similar laws.
(b) Withholding. SoftNet or the Exchange Agent will be entitled to deduct and
withhold from cash paid in lieu of fractional shares, if any, to be delivered
pursuant hereto such amounts as SoftNet or the Exchange Agent are required to
deduct and withhold with respect to the making of such payment under Section
3406 of the Code, relating to backup withholding. To the extent that amounts are
so withheld, such amounts will be treated for all purposes of this Agreement as
having been paid to the former holder of the LLL Common Stock in respect of whom
such deduction and withholding were made by SoftNet or the Exchange Agent.
(c) No Fractional Shares. No certificates or scrip representing fractional
shares of SoftNet Common Stock shall be issued by virtue of the Merger, and no
dividend, stock split or other distribution with respect to SoftNet Common Stock
shall relate to any such fractional interest, and any such fractional interests
shall not entitle the owner thereof to vote or to any rights of a security
holder. In lieu thereof, SoftNet shall pay to the holder of shares of LLL Common
Stock who would otherwise be entitled to a fraction of a share of SoftNet Common
Stock, as soon as practicable after the Effective Time (and in the same timely
manner required for delivery of certificates of SoftNet Common Stock provided in
Section 2.6(a)), an amount in cash equal to such fraction multiplied by the
Closing Average.
2.7 Certificate Not Surrendered by Holders of Shares of LLL Common Stock. Each
certificate which immediately prior to the Effective Time evidenced shares of
LLL Common Stock shall, from and after the Effective Time until such certificate
is surrendered to Surviving Corporation or the Exchange Agent, be deemed, for
all corporate purposes, to evidence the right to receive the consideration per
share provided for by Section 2.4(c). No interest shall be payable upon any
consideration to be delivered pursuant to this Agreement.
2.8 No Transfers After the Effective Time. All shares of SoftNet Common Stock
issued upon the surrender of certificates representing shares of LLL Common
Stock in accordance with the terms of this Article II (including any cash paid
pursuant to Section 2.6(c)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to shares of LLL Common Stock
theretofore represented by such certificates, and after the Effective Time,
there shall be no transfers of any shares of LLL Common Stock on the stock
transfer books of Surviving Corporation. If, after the Effective Time,
certificates formerly representing shares of LLL Common Stock are presented to
Surviving Corporation, they shall be canceled and exchanged for the
consideration per share provided for by Section 2.4(c), subject to applicable
law in the case of Dissenting Shares.
2.9 Dissenting Shareholders. Notwithstanding anything in this Agreement to the
contrary, shares of LLL Common Stock issued and outstanding immediately prior to
the Effective Time and held by a shareholder who has not voted in favor of the
Merger or consented thereto in writing and who has properly demanded dissenter's
rights in accordance with Revised Code Washington ("RCW") 23B.13.010 et seq.
("Dissenting Shares"), shall not be converted into the right to receive the
consideration as provided in Section 2.4(c), unless and until such holder fails
to perfect or withdraws or otherwise loses his right to appraisal and payment
under the Washington BCA, but shall from and after the Effective Time represent
only the right to receive such consideration as may be determined to be due in
accordance with RCW 23B.13.010 et seq. If, after the appraisal, any such holder
fails to perfect or withdraws or loses his right to appraisal, then such
Dissenting Shares shall thereupon be treated as if they had been converted as of
the Effective Time into the right to receive the consideration, if any, to which
such holder is entitled. LLL shall give SoftNet prompt notice of any demands
received by LLL for appraisal of shares and, prior to the Effective Time,
SoftNet shall have the right to participate in all negotiations and proceedings
with respect to such demands. Prior to the Effective Time, LLL shall not, except
with the prior written consent of SoftNet, make any payments with respect to or
settle or offer to settle, any such demands. Each holder of Dissenting Shares
who becomes entitled to payment for such Dissenting Shares in accordance with
RCW 23B.13.010 et seq. shall receive payment therefor in accordance with RCW
23B.13.010 et seq.
2.10 Taking of Necessary Action; Further Action. Each of SoftNet, Merger Sub,
LLL and Sellers shall take all such reasonable lawful action as may be necessary
or appropriate in order to effect the Merger in accordance with this Agreement.
LLL agrees that if, at any time after the Effective Time, Surviving Corporation
shall consider or be advised that any further deeds, assignments, or assurances
are necessary or desirable to vest, perfect, or confirm in Surviving Corporation
title to any property or rights of LLL, Surviving Corporation and its proper
officers and directors may execute and deliver all such proper deeds,
assignments, and assurances and do all other things necessary or desirable to
vest, perfect or confirm title to such property or rights in Surviving
Corporation and otherwise to carry out the purpose of this Agreement, in the
name of LLL or otherwise.
2.11 Old LLL Options
(a) As soon as practicable after the date hereof, LLL shall enter into an
agreement with each holder of an Old LLL Option, except for Xxxxxxxx Xxxxxxx and
Xxxxx Xxxxx, pursuant to which (i) the portion of each Old LLL Option which is
so vested as of the date hereof shall be deemed exercised and cashed-out and LLL
shall pay the holder thereof as soon as practicable after the date hereof a cash
amount equal to the Option Spread with respect to each such vested Old LLL
Option and (ii) the unvested portion of such Old LLL Option shall be canceled
and extinguished and no payment shall be made in respect thereof. The "Option
Spread" per share of LLL Common Stock subject to an Old LLL Option shall mean an
amount equal to the difference of (y) the fair market value of a share of LLL
Common Stock on the date hereof as determined by LLL less (z) the exercise price
of such Old LLL Option. As used herein, the "Aggregate Option Spread" shall mean
the total cash-out payment to be made to all holders of Old LLL Options pursuant
to this Section 2.11(a) as set forth on Schedule 2.11(a) hereof.
(b) As soon as practicable after the date hereof, LLL shall enter into an
agreement with Xxxxxxxx Xxxxxxx pursuant to which (i) the portion of each Old
LLL Option held by Xx. Xxxxxxx which is so vested as of the date hereof shall be
deemed exercised and cashed-out and LLL shall pay Xx. Xxxxxxx as soon as
practicable after the date hereof a cash amount equal to the Holder Spread with
respect to each such vested Old LLL Option and (ii) the unvested portion of such
Old LLL Option, if any, shall be canceled and extinguished and no payment shall
be made in respect thereof. The "Holder Spread" per share of LLL Common Stock
subject to an Old LLL Option held by Xx. Xxxxxxx shall mean an amount equal to
the difference of (y) the fair market value of a share of LLL Common Stock on
the date hereof as determined by LLL less (z) the exercise price of such Old LLL
Option. As used herein, the "Aggregate Holder Spread" shall mean the total
cash-out payment to be made to Xx. Xxxxxxx calculated in accordance with and
pursuant to this Section 2.11(b).
(c) Prior to the Effective Time, Xxxxx Xxxxx shall have exercised all Old LLL
Options held by Xx. Xxxxx and, upon such exercise, Xx. Xxxxx shall not have any
further rights of any kind to purchase or otherwise acquire any shares of
capital stock or other securities of LLL.
2.12 LLL Securities
(a) Immediately prior to the Effective Time, each holder of a LLL Warrant shall
exercise such warrant for shares of LLL Common Stock pursuant to the terms
thereof. As of the Closing, no LLL Warrants shall be outstanding.
(b) Immediately prior to the Effective Time, each holder of a Financing Note
(except for that certain note in the amount of $3,000,000 in favor of the Mennen
Trust issued under that certain Bridge Financing Agreement and Promissory Note
dated April 6, 1999 which shall be amended to provide that such note is not
convertible into, and does not entitle the holder thereof to any right to
purchase or otherwise acquire any shares of capital stock or other securities of
LLL) shall convert such note into shares of LLL Common Stock. As of the Closing,
no Financing Notes shall be outstanding.
(c) Immediately prior to the Effective Time, each holder of a Financing Warrant
shall exercise such warrant for shares of LLL Common Stock pursuant to the terms
thereof. As of the Closing, no Financing Warrants shall be outstanding.
(d) Immediately prior to the Effective Time, the holder of the Mennen Note shall
convert such note into shares of LLL Common Stock. As of the Closing, the Mennen
Note shall not be outstanding.
(e) Immediately prior to the Effective Time, the holder of the Placement
Warrants shall exercise such warrant for shares of LLL Common Stock pursuant to
the terms thereof. As of the Closing, no Placement Warrants shall be
outstanding.
2.13 Additional Shares. SoftNet shall pay to the Shareholders the Additional
Shares (as defined herein), if any, calculated according to, and at the times
set forth on, Exhibit D hereto.
2.14 New LLL Options. In the event that the stockholders of SoftNet vote in
favor of certain amendments to the SoftNet 1998 Stock Incentive Plan, as
amended, at SoftNet's Annual Meeting of Stockholders, the effect of which is to
increase the number of shares available for grant under such plan, LLL shall
thereafter be permitted to adopt an option plan in form and substance reasonably
acceptable to SoftNet (the "LLL Option Plan"). In the event of the adoption of
the LLL Option Plan, at and as of the Closing, SoftNet shall assume such LLL
Option Plan and each outstanding option to purchase shares of LLL Common Stock
issued pursuant to the LLL Option Plan (each of which shall have been approved
by SoftNet prior to grant), whether or not vested or exercisable (each, a "New
LLL Option") shall be assumed by SoftNet and shall constitute an option to
acquire, on the same vesting terms, and on substantially the same other terms
and conditions as were applicable under such assumed New LLL Option, that number
of shares of SoftNet Common Stock equal to the product of the Merger
Consideration and the number of shares of LLL Common Stock subject to such New
LLL Option, at a price per share (rounded to the nearest $0.01) equal to the
aggregate exercise price for the shares of LLL Common Stock subject to such New
LLL Option divided by the number of full shares of SoftNet Common Stock deemed
to be purchasable pursuant to such option; provided, however, that the number of
shares of SoftNet Common Stock that may be purchased upon exercise of such New
LLL Option shall not include any fractional shares and shall be rounded down to
the nearest whole number, and, upon the last exercise of such New LLL Option,
SoftNet shall pay to the holder thereof as soon as practicable an amount of cash
equal to such fraction multiplied by closing price of SoftNet Common Stock on
the date the LLL Option Plan is assumed. SoftNet shall assume the obligations of
LLL under the LLL Option Plan and shall comply with the terms of such plan as
they apply to the New LLL Options assumed as set forth above.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF AND LLL AND SELLERs
Except as otherwise set forth in a disclosure schedule (the
"LLL Disclosure Schedule") referring specifically to the representations and
warranties in this Agreement which identifies by section number the section to
which such disclosure relates and which is delivered by LLL to SoftNet prior to
or simultaneous with the execution of this Agreement, LLL and each Seller
severally, and not jointly, make the following representations and warranties to
SoftNet and Merger Sub, which representations and warranties are, as of the date
hereof, and will be, as of the Closing Date, true and correct and all of which
representations and warranties have been and will be relied upon by SoftNet and
Merger Sub in entering into this Agreement and consummating the transactions
contemplated hereby.
3.1 Organization of LLL. LLL is a corporation duly organized, validly existing
and duly authorized to transact business in the corporate form under the laws of
the State of Washington. LLL has full corporate power and authority to conduct
the Business as it is presently being conducted and to own or lease, as
applicable, its properties and the Assets. LLL and each of its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of its properties owned or leased or
the nature of its activities make such qualification necessary, except where the
failure to be so qualified would not, individually or in the aggregate, have an
LLL Material Adverse Effect. Each jurisdiction in which LLL and its Subsidiaries
are qualified to do business as a foreign corporation is set forth on Section
3.1 of the LLL Disclosure Schedule.
3.2 Capitalization of LLL.
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(a) As of the date of this Agreement, there are 2,000,000 shares of LLL Common
Stock authorized under its Articles of Incorporation, 1,286,596 of which are
issued and outstanding. LLL has no other stock authorized, issued or
outstanding.
(b) As of the date of this Agreement, LLL has outstanding warrants to acquire an
aggregate of 14,498 shares of LLL Common Stock at an exercise price of $6.67 per
share, warrants to acquire an aggregate of 45,350 shares of LLL Common Stock at
an exercise price of $10 per share, warrants to acquire an aggregate of 26,500
shares of LLL Common Stock at an exercise price of $12 per share and warrants to
acquire an aggregate of 5,000 shares of LLL Common Stock at an exercise price of
$15 per share (collectively, the "LLL Warrants"). LLL has provided SoftNet true
and complete copies of the LLL Warrants. Section 3.2(b) of the LLL Disclosure
Schedule sets forth a complete and accurate list of the LLL Warrants, the
exercise price per share and the number of shares subject to each LLL Warrant.
(c) As of the date of this Agreement, Old LLL Options representing the right to
purchase an aggregate of 71,900 shares of LLL Common Stock are outstanding, of
which 7,437 shares are vested. Section 3.2(c) of the LLL Disclosure Schedule
sets forth a complete and accurate list of all such outstanding Old LLL Options
and the holder, vesting schedules and exercise prices for such options.
(d) As of the date of this Agreement, LLL is party to the financing agreements
listed on Section 3.2(d) of the LLL Disclosure Schedule (collectively, the "LLL
Financing Agreements"). Each LLL Financing Agreement (i) provides that the loan
outstanding under such LLL Financing Agreement is convertible into shares of LLL
Common Stock (the "Financing Notes") and (ii) grants the holder thereof the
right to receive warrants to acquire shares of LLL Common Stock (the "Financing
Warrants"). Section 3.2(d) of the LLL Disclosure Schedule sets forth, as of the
date of this Agreement, with respect to (a) each Financing Note, the holder
thereof, the outstanding principal amount of such note and conversion mechanism
thereof and (b) each Financing Warrant, the mechanism for calculating the number
of warrants issuable to the holder of such Financing Warrant and the exercise
price thereof. No warrants to acquire shares of LLL Common Stock have been
issued pursuant to any Financing Warrant. LLL has provided SoftNet true and
complete copies of all LLL Financing Agreements.
(e) As of the date of this Agreement, LLL has outstanding that certain Bridge
Financing Agreement and Promissory Note dated as of September 28, 1999 with The
Mennen Trust (the "Mennen Note"). Section 3.2(e) of the LLL Disclosure Schedule
sets forth, as of the date hereof, the outstanding principal amount of the
Mennen Note and the conversion mechanism thereof.
(f) As of the date of this Agreement, LLL is party to that certain Placement
Agency Agreement dated as of July 29, 1998 with Kibble & Prentice Financial,
Inc. ("Prentice") which grants Prentice the right to receive warrants to acquire
shares of LLL Common Stock (the "Placement Warrants" and, together with the LLL
Warrants, the Financing Notes, the Financing Warrants and the Mennen Note, the
"LLL Securities"). Section 3.2(f) of the LLL Disclosure Schedule sets forth, as
of the date hereof, the number of warrants issuable to the holder of the
Placement Warrants and the exercise price thereof.
(g) Except for the LLL Securities and Old LLL Options listed above and for this
Agreement, there are no outstanding options, warrants, convertible securities or
rights of any kind to purchase or otherwise acquire any shares of capital stock
or other securities of LLL nor are there any other obligations on the part of
LLL to issue any shares of capital stock or other securities.
(h) All outstanding shares of LLL Common Stock are, and any shares of LLL Common
Stock issued upon exercise or conversion, as the case may be, of any Old LLL
Option or any LLL Securities will be, validly issued, fully paid and
non-assessable and not subject to any preemptive rights created by statute,
LLL's Articles of Incorporation or Bylaws or any Contract. The Old LLL Options,
the New LLL Options and the LLL Securities have been or will be issued in
compliance with all federal and state corporate and securities laws.
(i) There is outstanding no vote, plan or pending proposal for any redemption of
stock of LLL or merger or consolidation of LLL with or into any other entity.
(j) The Stock Spreadsheet will be true and correct in all respects at and as of
the Closing.
3.3 Xxxx-Xxxxx-Xxxxxx. LLL is its own ultimate parent entity as defined under
the HSR Act. LLL is not a $10 million person as defined thereunder.
3.4 Authorization.
(a) Subject to the approval of the requisite number of shares of LLL Common
Stock entitled to vote thereon in accordance with the Washington BCA and LLL's
Articles of Incorporation, LLL has all necessary power and authority and has
taken all corporate action necessary to enter into this Agreement, the Agreement
of Merger and the Ancillary Agreements to which it is a party and has taken all
corporate action necessary to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Agreement of Merger and the
Ancillary Agreements by LLL and the performance by LLL of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of LLL.
Upon such approval of the requisite number of shares of LLL Common Stock
entitled to vote thereon in accordance with the Washington BCA and LLL's
Articles of Incorporation, this Agreement will have been duly executed and
delivered by LLL and will be a legal, valid and binding obligation of LLL,
enforceable against LLL in accordance with its terms, except that enforceability
may be limited by the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors. Upon the execution and the filing thereof, the Agreement of Merger
will be, as of the Effective Time, duly and validly executed by LLL, and will be
a legal, valid and binding obligation of LLL, enforceable against LLL in
accordance with its terms, except that enforceability may be limited by the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors.
(b) Each Seller has all necessary power and authority to enter into this
Agreement and any Ancillary Agreements to which he is a party and has taken all
action necessary to consummate the transactions contemplated hereby and thereby
and to perform his obligations hereunder and thereunder. This Agreement has been
duly executed by each Seller and this Agreement is, and upon execution and
delivery, the Ancillary Agreements to which any Seller is a party, will be, a
legal, valid and binding obligation of such Person, enforceable against such
Person in accordance with its terms, except that enforceability may be limited
by the effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors.
3.5 Officers and Directors. Section 3.5 of the LLL Disclosure Schedule contains
a list of all the officers and directors of LLL.
3.6 Bank Accounts. Section 3.6 of the LLL Disclosure Schedule contains a list of
all bank accounts, safe deposit boxes, and related powers of attorney of LLL and
its Subsidiaries, and persons authorized to draw thereon or have access thereto.
None of LLL or any of its Subsidiaries has outstanding powers of attorney except
as contemplated above.
3.7 Subsidiaries, Etc. LLL does not own or hold any equity interest of any kind
in any Person, except for Laptop Lane Chicago, Inc. ("LLL Chicago"). LLL owns
70% of the outstanding capital stock of LLL Chicago and Xxxxx Xxxxxx & Company
Limited owns 30% of the outstanding capital stock of LLL Chicago. All of the
outstanding shares of capital stock and other ownership interests of LLL Chicago
are validly issued, fully paid, non-assessable and free of preemptive rights,
rights of first refusal or similar rights. There are no existing options,
warrants, calls, subscriptions, convertible securities or other securities,
agreements, commitments or obligations of any character relating to the
outstanding capital stock or other securities of LLL Chicago or which would
require LLL Chicago to issue or sell any shares of its capital stock, ownership
interests or securities convertible into or exchangeable for shares of its
capital stock or ownership interests. LLL Chicago is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, with corporate power and authority to own and operate its business
as presently conducted. Section 3.7 of the LLL Disclosure Schedule lists the
directors and officers of LLL Chicago.
3.8 Absence of Certain Changes or Events. Since the Balance Sheet Date there has
not been any:
(a) LLL Material Adverse Change;
(b) failure to operate the Business in the ordinary course or failure to use
commercially reasonable efforts to preserve the Business intact and to preserve
for SoftNet the continued services of employees and independent contractors and
the goodwill of suppliers, customers, corporate accounts, strategic
partners/sponsors, airport officials and administrators and others having
business relations with LLL and its Subsidiaries and their Representatives;
(c) resignation or termination of any officer or employee, or any increase in
the rate of compensation payable or to become payable to any officer, employee
or Representative of LLL or any of its Subsidiaries, including the making of any
loan to, or the payment, grant or accrual of any bonus, incentive compensation,
service award or other similar benefit to, any such Person, or the addition to,
modification of, or contribution to any Employee Plan (as defined herein) other
than the extension of coverage under such plan to others who became eligible
after the Balance Sheet Date;
(d) any payment, loan or advance of any amount to or in respect of, or the sale,
transfer or lease of any properties or Assets to, or entering into of any
Contract with, any Related Party, except (i) directors' fees and (ii)
compensation to employees at the rates disclosed pursuant to Section 3.18(d);
(e) sale, assignment, license, transfer of any Assets, tangible or intangible,
singly or in the aggregate, other than sales of products and services and
licenses in the ordinary course of business and consistent with past practice;
(f) accelerations, extensions, modifications, terminations or renewals of any
Contracts, including any Contracts with airports;
(g) actual or threatened termination of any material corporate or
promotional/sponsorship account or group of accounts or actual or threatened
material reduction in purchases or royalties payable by any such corporate or
promotional/sponsorship account or, to the knowledge of LLL and Sellers, the
occurrence of any event that is likely to result in any such termination or
reduction;
(h) disposition or lapsing of any Proprietary Rights of LLL or any of its
Subsidiaries, in whole or in part or, to the knowledge of LLL and Sellers, any
disclosure of any trade secret, process or know-how to any Person not an
employee;
(i) change in accounting methods or practices by LLL or any of its Subsidiaries;
(j) revaluation by LLL of any of the Assets, including, without limitation,
writing off notes or accounts receivable other than for which reserves have been
established;
(k) damage, destruction or loss (whether or not covered by insurance) that has
or would be reasonably likely to have a LLL Material Adverse Effect;
(l) declaration, setting aside or payment of dividends or distributions in
respect of any stock of LLL or any of its Subsidiaries or any redemption,
purchase or other acquisition of any equity securities of LLL or any of its
Subsidiaries;
(m) issuance of, reservation for issuance by LLL or any of its Subsidiaries of,
or commitment by LLL or any of its Subsidiaries or its directors or officers to
issue or reserve for issuance, any shares of stock or other equity securities or
obligations or securities convertible into or exchangeable for shares of stock
or other equity securities (other than shares of LLL Common Stock issued upon
exercise or conversion, as the case may be, of the LLL Securities described in
Section 3.2);
(n) increase, decrease or reclassification of the stock of LLL or any of its
Subsidiaries;
(o) amendment of the Articles of Incorporation or Bylaws of LLL or any of its
Subsidiaries;
(p) capital expenditure or execution of any lease or any incurring of liability
therefor by LLL or any of its Subsidiaries, involving payments in excess of
$25,000 in the aggregate;
(q) delay or failure to pay any material obligation of LLL or any of its
Subsidiaries;
(r) cancellation of any indebtedness or waiver, compromise or release of any
rights of LLL or any of its Subsidiaries involving more than $5,000;
(s) indebtedness incurred by LLL or any of its Subsidiaries for borrowed money
or any commitment to borrow money entered into by LLL or any its Subsidiaries,
or any loans made or agreed to be made by LLL or any of its Subsidiaries, except
in connection with the Second Loan Agreement;
(t) liability incurred by LLL or any of its Subsidiaries except in the ordinary
course of business and consistent with past practice, or any increase or change
in any assumptions underlying or methods of calculating any bad debt,
contingency or other reserves, except in connection with the Second Loan
Agreement;
(u) payment, discharge or satisfaction of any Liabilities of LLL or any of its
Subsidiaries other than the payment, discharge or satisfaction (i) in the
ordinary course of business and consistent with past practice of Liabilities
reflected or reserved against in the Financial Statements or incurred in the
ordinary course of business and consistent with past practice since the Balance
Sheet Date and (ii) of other Liabilities of LLL or any of its Subsidiaries
involving $10,000 or less in the aggregate;
(v) acquisition by LLL or any of its Subsidiaries of any equity interest in any
other Person;
(w) mortgage, pledge or encumbrance of any of the Assets of LLL or any of its
Subsidiaries (other than in connection with the Second Loan Agreement);
(x) execution of any Contracts (or series of related Contracts) or any incurring
of any liability therefor, except in the ordinary course of business and
consistent with past practice; or
(y) agreement by LLL or any of its Subsidiaries to do any of the foregoing.
3.9 Title to Assets.
(a) None of LLL or its Subsidiaries owns any improved or unimproved real
property. LLL and its Subsidiaries have validly existing and enforceable
leasehold, subleasehold or occupancy interests in all improved or unimproved
real property leased by LLL and its Subsidiaries (the "Leased Real Property"),
free and clear of all Encumbrances. Section 3.9(a) of the LLL Disclosure
Schedule sets forth, as of the date hereof, a complete list of the Leased Real
Property.
(b) LLL and its Subsidiaries have good and marketable title or a valid right to
use all of the all of the personal assets and personal properties that are
necessary for the conduct of the Business (the "Personal Property"), free and
clear of all Encumbrances. LLL has delivered to SoftNet true and complete copies
of all leases, subleases, rental agreements, contracts of sale, tenancies or
licenses to which the Personal Property is subject. Section 3.9(b) of the LLL
Disclosure Schedule sets forth, as of the date hereof, a complete list of all
leased Personal Property.
(c) To the knowledge of LLL and Sellers, there are no pending or threatened
condemnation or similar proceedings against LLL or any of its Subsidiaries or,
otherwise relating to any of the Leased Real Property or Personal Property and
none of LLL or any of its Subsidiaries has received any written notice of the
same.
(d) LLL or its Subsidiaries, as the case may be, has in all material respects
performed all obligations on its part required to have been performed with
respect to (A) all assets (other than the Leases) leased by it or to it (whether
as lessor or lessee), and (B) all Leases and there exists no material default or
event which, with the giving of notice or lapse of time or both, would become a
material default on the part of LLL or any of its Subsidiaries or to the
knowledge of LLL, of any other party, under any Lease.
(e) Each of the Leases is valid, binding and enforceable in accordance with its
terms and is in full force and effect, and assuming all consents required by the
terms thereof or applicable law have been obtained, the Leases will continue to
be valid, binding and enforceable in accordance with their respective terms and
in full force and effect immediately following the consummation of the
transactions contemplated hereby. None of LLL or any of its Subsidiaries has
received notice that any Lease that terminates within two years of the date
hereof and which does not provide for a renewal term will not be renewed. There
are no subleases, licenses, options, rights, concessions or other agreements or
arrangements, written or oral, granting any Person the right to occupy the
Leased Real Property or any portion thereof or interest therein.
3.10 Sufficiency of Assets. The Assets constitute all of the assets, rights and
properties, tangible or intangible, real or personal, which are required for the
operation of the Business as it is presently conducted.
3.11 Fixtures and Equipment. Section 3.11 of the LLL Disclosure Schedule
contains accurate lists and summary descriptions of all Fixtures and Equipment
as of December 21, 1999 where the value of an individual item exceeds $10,000 or
where an aggregate of similar items exceeds $25,000. All tangible assets and
properties which are part of the Assets are in good operating condition and
repair, normal wear and tear excepted, and are usable in the ordinary course of
LLL's business.
3.12 Contracts.
(a) Disclosure. Section 3.12 of the LLL Disclosure Schedule sets forth a
complete and accurate list of all Contracts of LLL and its Subsidiaries of the
following categories:
(i) Contracts not made in the ordinary course of business;
(ii) Strategic partnership/sponsor and promotional agreements;
(iii) License agreements or royalty agreements, whether LLL or any
of its Subsidiaries is the licensor or licensee thereunder,
other than licenses in the nature of a lease of real property;
(iv) Confidentiality and non-disclosure agreements (whether LLL or
any of its Subsidiaries is the beneficiary or the obligated
party thereunder);
(v) Contracts under which a third-party is to make a payment to
LLL or any of its Subsidiaries after the date hereof of
$25,000 or more;
(vi) Contracts involving future expenditures or Liabilities, actual
or potential, in excess of $25,000 after the date hereof or
otherwise material to the Business or the Assets;
(vii) Contracts or commitments relating to commission arrangements
with others;
(viii) Employment contracts, consulting contracts and severance
agreements, including Contracts (A) to employ or terminate
executive officers or other personnel and other contracts with
present or former officers or directors of LLL or any of its
Subsidiaries or (B) that will result in the payment by, or the
creation of any Liability to pay on behalf of SoftNet or LLL
any severance, termination, "golden parachute," or other
similar payments to any present or former personnel following
termination of employment or otherwise as a result of the
consummation of the transactions contemplated by this
Agreement;
(ix) Agreements which primarily relate to the obligation of LLL or
any of its Subsidiaries to indemnify or hold harmless a
third-party for losses or damages;
(x) Promissory notes, loans, agreements, indentures, evidences of
indebtedness, letters of credit, guarantees, or other
instruments relating to an obligation for borrowed money,
whether LLL or any of its Subsidiaries shall be the borrower,
lender or guarantor thereunder;
(xi) Contracts containing covenants limiting the freedom of LLL or
any officer, director, employee, Subsidiary or Affiliate of
LLL, to engage in any line of business or compete with any
Person that relates directly or indirectly to the Business;
(xii) Any Contract with the federal, state or local government or
any agency or department thereof including, but not limited
to, agencies and departments regulating airports;
(xiii) Any Contract with a Related Party;
(xiv) Leases and licenses of real or personal property, including,
but not limited to, all such agreements with airports; and
(xv) Any other material Contract.
True, correct and complete copies of all of the Contracts listed on Section 3.12
of the LLL Disclosure Schedule, including all amendments and supplements
thereto, have been made available to SoftNet. (b) Absence of Defaults. All of
the Contracts are valid, binding and enforceable in accordance with their terms
and, except as listed on Section 3.12(b) of the LLL Disclosure Schedule, with no
existing (or to the knowledge of LLL or any Seller, threatened) Default or
dispute. None of LLL or any of its Subsidiaries is in default of any material
provision of any Contract and each of LLL and its Subsidiaries, as the case may
be, has taken all action necessary to enable it to fulfill when due, all of its
material obligations under each of such Contracts. To the knowledge of LLL and
Sellers, all parties to such Contracts have complied in all material respects
with the provisions thereof, no party is in Default thereunder and no notice of
any claim of Default has been given to LLL or any Seller. None of LLL or Sellers
has any reason to believe that the products and services called for by any
unfinished Contract cannot be supplied in accordance with the terms of such
Contract, including time specifications. Except as set forth on Section 3.13 of
the LLL Disclosure Schedule (List of Consents), no consent of any third party is
required for the assignment of any Contract to SoftNet.
(c) Product Warranty. None of LLL or any of its Subsidiaries has committed any
act, and there has been no omission, which may result in, and there has been no
occurrence which may give rise to, product liability or Liability for breach of
warranty (whether covered by insurance or not) on the part of LLL or any of its
Subsidiaries, with respect to products designed, assembled, sold, repaired,
maintained, delivered or installed or services rendered by LLL or any of its
Subsidiaries prior to or on the Closing Date.
3.13 No Conflict or Violation; Consents. Except as disclosed in Section 3.13 of
the LLL Disclosure Schedule, none of the execution, delivery or performance of
this Agreement, any Ancillary Agreement or the Agreement of Merger, the
consummation of the transactions contemplated hereby or thereby, nor compliance
by LLL or any Seller with any of the provisions hereof or thereof, will (a)
violate or conflict with any provision of its respective governing documents,
(b) violate, conflict with, or result in a breach of or constitute a default
(with or without notice or passage of time) under, or result in the termination
of, or accelerate the performance required by, or result in a right to
terminate, accelerate, modify or cancel under, or require a notice under, or
result in the creation of any Encumbrance upon any of its respective assets
under, any material contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest or other arrangement to which LLL or any of its
Subsidiaries or any Seller is a party or by which any LLL or any of its
Subsidiaries or any Seller is bound or to which any of its respective assets are
subject, (c) violate any applicable Regulation or Court Order or (d) impose any
Encumbrance on any Assets or the Business. Except for (i) the filing of the
Agreement of Merger with the Secretary of State of the State of Washington, (ii)
the approval of the shareholders of LLL as required by the Washington BCA and
LLL's Articles of Incorporation, or as set forth on Section 3.13 of the LLL
Disclosure Schedule (including consent of airport authorities), no notices to,
declaration, filing or registration with, approvals or consents of, or
assignments by, any Persons (including any federal, state or local governmental
or administrative authorities, airports and parties to any contracts) are
necessary to be made or obtained by LLL or any of its Subsidiaries or any Seller
in connection with the execution, delivery or performance of this Agreement or
the consummation of the Merger.
3.14 Permits. Section 3.14 of the LLL Disclosure Schedule sets forth a complete
list of all Permits held by LLL and its Subsidiaries. LLL and its Subsidiaries
have, and at all times have had, to the best knowledge of LLL and Sellers, all
Permits required under any applicable Regulation in the operation of their
respective businesses or in their ownership of the Assets, and own or possess
such Permits free and clear of all Encumbrances. None of LLL or any of its
Subsidiaries is in material default, nor has LLL or any of its Subsidiaries or
any Seller received any notice of any claim of default, with respect to any such
Permit. Except as otherwise governed by law, all such Permits are renewable by
their terms or in the ordinary course of business without the need to comply
with any special qualification procedures or to pay any amounts other than
routine filing fees and, except as set forth on Section 3.14 of the LLL
Disclosure Schedule, will not be adversely affected by the completion of the
transactions contemplated by this Agreement or the Ancillary Agreements.
3.15 Financial Statements; Books and Records.
(a) The Financial Statements are complete, are in accordance with the books and
records of LLL, fairly present the Assets, Liabilities and financial condition
and results of operations indicated thereby in accordance with GAAP consistently
applied throughout the periods covered thereby.
(b) Each of LLL and its Subsidiaries maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed with management's authorizations, (ii) transactions are recorded as
necessary to permit preparation of LLL's or its Subsidiaries, as the case may
be, financial statements in accordance with GAAP and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management's authorization and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(c) The books and records of LLL and each of its Subsidiaries, in reasonable
detail, accurately and fairly reflect the activities of LLL or its Subsidiaries,
as the case may be, and the Business and have been made available to SoftNet for
its inspection.
(d) None of LLL or any of its Subsidiaries has engaged in any transaction,
maintained any bank account or used any corporate funds except for transactions,
bank accounts or funds which have been and are reflected in the normally
maintained books and records of LLL and its Subsidiaries.
(e) The stock records and minute books of LLL and its Subsidiaries heretofore
made available to SoftNet fully reflect all minutes of meetings, resolutions and
other actions and proceedings of the shareholders and board of directors and all
committees thereof of LLL and its Subsidiaries, all issuances, transfers and
redemptions of the capital stock of LLL and its Subsidiaries of which LLL or
Sellers are aware and contain true, correct and complete copies of the Articles
of Incorporation and Bylaws and all amendments thereto of LLL and its
Subsidiaries through the date hereof.
3.16 Liabilities. None of LLL or its Subsidiaries has any Liabilities or
obligations (absolute, accrued, contingent or otherwise) except (i) liabilities
which are reflected and properly reserved against in the Financial Statements,
(ii) liabilities incurred in the ordinary course of business and consistent with
past practice since the Balance Sheet Date and (iii) liabilities arising under
the Contracts (other than obligations which are required to be reflected on a
balance sheet prepared in accordance with GAAP) set forth on Section 3.12 of the
LLL Disclosure Schedule.
3.17 Litigation. There is no action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, investigation or dispute
(collectively, "Actions") pending or, to the knowledge of LLL or Sellers,
threatened or anticipated (i) against, relating to or affecting LLL or any of
its Subsidiaries, any of the Assets or any of the officers and directors of LLL
or any of its Subsidiaries as such, (ii) which seek to enjoin or obtain damages
in respect of the transactions contemplated hereby or by the Ancillary
Agreements or (iii) with respect to which there is a reasonable likelihood of a
determination which would prevent LLL or any Seller from consummating the
transactions contemplated hereby and by the Ancillary Agreements. Except as
specified in the LLL Disclosure Schedule, there are presently no outstanding
judgments, decrees or orders of any court or any governmental or administrative
agency against or affecting LLL or its Business, any of its Subsidiaries or any
of the Assets. The LLL Disclosure Schedule contains a complete and accurate
description of all Actions since May 3, 1996 to which LLL or any of its
Subsidiaries has been a party or which related to any of the Assets or the
officers or directors of LLL or any of its Subsidiaries as such, other than
Actions brought by LLL or any of its Subsidiaries for collection of monies owed
in the ordinary course of business.
3.18 Labor Matters.
(a) None of LLL or any of its Subsidiaries is a party to any labor agreement
with respect to its employees with any labor organization, group or association
and has not experienced any attempt by organized labor or its representatives to
make LLL or any of its Subsidiaries conform to demands of organized labor
relating to its employees or to enter into a binding agreement with organized
labor that would cover the employees of LLL or any of its Subsidiaries. There is
no unfair labor practice charge or complaint against LLL or any of its
Subsidiaries pending before the National Labor Relations Board or any other
governmental agency arising out of the activities of LLL or any of its
Subsidiaries; and LLL and Sellers have no knowledge of any facts or information
which would give rise thereto; there is no labor strike or labor disturbance
pending or, to the knowledge of LLL or Sellers, threatened against LLL or any of
its Subsidiaries nor is any grievance currently being asserted against it; and
none of LLL or any of its Subsidiaries has experienced a work stoppage or other
labor difficulty. There are no material controversies pending or, to the
knowledge of LLL and Sellers, threatened between LLL or any of its Subsidiaries
and any of their employees.
(b) LLL and its Subsidiaries are in material compliance with all applicable
Regulations respecting employment practices, terms and conditions of employment,
wages and hours, equal employment opportunity, and the payment of social
security and similar taxes, and is not engaged in any unfair labor practice.
None of LLL or any of its Subsidiaries is liable for any claims for past due
wages or any penalties for failure to comply with any of the foregoing.
(c) None of LLL or any of its Subsidiaries has entered into any severance or
similar arrangement in respect of any present or former employee that will
result in any obligation (absolute or contingent) of SoftNet or LLL or any of
its Subsidiaries to make any payment to any present or former employee following
termination of employment. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will result in the
acceleration of the vesting of exercisability of any Old LLL Options or in the
acceleration or vesting of any other rights of any Person to benefits under any
Employee Plans.
(d) LLL has provided SoftNet with a list of the names of all present employees
of LLL and its Subsidiaries and their current salary or hourly wages and other
compensation payable by LLL or any of its Subsidiaries. Except as set forth in
Section 3.18(d) of the LLL Disclosure Schedule, and except as provided by law,
the employment of all persons presently employed or retained by LLL and its
Subsidiaries is terminable at will, at any time and without advance notice.
3.19 Employee Benefit Plans.
(a) Definitions. The following terms, when used in this Section 3.19, shall have
the following meanings. Any of these terms may, unless the context otherwise
requires, be used in the singular or the plural depending on the reference.
(i) "Benefit Arrangement" means any employment, consulting, severance or other
similar contract, arrangement or policy and each plan, arrangement (written or
oral), program, agreement or commitment providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health, disability or accident benefits (including any
"voluntary employees' beneficiary association" as defined in Section 501(c)(9)
of the Code providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation rights,
stock purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (A) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (B) is entered into, maintained, contributed to or
required to be contributed to, as the case may be, by LLL or an ERISA Affiliate
or under which LLL or any ERISA Affiliate may incur any liability, and (C)
covers any employee or former employee of LLL or any ERISA Affiliate (with
respect to their relationship with such entities).
(ii) "Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
(iii) "ERISA Affiliate" means any entity which is (or at any relevant time was)
a member of a "controlled group of corporations" with or under "common control"
with LLL, as defined in Section 414(b) or (c) of the Code.
(iv) "Multiemployer Plan" means any "multiemployer plan," as defined in Section
4001(a)(3) of ERISA, (A) which LLL, or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or, after September
25, 1980, maintained, administered, contributed to or was required to contribute
to, or under which LLL or any ERISA Affiliate may incur any liability and (B)
which covers any employee or former employee of LLL or any ERISA Affiliate (with
respect to their relationship with such entities).
(v) "PBGC" means the Pension Benefit Guaranty Corporation.
(vi) "Pension Plan" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which LLL or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
LLL or any ERISA Affiliate may incur any liability and (B) which covers any
employee or former employee of LLL or any ERISA Affiliate (with respect to their
relationship with such entities).
(vii) "Subsidiary" means (A) any corporation in an unbroken chain of
corporations beginning with LLL, if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain; (B) any partnership in which LLL is a general
partner; or (iii) any partnership in which LLL possesses a 50% or greater
interest in the total capital or total income of such partnership.
(viii) "Welfare Plan" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, (A) which LLL or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which LLL
or any ERISA Affiliate may incur any liability and (B) which covers any employee
or former employee of LLL or any ERISA Affiliate (with respect to their
relationship with such entities).
(b) Disclosure; Delivery of Copies of Relevant Documents and Other Information.
Section 3.19 of the LLL Disclosure Schedule contains a complete list of Employee
Plans which cover or have covered employees of LLL or a Subsidiary (with respect
to their relationship with such entities). To the extent applicable, true and
complete copies of each of the following documents have been delivered by LLL to
SoftNet: (i) each Welfare Plan and Pension Plan (and, if applicable, related
trust agreements) and all amendments thereto, all written interpretations
thereof by LLL and written descriptions thereof by LLL which have been
distributed by LLL or a Subsidiary to the employees of LLL or its Subsidiaries
and all annuity contracts or other funding instruments, (ii) each Benefit
Arrangement including written interpretations thereof by LLL and written
descriptions thereof by LLL which have been distributed by LLL or a Subsidiary
to LLL's employees (including descriptions of the number and level of employees
covered thereby) and a complete description of any such Benefit Arrangement
which is not in writing, (iii) the most recent determination letter issued by
the Internal Revenue Service with respect to each Pension Plan, (iv) for the
three most recent plan years, Annual Reports on Form 5500 Series required to be
filed with any governmental agency for each Pension Plan, (v) a description of
complete age, salary, service and related data as of the last day of the last
plan year for employees and former employees of LLL and each Subsidiary, and
(vi) a description setting forth the amount of any liability of LLL as of the
Closing Date for payments more than 30 days past due with respect to each
Welfare Plan.
(c) Representations.
(i) Pension Plans. No Pension Plan is subject to the minimum funding
requirements of ERISA or the Code. Each Pension Plan, each related trust
agreement, annuity contract or other funding instrument that is intended to be
qualified and tax-exempt under the provisions of Code Section 401(a) (or 403(a),
as appropriate) and 501(a) has received a favorable IRS determination letter to
that effect, and to LLL's and Seller's knowledge, nothing has occurred since the
date of the latest IRS determination letter that would adversely affect such
qualified and tax exempt status.
(ii) Multiemployer Plans. Neither LLL nor any ERISA Affiliate contributes to, or
within the past six years has been obligated to contribute to, any Multiemployer
Plan.
(iii) Welfare Plans. None of LLL, any ERISA Affiliate or any Welfare Plan has
any present or future obligation to make any payment to or with respect to any
present or former employee of LLL or any ERISA Affiliate pursuant to any retiree
medical benefit plan, or other retiree Welfare Plan, and no condition exists
which would prevent LLL from amending or terminating any such benefit plan or
Welfare Plan.
(iv) Compliance with Law. Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument is qualified and tax-exempt under
the provisions of Code Sections 401(a) (or 403(a), as appropriate) and 501(a)
and has been so qualified during the period from its adoption to date. Each
Welfare Plan which is a "group health plan," as defined in Section 607(1) of
ERISA, has been operated in material compliance with provisions of Part 6 of
Title I of ERISA and Sections 162(k) and 4980B of the Code at all times.
(v) Benefit Arrangements. Each Benefit Arrangement which covers or has covered
employees or former employees of LLL or a Subsidiary (with respect to their
relationship with such entities) has been maintained in material compliance with
its terms and with the requirements prescribed by any and all Regulations which
are applicable to such Benefit Arrangement, including the Code.
(vi) Unrelated Business Taxable Income. No Employee Plan (or trust or other
funding vehicle pursuant thereto) is subject to any
Tax under Code Section 511.
(vii) Deductibility of Payments. There is no Contract covering any employee or
former employee of LLL or a Subsidiary (with respect to their relationship with
such entities) that, individually or collectively, provides for the payment by
LLL of any amount (i) that is not deductible under Section 162(a)(1) or 404 of
the Code or (ii) that is an "excess parachute payment" pursuant to Section 280G
of the Code.
(viii) Fiduciary Duties and Prohibited Transactions. To the knowledge of LLL and
Sellers, neither LLL nor any plan fiduciary of any Welfare Plan or Pension Plan
which covers or has covered employees or former employees of LLL or any ERISA
Affiliate, has engaged in any transaction in violation of Sections 404 or 406 of
ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of the
Code, for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code.
(ix) No Amendments. Neither LLL nor any ERISA Affiliate has any announced plan
or legally binding commitment to create any additional Employee Plans or to
amend or modify any existing Employee Plan.
(x) Certain Contracts. None of the Employee Plans holds any interest in any
annuity contract, guaranteed investment contract or any other investment
contract which is issued by an insurance company which is the subject of
bankruptcy, receivership or conservatorship proceedings.
(xi) No Acceleration of Rights or Benefits. Neither the execution and delivery
of this Agreement or the Ancillary Agreements nor the consummation of the
transactions contemplated hereby or thereby will result in the acceleration or
creation of any rights of any person to benefits under any of the Employee
Plans, including but not limited to the acceleration of the exercisability of
any stock options, the acceleration of the vesting of any restricted stock, the
acceleration of the accrual or vesting of any benefits under any Pension Plan or
the creation of rights under any severance, parachute or change of control
agreement.
(xii) No Other Material Liability. No event has occurred in connection with
which LLL or any ERISA Affiliate or any Employee Plan, directly or indirectly,
could be subject to any material liability (i) under any Regulation or
governmental order relating to any Employee Plans or (ii) pursuant to any
obligation of LLL or any Subsidiary to indemnify any Person against liability
incurred under, any such Regulation or order as they relate to the Employee
Plans.
3.20 Transactions with Related Parties and Shareholders. Except for compensation
arrangements in the ordinary course of business and consistent with past
practice or as disclosed on Section 3.20 of the LLL Disclosure Schedule, no
Related Party has (a) borrowed or loaned money or other property to LLL or any
of its Subsidiaries which has not been repaid or returned, (b) any contractual
or other claims, express or implied, of any kind whatsoever against LLL or any
of its Subsidiaries or (c) had any interest in any property or assets used by
LLL or any of its Subsidiaries. None of LLL or any of its Subsidiaries has any
contracts or agreements with any shareholder except as set forth on Section 3.20
of the LLL Disclosure Schedule.
3.21 Compliance with Law. Each of LLL and its Subsidiaries has conducted its
business in material compliance with all applicable Regulations and Court
Orders. Neither LLL nor any Seller has received any notice to the effect that,
or has otherwise been advised that, LLL or any of its Subsidiaries is not in
compliance with any Regulations or Court Orders, and none of LLL or Sellers are
aware of any existing circumstances that are likely to result in any material
violation of any of the foregoing.
3.22 Intellectual Property.
(a) General. Section 3.22 of the LLL Disclosure Schedule sets forth with respect
to the Proprietary Rights of LLL and its Subsidiaries: (i) for each patent and
patent application, including xxxxx patents and utility models and applications
therefor, as applicable, the number, normal expiration date, title and priority
information for each country in which such patent has been issued, or, the
application number, date of filing, title and priority information for each
country, (ii) for each trademark, tradename or service xxxx claimed by LLL or
any of its Subsidiaries, whether or not registered, the date first used, the
application serial number or registration number, the class of goods covered,
the nature of the goods or services, the countries in which the names or xxxx is
used and the expiration date for each country in which a trademark has been
registered, (iii) for each copyright for which registration has been sought,
whether or not registered, the date of creation and first publication of the
work, the number and date of registration for each country in which a copyright
application has been registered, (iv) for each mask work, whether or not
registered, the date of first commercial exploitation and if registered, the
registration number and date of registration and (v) all such Proprietary Rights
in the form of licenses. True and correct copies of all Proprietary Rights
(including all pending applications and application related documents and
materials) owned, controlled or used by or on behalf of LLL or any of its
Subsidiaries or in which LLL or any of its Subsidiaries has any interest
whatsoever have been provided or made available to SoftNet.
(b) Adequacy. The Proprietary Rights of LLL and its Subsidiaries are all those
necessary for the normal conduct of the Business as presently conducted and as
presently contemplated, except as set forth in Section 3.22(b) of the LLL
Disclosure Schedule.
(c) Royalties and Licenses. None of LLL or any of its Subsidiaries has any
obligation to compensate any Person for the use of any of its Proprietary Rights
nor has LLL or any of its Subsidiaries granted to any Person any license, option
or other rights to use in any manner any of its Proprietary Rights, whether
requiring the payment of royalties or not, except as set forth in Section
3.22(c) of the LLL Disclosure Schedule.
(d) Ownership. Each of LLL and its Subsidiaries owns or has a valid right to use
its Proprietary Rights, and such Proprietary Rights will not cease to be valid
rights of LLL or any of its Subsidiaries, as the case may be, by reason of the
execution, delivery and performance of this Agreement or the Ancillary
Agreements or the consummation of the transactions contemplated hereby or
thereby. None of LLL or any of its Subsidiaries has any patents.
(e) Absence of Claims. Except as set forth in Section 3.22(e) of the LLL
Disclosure Schedule, none of LLL or any of its Subsidiaries or any Seller has
received any notice of (A) alleged invalidity with respect to any of the
Proprietary Rights of LLL or any of its Subsidiaries or (B) alleged infringement
of any rights of others due to any activity by LLL or any of its Subsidiaries.
LLL's and its Subsidiaries' use of its Proprietary Rights in its past, current
and, to the best knowledge of LLL or Sellers, planned products do not and would
not infringe upon or otherwise violate the valid rights of any third party
anywhere in the world. Except as set forth in Section 3.22(e) of the LLL
Disclosure Schedule, no other Person (i) has notified LLL or any Seller that it
is claiming any ownership of or right to use any of the Proprietary Rights of
LLL or any of its Subsidiaries or (ii) to the best knowledge of LLL and Sellers,
is infringing upon any such Proprietary Rights in any way.
(f) Protection of Proprietary Rights. Except as set forth on Section 3.22(f) of
the LLL Disclosure Schedule, each of LLL and its Subsidiaries has taken
reasonable and prudent steps to protect its Proprietary Rights from infringement
by any other Person. Except as set forth on Section 3.22(f) of the LLL
Disclosure Schedule, each of LLL and its Subsidiaries has taken all appropriate
actions and made all applications and filings pursuant to applicable laws to
perfect or protect its interest in its Proprietary Rights. All of the pending
applications for the Proprietary Rights of LLL and its Subsidiaries have been
duly filed and all other actions to protect such Proprietary Rights have been
taken. Except as set forth on Section 3.22(f) of the LLL Disclosure Schedule,
each of LLL and its Subsidiaries has taken all reasonable steps necessary or
appropriate (including, entering into appropriate confidentiality and
nondisclosure agreements with officers, directors, subcontractors, independent
contractors, full-time and part-time employees, licensees and customers in
connection with the Assets or the Business) to safeguard and maintain the
secrecy and confidentiality of, and the proprietary rights in, the Proprietary
Rights material to the Business.
3.23 Tax Matters.
(a) Filing of Tax Returns. Each of LLL and its Subsidiaries has timely filed or
filed timely extension requests with the appropriate taxing authorities all Tax
Returns in respect of Taxes required to be filed. The Tax Returns filed are
complete and accurate in all material respects. Except as specified in Section
3.23 of the LLL Disclosure Schedule, none of LLL or any of its Subsidiaries has
requested any extension of time within which to file Tax Returns in respect of
any Taxes. LLL has delivered to SoftNet complete and accurate copies of the
federal, state and local Tax Returns for LLL and its Subsidiaries for the years
ended March 31, 1996, 1997 and 1998.
(b) Payment of Taxes. All Taxes in respect of periods beginning before the
Closing Date have been timely paid or an adequate reserve has been established
therefor, as set forth in Section 3.23 of the LLL Disclosure Schedule or the
Financial Statements, and none of LLL or any of its Subsidiaries has any
material Liability for Taxes in excess of the amounts so paid or reserves so
established. All Taxes that LLL or any of its Subsidiaries is required by law to
withhold or collect have been duly withheld or collected and have been timely
paid over to the appropriate governmental authorities to the extent due and
payable.
(c) Audits, Investigations or Claims. No deficiencies for Taxes of LLL or any of
its Subsidiaries have been claimed, proposed or assessed in writing delivered to
LLL by any taxing or other governmental authority. There are no pending or, to
the knowledge of LLL and Sellers, threatened audits, assessments or other
Actions for or relating to any Liability in respect of Taxes of LLL or any of
its Subsidiaries, none of LLL or any of its Subsidiaries has received written
notice from governmental authorities with respect to Taxes that are likely to
result in additional Liability in respect of Taxes of LLL or any of its
Subsidiaries and there are no matters under discussion with any governmental
authorities with respect to Taxes that are likely to result in an additional
Liability for Taxes. Audits of federal, state and local Tax Returns by the
relevant taxing authorities have been completed for the periods set forth on
Section 3.23 of the LLL Disclosure Schedule, except as set forth in such
Schedule, neither LLL nor any Seller has been notified that any taxing authority
intends to audit a Tax Return for any other period. No extension of a statute of
limitations relating to Taxes is in effect with respect to LLL or any of its
Subsidiaries.
(d) Lien. There are no Encumbrances for Taxes (other than for current Taxes not
yet due and payable) on the Assets.
(e) Tax Elections. All material elections with respect to Taxes affecting LLL
and its Subsidiaries as of the date hereof that are required to be set forth on
the latest Tax Returns of LLL or its Subsidiaries, as the case may be, are set
forth on the latest Tax Returns of LLL and its Subsidiaries. None of LLL or any
of its Subsidiaries (i) has made nor will make a deemed dividend election under
Reg. ss. 1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code; (ii) has consented at any time under Section 341(f)(1) of the Code to have
the provisions of Section 341(f)(2) of the Code apply to any disposition of the
assets of LLL or any of its Subsidiaries; (iii) has agreed, nor is required, to
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise; (iv) has made an election, nor is required, to
treat any asset of LLL or any of its Subsidiaries as owned by another Person
pursuant to the provisions of Section 168(f) of the Code or as tax-exempt bond
financed property or tax-exempt use property within the meaning of Section 168
of the Code; and (v) has not made any of the foregoing elections or is required
to apply any of the foregoing rules under any comparable state or local Tax
provision.
(f) Prior Affiliated Groups. None of LLL or any of its Subsidiaries has ever
been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code and none of LLL or any of its Subsidiaries has
liability for the Taxes of any other entity under Reg. ss. 1.1502-6 of the Code
or any other provision of federal, state, local or foreign law.
(g) Tax Sharing Agreements. There are no Tax-sharing agreements or similar
arrangements (including indemnity arrangements) with respect to or involving LLL
or any of its Subsidiaries, and, after the Closing Date, none of LLL or any of
its Subsidiaries shall be bound by any such Tax-sharing agreements or similar
arrangements (entered into prior to the Closing) or have any Liability
thereunder for amounts due in respect of periods prior to or after the Closing
Date.
(h) Partnerships. None of LLL or any of its Subsidiaries is subject to any joint
venture, partnership, or other arrangement or contract which is treated as a
partnership for federal income tax purposes. None of LLL or any of its
Subsidiaries is a successor to any other Person by way of merger, reorganization
or similar transaction.
(i) Foreign Person. The LLL Common Stock is not a United States Real Property
Interest as defined in Section 897(c) of the Code.
(j) No Withholding. The transaction contemplated herein is not subject to the
tax withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code or of any other provision of law.
(k) Excess Parachute Payments; Section 162(m) of the Code. None of LLL or any of
its Subsidiaries is a party to any agreement, contract, arrangement or plan
(other than the Employment Agreements, any promissory note executed between the
Founders and SoftNet or LLL in connection with the transactions contemplated
hereby and the Non-Compete Agreements) that has resulted or could result as a
result of the transactions contemplated hereby, separately or in the aggregate,
in the payment of any "excess parachute payments" within the meaning of Section
280G of the Code or which, without regard to (i) payments in respect of Old LLL
Options or (ii) payments or rights which may be awarded after the Effective
Date, would result in a disallowed deduction under Section 162(m) of the Code.
(l) Other Tax Matters. None of the assets of LLL or any of its Subsidiaries
directly or indirectly secures any debt the interest on which is Tax-exempt
under Section 103(a) of the Code. None of the assets of LLL or any of its
Subsidiaries is "tax-exempt use property" within the meaning of Section 168(h)
of the Code. None of LLL or any of its Subsidiaries has participated in, nor is
it participating in, an international boycott within the meaning of Section 999
of the Code. None of LLL or any of its Subsidiaries has ever had and does not
have a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States and such foreign
country.
3.24 Insurance. Section 3.24 of the LLL Disclosure Schedule contains a complete
and accurate list of all policies or binders of insurance (showing as to each
policy or binder the name and address of the carrier, policy number, coverage
limits, expiration dates, annual premiums, a general description of the type of
coverage provided and any pending claims thereunder) of which LLL or any of its
Subsidiaries is the owner, insured or beneficiary. Each of such policies and
binders is in full force and effect, provides coverage as may be required by all
material Regulations to which LLL or any of its Subsidiaries is subject and
insures LLL and its Subsidiaries in such amounts as are sufficient to provide
reasonable protection for the businesses of LLL and its Subsidiaries. None of
LLL or any of its Subsidiaries is in default under any of such policies or
binders, and none of LLL or its Subsidiaries has failed to give any notice or to
present any claim under any such policy or binder in a due and timely fashion.
There are no facts known to LLL or Sellers upon which an insurer might be
justified in reducing or denying coverage or increasing premiums on existing
policies or binders. There are no outstanding unpaid claims under any such
policies or binders.
3.25 Accounts Receivable. The accounts and notes receivable reflected in the
Balance Sheet, and all accounts receivable arising since the Balance Sheet Date,
represent bona fide claims against debtors for sales, services performed or
other charges arising on or before the date of recording thereof, and all the
goods delivered and services performed which gave rise to said accounts were
delivered or performed in accordance with the applicable orders or Contracts. To
the knowledge of LLL and Sellers, all such receivables are fully collectible in
the ordinary course of business within three months except to the extent of an
amount not in excess of the reserve for doubtful accounts reflected on the
Balance Sheet and additions to such reserves as reflected on the books and
records of LLL.
3.26 Inventory. The value at which the Inventory is shown on the Balance Sheet
has been determined in accordance with the normal valuation policy of LLL,
consistently applied and in accordance with GAAP. The Inventory (and the
specific items acquired subsequent to the Balance Sheet Date) consists only of
items of quality and quantity commercially usable and salable in the ordinary
course of business, except for any items of obsolete material or material below
standard quality, all of which have been written down to realizable market
value, or for which adequate reserves have been provided, and the present
quantity of all Inventory is reasonable in the present circumstances of the
Business. Section 3.26 of the LLL Disclosure Schedule contains a complete and
accurate list of all Inventory as of the Balance Sheet Date and the addresses at
which the Inventory is located.
3.27 Purchase Commitments and Outstanding Bids. As of the date of this
Agreement, the aggregate of all accepted and unfulfilled orders for the sale of
Inventory and the performance of services entered into by LLL and its
Subsidiaries does not exceed $50,000, and the aggregate of all Contracts for the
purchase of supplies by LLL and its Subsidiaries does not exceed $50,000, all of
which orders and Contracts were made in the ordinary course of business and
consistent with past practice. There are no claims against LLL or any of its
Subsidiaries to return in excess of an aggregate of $25,000 of merchandise by
reason of alleged overshipments, defective merchandise or otherwise, or of
merchandise in the hands of customers under a written agreement that such
merchandise would be returnable. Section 3.27 of the LLL Disclosure Schedule
contains a complete and accurate list of all outstanding leases which LLL and
its Subsidiaries are currently negotiating, including the location of the
property of each such lease and the proposed rent under each such lease. To the
knowledge of LLL and Sellers, the terms of the leases listed on Section 3.27 of
the LLL Disclosure Schedule do not contain terms and conditions that are
materially more onerous than those usual and customary in LLL's business.
3.28 Payments. None of LLL or any of its Subsidiaries or any of the
Representatives of LLL or any of its Subsidiaries acting on the behalf of LLL or
any of its Subsidiaries have, directly or indirectly, paid or delivered any fee,
commission or other sum of money or property, however characterized, to any
finder, agent, government official or other party, in the U.S. or any other
country which either LLL or any Seller knows or has reason to believe to have
been illegal under any federal, state or local laws of the U.S. or any other
country having jurisdiction. None of LLL or any of its Subsidiaries or any of
the Representatives of LLL or any of its Subsidiaries acting on the behalf of
LLL or any of its Subsidiaries have accepted or received any unlawful
contributions, payments, gifts or expenditures. None of LLL or any of its
Subsidiaries has participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers and has at
all times done business in an open and ethical manner.
3.29 Customers, Suppliers and Competitors.
(a) Section 3.29 of the LLL Disclosure Schedule sets forth a complete and
accurate list of the names and addresses of (i) the ten airport office centers
which generated for LLL and its Subsidiaries the greatest revenues during its
last fiscal year and quarter ended September 30, 1999, showing the approximate
total revenues in dollars from each such location during such fiscal year and
quarter; (ii) the ten strategic partners/sponsors who generated for LLL and its
Subsidiaries the greatest revenues during its last fiscal year and quarter ended
September 30, 1999, showing the approximate total revenues in dollars from each
such strategic partner/sponsor during such fiscal year and quarter; and (iii)
suppliers with sales to LLL and its Subsidiaries greater than $10,000 during the
last fiscal year and $2,500 during the quarter ended December 31, 1999, showing
the approximate total purchases in dollars by LLL or its Subsidiaries from each
such supplier during such fiscal year. Since the Balance Sheet Date, to the
knowledge of LLL and Sellers, there has been no adverse change in any material
respect in the business relationship of LLL or any of its Subsidiaries with any
airport administration, strategic partner/sponsor or supplier named on the LLL
Disclosure Schedule. None of LLL or any of its Subsidiaries has received any
written communication from any airport administration, strategic partner/sponsor
or supplier named on the LLL Disclosure Schedule of any intention to terminate
or materially reduce services from or supplies to LLL or any of its
Subsidiaries.
(b) Section 3.29(b) of the LLL Disclosure Schedule sets forth, to the best
knowledge of LLL and Sellers, without investigation (i) a list of each Person
who provides either storefront or wireless services in direct competition with
LLL and (ii) a listing of the airports such Persons operate in.
3.30 Environmental Matters.
(a) Definitions. The following terms, when used in this Section 3.30, shall have
the following meanings:
(i) "LLL" for purposes of this Section 3.30 includes (A) all affiliates of LLL,
(B) all partnerships, joint ventures and other business entities or
organizations in which LLL was at any time or is a partner, joint venturer,
member or participant and (C) all predecessor or former corporations,
partnerships, joint ventures, organizations, businesses or other entities,
whether in existence as of the date hereof or at any time prior to the date
hereof, the obligations of which have been assumed by LLL or to which LLL has
succeeded or substantially all of the assets of which have been acquired by LLL
or to which LLL has succeeded.
(ii) "Release" means and includes any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment or the workplace of any Hazardous Substance, and
otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" means any pollutants, contaminants, chemicals, waste
and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or
flammable chemical or chemical compound or hazardous substance, material or
waste, whether solid, liquid or gas, including any quantity of asbestos in any
form, urea formaldehyde, PCB's, radon gas, crude oil or any fraction thereof,
all forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance, waste waters, sludges and slag, in each case, in such
form or in such concentrations so as to be subject to regulation or control or
required remediation under any Environmental Law.
(iv) "Environmental Laws" mean all Regulations in effect on the date hereof that
require the protection or clean-up of the environment, or which regulate or
control the use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission, discharge or
other Release or threatened Release of, Hazardous Substances, the preservation
or protection of waterways, groundwater, drinking water, air, wildlife, plants
or other natural resources, or the health and safety of persons, including
protection of the health and safety of employees. Environmental Laws include the
Federal Water Pollution Control Act, Resource Conservation & Recovery Act, Clean
Water Act, Safe Drinking Water Act, Atomic Energy Act, Occupational Safety and
Health Act, Toxic Substances Control Act, Clean Air Act, Comprehensive
Environmental Response, Compensation and Liability Act, Hazardous Materials
Transportation Act and all analogous federal, state or local Regulations.
(v) "Environmental Conditions" mean the Release of any Hazardous Substance
(whether or not such Release constituted at the time thereof a violation of any
Environmental Law) as a result of which LLL has or may reasonably be expected to
become liable to any Person or by reason of which any of the Assets may suffer
or be subjected to any Encumbrance.
(b) Notice of Violation. Neither LLL nor any Seller has received any notice of
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release by LLL of any Hazardous
Substance at any location or (ii) an alleged violation of or non-compliance by
LLL with the conditions of any Permit required under any Environmental Law or
the provisions of any Environmental Law. Neither LLL nor any Seller has received
any notice of any other claim, demand or Action by any Person alleging any
actual or threatened injury or damage to any Person, property, natural resource
or the environment arising from or relating to any Release or threatened Release
by LLL of any Hazardous Substances.
(c) Environmental Conditions. To the best knowledge of LLL and Sellers, there
are no present or past Environmental Conditions caused by LLL, or in any way
relating to the Business or the Assets.
(d) Notices, Warnings and Records. LLL has given all notices and warnings, made
all reports, and has kept and maintained all records required by and is in
material compliance with all Environmental Laws.
3.31 Brokers; Transaction Costs. None of LLL or any of its Subsidiaries or any
Seller has entered into and will not enter into any contract, agreement,
arrangement or understanding with any Person which will result in the obligation
of SoftNet or LLL or any of its Subsidiaries to pay any finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
hereby. Neither LLL nor SoftNet shall be liable for any costs or expenses
pertaining to any finder's fees, brokerage commission or similar payment
incurred by or on behalf of Sellers as a result of the consummation of the
transactions contemplated hereby.
3.32 No Other Agreements to Sell LLL or the Assets. Neither LLL nor any Seller
has any legal obligation, absolute or contingent, to any other Person to sell
all or substantially all the Assets or to sell any capital stock of LLL or any
of its Subsidiaries or to effect any merger, share exchange, consolidation,
business combination, recapitalization, liquidation or other reorganization of
LLL or any of its Subsidiaries or to enter into any agreement with respect
thereto.
3.33 Material Misstatements or Omissions. No representations or warranties by
LLL or any Seller in this Agreement or any Ancillary Agreement or any exhibit,
certificate or schedule furnished or to be furnished to SoftNet pursuant hereto
or thereto contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained herein or therein not misleading. There is no event,
condition or fact that has had or would reasonably be expected to have an LLL
Material Adverse Effect.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SOFTNET AND MERGER SUB
Except as otherwise set forth in a disclosure schedule (the
"SoftNet Disclosure Schedule") referring specifically to the representations and
warranties in this Agreement which identifies by section number the section to
which such disclosure relates and which is delivered by SoftNet to LLL prior to
or simultaneous with the execution of this Agreement, SoftNet and Merger Sub
represent and warrant to LLL and Sellers as follows, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date, true
and correct:
4.1 Organization.
(a) SoftNet is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. SoftNet has full corporate
power and authority to conduct its business as presently conducted by it and to
own or lease, as applicable, its properties and assets. SoftNet is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities make such qualification necessary, except where the
failure to be so qualified or in good standing would not have a SoftNet Material
Adverse Effect.
(b) Merger Sub is a corporation duly organized, validly existing and duly
authorized to transact business in the corporate form under the laws of the
State of Washington. SoftNet owns all of the outstanding capital stock of Merger
Sub, free and clear of all liens, charges, pledges and other encumbrances.
4.2 Authorization.
(a) SoftNet has all requisite corporate power and authority, and has taken all
corporate action necessary, to execute and deliver this Agreement and the
Ancillary Agreements to which it is party, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement, the Agreement of
Merger and the Ancillary Agreements by SoftNet and the performance by SoftNet of
is obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of SoftNet. This Agreement has been duly executed and delivered by
SoftNet and is, and upon execution and delivery, the Ancillary Agreements to
which it is a party each will be, legal, valid and binding obligations of
SoftNet, enforceable against SoftNet in accordance with their terms, except that
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors.
(b) Merger Sub has all requisite corporate power and authority, and has taken
all corporate action necessary, to execute and deliver this Agreement and the
Agreement of Merger, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement and the Agreement of Merger by Merger Sub and the
performance by Merger Sub of is obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and is, and upon execution and delivery,
the Agreement of Merger will be, legal, valid and binding obligations of Merger
Sub, enforceable against Merger Sub in accordance with their terms, except that
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors.
4.3 No Conflict or Violation; Consents. None of the execution, delivery or
performance of this Agreement or any Ancillary Agreement, the consummation of
the transactions contemplated hereby or thereby, nor compliance by SoftNet or
Merger Sub with any of the provisions hereof or thereof, will (a) violate or
conflict with any provision of its governing documents, (b) violate, conflict
with, or result in a breach of or constitute a default (with or without notice
or passage of time) under, or result in the termination of, or accelerate the
performance required by, or result in a right to terminate, accelerate, modify
or cancel under, or require a notice under, or result in the creation of any
Encumbrance upon any of SoftNet's or Merger Sub's assets under, any material
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, security
interest or other arrangement to which SoftNet or Merger Sub is a party or by
which it is bound or to which any of its assets are subject or (c) violate any
Regulation or Court Order. Except for (i) applicable securities laws, (ii) the
rules and regulations of The Nasdaq National Market or as set forth on Section
4.3 of the SoftNet Disclosure Schedule, no notices to, declaration, filing or
registration with, approvals or consents of, or assignments by, any Persons
(including any federal, state of local governmental or administrative
authorities) are necessary to be made or obtained by SoftNet or Merger Sub in
connection with the execution, delivery or performance of this Agreement or the
consummation of the Merger.
4.4 No Brokers. Neither SoftNet or Merger Sub nor any of their officers,
directors, employees, shareholders or Affiliates has employed or made any
agreement with any broker, finder or similar agent or any Person which will
result in the obligation of any Seller to pay any finder's fee, brokerage fees
or commission or similar payment in connection with the transactions
contemplated hereby.
4.5 Litigation. There are no Actions pending, threatened or anticipated against,
related to, or affecting SoftNet or Merger Sub seeking to delay, limit or enjoin
the transactions contemplated by this Agreement.
4.6 SoftNet Common Stock. The Issue Shares to be issued pursuant to this
Agreement have been, or will be prior to the Effective Time, validly issued,
fully paid and nonassessable shares of SoftNet Common Stock, free of and not
subject to any preemptive rights or rights of first refusal created by statute
or by SoftNet's Certificate of Incorporation or Bylaws. The Additional Shares to
be issued pursuant to this Agreement will, prior to issuance, be validly issued,
fully paid and nonassessable shares of SoftNet Common Stock, free of and not
subject to any preemptive rights or rights of first-refusal created by statute
or by SoftNet's Certificate of Incorporation or Bylaws.
4.7 SEC Documents. SoftNet has furnished or made available to LLL a true and
complete copy of each statement and report which it has filed with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") since January 1, 1999 (the "SEC Documents"), which are all the
documents (other than preliminary materials) that SoftNet has been required to
file with the SEC since that date. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act, and none of the SEC Documents contained 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 SEC Document.
4.8 Compliance with Law. SoftNet and Merger Sub have conducted their respective
businesses in material compliance with all applicable Regulations and Court
Orders. Neither SoftNet nor Merger Sub has received any notice to the effect
that, or has otherwise been advised that, SoftNet or Merger Sub is not in
material compliance with any Regulations or Court Orders, and neither SoftNet
nor Merger Sub are aware of any existing circumstances that are likely to result
in any material violation of any of the foregoing.
4.9 Liabilities. Except as set forth in the SEC Documents, SoftNet has no
Liabilities or obligations (absolute, accrued, contingent or otherwise) that
would be required to be reflected on, or reserved against in, a consolidated
balance sheet of SoftNet or in the notes thereto, prepared in accordance with
GAAP consistently applied, except for (i) liabilities or obligations that were
so reserved on, or reflected in (including the notes to), the consolidated
balance sheet of SoftNet as of September 30, 1999, (ii) liabilities incurred in
the ordinary course of business and consistent with past practice since
September 30, 1999 and (iii) liabilities or obligations which would not,
individually or in the aggregate, have a SoftNet Material Adverse Effect.
ARTICLE V.
ACTIONS PRIOR TO THE CLOSING
LLL, SoftNet, Merger Sub and Sellers covenant as follows for the period from the
date hereof through the Effective Time:
5.1 Conduct of Business. Except as contemplated by this Agreement or as
consented to by SoftNet (which, for purposes of Section 5.1(k) shall
specifically mean the written consent of either Xxxxxx X. Xxxxxx or Xxxxxx X.
Xxxxxx) in writing (which, for purposes of this Section 5.1 shall include
electronic mail), from the date hereof through the Effective Time, LLL and each
of its Subsidiaries shall, and each Seller shall cause LLL and its Subsidiaries
(i) to operate the businesses of LLL and its Subsidiaries in the ordinary course
of business and in accordance with past practice and (ii) to not take any action
inconsistent with this Agreement, the Ancillary Agreements or the consummation
of the Merger. Without limiting the generality of the foregoing, from the date
hereof through the Effective Time, none of LLL or any of its Subsidiaries shall,
and no Seller shall permit LLL or any of its Subsidiaries to, except as
specifically contemplated by this Agreement or as consented to by SoftNet in
writing:
(a) incur any indebtedness for borrowed money, or assume, guarantee, endorse
(other than endorsements for deposit or collection in the ordinary course of
business), or otherwise become responsible for obligations of any other Person,
except for indebtedness to SoftNet or as provided for on Schedule 5.1;
(b) issue or commit to issue any shares of its capital stock or any other
securities or any securities convertible into shares of its capital stock or any
other securities, including options and warrants therefor (other than shares of
LLL Common Stock issued upon the exercise or conversion, as the case may be, of
the LLL Securities described in Section 3.2) or accelerate the vesting of any
Old LLL Options or New LLL Options;
(c) declare, pay or incur any obligation to pay any dividend on its capital
stock or declare, make or incur any obligation to make any distribution or
redemption with respect to capital stock;
(d) make any change to its Articles of Incorporation or Bylaws;
(e) mortgage, pledge or otherwise encumber any Assets or sell, transfer, license
or otherwise dispose of any Assets except for sales of products and services and
standard customer non-exclusive licenses, in each case in the ordinary course of
business and consistent with past practice;
(f) cancel, release or assign any indebtedness owed to it or any claims or
rights held by it, except in the ordinary course of business and consistent with
past practice;
(g) make any investment of a capital nature either by purchase of stock or
securities, contributions to capital, property transfer or otherwise, or by the
purchase of any property or assets of any other Person, except capital
expenditures in the ordinary course of business consistent with past practice;
(h) terminate any material Contract or make any change in any material Contract;
(i) enter into or modify any employment Contract, (ii) pay or agree to pay any
compensation to or for any employee, officer or director of LLL other than in
the ordinary course of business and consistent with past practice, (iii) pay or
agree to pay any bonus, incentive compensation, service award or other like
benefit or (iv) enter into or modify any other Employee Plan, except as
contemplated hereby;
(j) enter into or modify any Contract with a Related Party;
(k) enter into any material Contract which, if entered into on the date hereof
would have been listed on Schedule 3.12, unless the same is terminable by LLL or
any of its Subsidiaries on no more than 30 days' written notice without penalty
or payment and is entered into in the ordinary course of business consistent
with past practice; provided, however, that LLL or any of its Subsidiaries shall
be able to enter into a material Contract under this subsection (k) without the
written consent of SoftNet if SoftNet shall have failed to respond to LLL's
written request to enter into such material Contract within five (5) days after
LLL provides a written request to SoftNet to enter into such material Contract,
which request shall be accompanied by a summary of the terms of the proposed
material Contract;
(l) make any change in any method of accounting or accounting practice;
(m) fail to pursue the expansion of its Business as set forth in the Business
Plan, except as to deployment schedule adjustments which have been disclosed to
SoftNet;
(n) fail to use its commercially reasonable efforts to (i) retain the employees
and any independent contractors providing services to LLL or any of its
Subsidiaries, (ii) maintain the Business so that such employees and independent
contractors will remain available to LLL and SoftNet on and after the Closing
Date, (iii) maintain existing relationships with suppliers, customers, corporate
accounts, strategic partners/sponsors, airport officials and others having
business dealings with LLL and its Subsidiaries and (iv) otherwise preserve the
goodwill of the Business so that such relationships and goodwill will be
preserved on and after the Closing Date; or
(o) do any other act which would cause any representation or warranty of LLL or
any Seller in this Agreement to be or become untrue in any material respect.
5.2 Investigation by SoftNet. Subject to the NDA and Section 5.7 hereof, from
the date hereof through the Closing, LLL shall afford the Representatives of
SoftNet and its Affiliates complete access at all reasonable times to the
Business and the Assets and Liabilities for the purpose of inspecting the same,
and to the officers, employees and Representatives, properties, books and
records and Contracts of LLL and its Subsidiaries, and shall furnish SoftNet and
its Representatives all financial, operating and other data and information
(including the Proprietary Rights of LLL and its Subsidiaries) as SoftNet or its
Affiliates, through their respective Representatives, may reasonably request.
5.3 Notification of Certain Matters. Each party shall give prompt notice to the
other of (i) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that such disclosure shall not be deemed to cure
any breach of a representation, warranty, covenant or agreement or to satisfy
any condition. LLL and Sellers shall promptly notify SoftNet of any Default, the
threat or commencement of any Action, or any development that occurs before the
Closing of which LLL or any Seller is aware that could reasonably be expected to
limit, delay or enjoin the transactions contemplated by this Agreement, and
SoftNet shall promptly notify LLL of any threat or commencement of any Action,
or any development that occurs before the Closing that could reasonably be
expected to limit, delay or enjoin the transactions contemplated by this
Agreement.
5.4 No Alternative Transactions.
(a) No Solicitation. From the date hereof through the Closing or the earlier
termination of this Agreement, neither LLL nor any Seller shall, directly or
indirectly (whether on its own or through its Representatives), enter into,
solicit, initiate or continue any discussions or negotiations with, or encourage
or respond (other than to indicate that LLL is contractually restricted from
entering into any discussions) to any inquiries or proposals by, or participate
in any negotiations with, or provide any information to, or otherwise cooperate
in any other way with any Person or group (as defined under Section 13(d) of the
Exchange Act) of Persons, other than SoftNet, Merger Sub and their respective
Representatives concerning any sale (by license or otherwise) of all or a
portion of the Assets (except in the ordinary course of business) or the
Business, or of any shares of capital stock of LLL, or any merger,
reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, or similar transaction involving LLL (each such
transaction being referred to herein as a "Proposed Acquisition Transaction").
LLL and each Seller hereby represents that it is not now engaged in discussions
or negotiations with any party other than SoftNet and Merger Sub with respect to
any of the foregoing. LLL and each Seller agree not to release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which LLL is a party.
(b) Notification. LLL and each Seller will immediately notify SoftNet (orally
and in writing), if any discussions or negotiations are sought to be initiated,
any inquiry or proposal is made, or any information is requested with respect to
any Proposed Acquisition Transaction and notify SoftNet of the terms of any
proposal which it may receive in respect of any such Proposed Acquisition
Transaction, including, without limitation, the identity of the prospective
purchaser or soliciting party. LLL shall also provide SoftNet with a copy of any
written offer received in respect of any Proposed Acquisition Transaction.
5.5 Approval of Shareholders. LLL shall use diligent good faith efforts to
obtain the approval at a special meeting of shareholders or the written consent
of the shareholders at the earliest practicable date approving this Agreement,
the Ancillary Agreements, the Merger and related matters, which approval will be
recommended by the Board of Directors of LLL. LLL shall consult with SoftNet and
its counsel in the preparation of any documents and materials to be distributed
to its shareholders in connection with such special meeting or action by written
consent and shall provide SoftNet and its counsel copies of any documents and
materials to be distributed to the shareholders prior to any distribution.
5.6 Dissenting Shares. Prior to the Closing Date, LLL shall furnish SoftNet with
the name and address of each LLL shareholder who, prior to the Closing, has
requested or is entitled to request appraisal rights and the number of shares of
LLL Common Stock owned by such shareholder.
5.7 Confidentiality.
(a) Preservation of Confidentiality. In connection with the negotiation of this
Agreement, the preparation for the consummation of the transactions contemplated
hereby and the performance of obligations hereunder, each party acknowledges
that it will have access to confidential information relating to the other
parties. The parties shall treat such information as confidential, preserve the
confidentiality thereof and not disclose such information, except to their
respective advisors and consultants in connection with the transactions
contemplated hereby. Each of the parties agrees to maintain in confidence, and
not to disclose to any third party, any information which is confidential or
proprietary in nature, including, without limitation, trade secrets, patents,
patent applications, copyrights, know-how, processes, ideas, inventions (whether
patentable or not), formulas, computer programs, databases, technical drawings,
designs, algorithms, technology, circuits, layouts, designs, interfaces,
materials, schematics, names and expertise of employees and consultants, any
other technical, business, financial, customer and product development plans,
supplier information, forecasts, strategies and other confidential information.
(b) Property Right in Confidential Information. Until the Effective Time, all
confidential information shall remain the property of the party who originally
possessed such information. In the event of the termination of this Agreement
for any reason whatsoever, each party shall return to the other parties all
documents, work papers and other material (including all copies thereof)
obtained from such parties in connection with the transactions contemplated
hereby and will use commercially reasonable efforts, including, without
limitation, instructing its employees and others who have had access to such
information, to keep confidential and not to use any such information, unless
such information is now, or is hereafter disclosed, through no act or omission
of such party, in any manner making it available to the general public. If any
party is required by any law or order to disclose any confidential information,
it shall provide the other parties with prompt notice of such request so that
such other parties may seek an appropriate protective order or other appropriate
remedy and/or waive compliance with the provisions of this Agreement. If, in the
absence of a protective order or other remedy or the receipt of such a waiver, a
party is nonetheless compelled by law or order to disclose confidential
information, then such party may disclose that portion of the confidential
information which such law or order requires to be disclosed, provided that such
party uses its reasonable efforts to preserve the confidentiality of the
information, whereupon such disclosure shall not constitute a breach of this
Agreement.
5.8 Tax Treatment. None of SoftNet, Merger Sub, LLL or Sellers will take any
action and shall not fail to take any action which action or failure to act
would prevent, or would be likely to prevent, the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code. SoftNet and LLL
will cooperate to obtain such approvals of the shareholders of LLL as may be
necessary to avoid characterization of any payment made hereunder, or under any
Ancillary Agreement, or in connection with the Merger as an "excess parachute
payment" within the meaning of Section 280G of the Code.
5.9 Further Assurances. Upon the terms and subject to the conditions contained
herein, the parties agree, in each case both before and after the Effective
Time, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and the Ancillary Agreements, (ii) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder and
thereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use all
reasonable efforts (A) to obtain all necessary Permits, (B) to give all notices
to, and make all registrations and filings with third parties, including
submissions of information requested by governmental authorities, and (C) to
fulfill all conditions to this Agreement. LLL and Sellers further agree to use
their respective best efforts to obtain all Consents from governmental
authorities and other parties necessary to the consummation of the transactions
contemplated hereby and by the Ancillary Agreements and for the operation of the
Business after the Closing (including all required third party consents under
the Contracts and the Leases, as listed on Schedule 3.13); provided, however,
that no amendment or modification shall be made to any Contract or Lease to
obtain such Consent without SoftNet's consent.
5.10 Audit Costs. Upon written notice from the Shareholder Representative and
the receipt of a detailed invoice from the Accountants, SoftNet agrees to
promptly pay the costs of the Accountants incurred in connection with the audit
of the Balance Sheet.
5.11 LLL Financing Agreements, The Mennen Note, the Placement Warrants and Old
LLL Options.
(a) As promptly as practicable after the date hereof, LLL shall use its diligent
good faith efforts to obtain from each party to a LLL Financing Agreement, an
agreement which establishes the number of shares of LLL Common Stock which each
Financing Note is convertible into and the number of shares of LLL Common Stock
issuable upon exercise, and the exercise price, of each Financing Warrant.
(b) As promptly as practicable after the date hereof, LLL shall use its diligent
good faith efforts to obtain from the Mennen Trust an agreement which
establishes the number of shares of LLL Common Stock which the Mennen Note is
convertible into.
(c) As promptly as practicable after the date hereof, LLL shall use its diligent
good faith efforts to obtain from Prentice an agreement which establishes the
number of shares of LLL Common Stock issuable upon exercise, and the exercise
price, of the Placement Warrants.
(d) As promptly as practicable after the date hereof, LLL shall use its diligent
good faith efforts to obtain from each holder of an Old LLL Option a release in
form and substance reasonably acceptable to SoftNet stating that, among other
things, such holder has no rights of any kind to purchase or otherwise acquire
any shares of capital stock or other securities of LLL or SoftNet, nor are there
any obligations on the part of LLL or SoftNet to issue any shares of capital
stock or other securities to such holder.
5.12 Purchaser Representative. As promptly as practicable after the date hereof,
LLL shall furnish, at its expense, an individual, who shall be approved by
SoftNet, to serve as an independent purchaser representative (the "Purchaser
Representative") to assist the shareholders of LLL in connection with evaluating
the risks and merits of the transactions contemplated by this Agreement. The
Purchaser Representative shall satisfy the definition of "Purchaser
representative" as set forth in Rule 501(h) of the Securities Act.
5.13 Corex and Belkin Agreements. As promptly as practicable after the date
hereof, LLL shall use its diligent good faith efforts to (i) amend that certain
Sponsorship Agreement with Corex Technologies, Inc. ("CTI") dated as of August
16, 1999 to eliminate CTI's right of first refusal regarding
marketing/sponsorship opportunities or, with the approval of SoftNet, to
significantly reduce the scope of such right of first refusal regarding
marketing/sponsorship opportunities and (ii) amend that certain Sponsorship
Agreement with Belkin Components, Inc. ("Belkin") dated as of July 12, 1999 to
eliminate Belkin's right of first refusal regarding marketing/sponsorship
opportunities or, with the approval of SoftNet, to significantly reduce the
scope of such right of first refusal regarding marketing/sponsorship
opportunities.
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF LLL AND SELLERS
The obligations of LLL and Sellers to consummate the Merger
and the other transactions contemplated hereby, are subject, in the discretion
of LLL and Sellers, to the satisfaction or waiver, on or prior to the Closing
Date, of each of the following conditions:
6.1 Representations, Warranties and Covenants. All representations and
warranties of SoftNet and Merger Sub contained in this Agreement shall be true
and correct in all material respects (provided, however, that where a
representation or warranty is already qualified as to materiality, such
representation or warranty shall be true in all respects) at and as of the
Closing Date as if such representations and warranties were made at and as of
the Closing Date, and SoftNet and Merger Sub shall have performed in all
material respects all agreements and covenants required hereby to be performed
by them prior to or at the Closing Date. There shall be delivered to LLL a
certificate (signed by a Senior Vice President or more senior officer of
SoftNet) to the foregoing effect ("SoftNet's Closing Certificate").
6.2 Consents. All consents, approvals and waivers from governmental authorities
necessary for the valid consummation of the Merger and the other transactions
contemplated hereby shall have been obtained; provided, however, that the
foregoing shall not include third party consents under any Contracts or Leases,
as listed on Schedule 3.13.
6.3 No Actions or Court Orders. No Action by any court, governmental authority
or other Person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and by the
Ancillary Agreements and which could reasonably be expected to damage the
Shareholders materially if the transactions contemplated hereby or thereby are
consummated.
6.4 Closing Documents. LLL and Sellers shall have received from SoftNet and
Merger Sub the documents and other items to be delivered by SoftNet and Merger
Sub pursuant to Section 8.2 of this Agreement.
6.5 Opinion of Counsel. LLL shall have received an opinion of Xxxxx X. Xxxxxx,
Assistant General Counsel of SoftNet, dated as of the Closing Date, in form and
substance reasonably acceptable to LLL.
6.6 SoftNet Material Adverse Change. There shall have not been any SoftNet
Material Adverse Change; provided, however, that for purposes of this Section
6.6 the term "SoftNet Material Adverse Change" shall not include any change,
circumstance or effect directly relating to (i) the economy in general, (ii) the
industry in which SoftNet operates or (iii) the announcement of the transactions
contemplated hereby.
6.7 Shareholder Approval. Shareholders representing not less than 100% shall
have consented to, approved and adopted this Agreement, the Agreement of Merger
and the Merger and agreed to take all other actions necessary or required to
consummate the transactions contemplated hereby or thereby or shareholders
representing not less than 66 2/3% of the outstanding shares of LLL Common Stock
shall have voted to approve this Agreement, the Agreement of Merger and the
Merger at a duly and properly called special meeting of LLL's shareholders.
6.8 Second Loan Agreement. SoftNet shall have performed in all material respects
all agreements and covenants required to be performed by SoftNet under the
Second Loan Agreement.
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF SOFTNET AND MERGER SUB
The obligations of SoftNet and Merger Sub to consummate the
Merger and the other transactions contemplated hereby, are subject, in the
discretion of SoftNet and Merger Sub, to the satisfaction or waiver, on or prior
to the Closing Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations and
warranties of each Seller and LLL contained in this Agreement shall be true and
correct in all material respects (provided, however, that where a representation
or warranty is already qualified as to materiality, such representation or
warranty shall be true in all respects) at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date, and each
Seller and LLL shall have performed in all material respects all agreements and
covenants required hereby to be performed prior to or at the Closing Date. There
shall be delivered to SoftNet certificates (executed by the President of LLL and
Sellers) to the foregoing effect ("LLL Closing Certificates").
7.2 Shareholder Approval. Shareholders representing not less than 100% of the
outstanding shares of LLL Common Stock shall have consented to, approved and
adopted this Agreement, the Agreement of Merger and the Merger and agreed to
take all other actions necessary or required to consummate the transactions
contemplated hereby or thereby or shareholders representing not less than 66
2/3% of the outstanding shares of LLL Common Stock shall have voted to approve
this Agreement, the Agreement of Merger and the Merger at a duly and properly
called special meeting of LLL's shareholders.
7.3 Approvals. All Consents from governmental authorities and other parties
necessary to the consummation of the transactions contemplated hereby and by the
Ancillary Agreements and for the operation of the Business after the Closing
(including all required third party consents under the Contracts and Leases, as
listed on Schedule 3.13) shall have been obtained; provided, however, that in
the event the Closing shall not have occurred on or before the date which is
forty-five days after the date hereof, this provision shall no longer be
applicable. SoftNet shall be satisfied that all approvals required under any
Regulations to carry out the transactions contemplated by this Agreement and the
Ancillary Agreements shall have been obtained and that the parties shall have
complied in all material respects with all Regulations applicable to the
transactions contemplated hereby and thereby.
7.4 No Actions or Court Orders. No Action by any court, governmental authority
or other Person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and by the
Ancillary Agreements and which could reasonably be expected to damage SoftNet,
the Assets or the Business materially if the transactions contemplated hereby or
thereby are consummated, including any material adverse effect on the right or
ability of SoftNet to own or operate LLL after the Closing.
7.5 Opinion of Counsel. Sellers and LLL shall have delivered to SoftNet an
opinion of Xxxxxxx Xxxxx Xxxxx LLP ("PGE"), counsel to Sellers and LLL, dated as
of the Closing Date, in form and substance reasonably acceptable to SoftNet.
7.6 Employees. The employees listed on Schedule 7.6 serving LLL as of the date
hereof shall remain on the payroll of LLL as of the Closing Date and shall not
have notified SoftNet, LLL or any director or officer of LLL that they have a
present intent to terminate employment within three months after the Closing
Date.
7.7 Certificates. LLL shall furnish SoftNet with a certificate from the
Secretary of LLL attaching a copy of (a) LLL's board resolutions authorizing the
transactions contemplated hereby, (b) a document or documents evidencing that
the requisite shareholder approval specified in Section 7.2 has been obtained,
(c) the Articles of Incorporation of LLL, certified by the Washington Secretary
of State and (d) the Bylaws of LLL.
7.8 Closing Documents. SoftNet shall have received from LLL and Sellers the
documents and other items described in Section 8.1 and such other documents and
items as SoftNet may reasonably require.
7.9 LLL Material Adverse Change. There shall not have been any LLL Material
Adverse Change; provided, however, for purposes of this Section 7.9 the term
"LLL Material Adverse Change" shall not include any change, circumstance or
effect directly relating to (i) the economy in general, (ii) the industry in
which LLL operates, (iii) the announcement of the transactions contemplated
hereby or (iv) the implementation by LLL of actions expressly detailed in the
Business Plan.
7.10 LLL Securities and Old LLL Options. All LLL Securities shall have been
exercised or converted, as the case may be, for shares of LLL Common Stock
immediately prior to the Effective Time and all Old LLL Options shall have been
terminated. SoftNet shall have received from LLL (a) documentation evidencing
the cancellation of all outstanding options, warrants, convertible securities or
rights of any kind to purchase or otherwise acquire shares of capital stock or
other securities of LLL (other than the New LLL Options) and (b) a release from
each of Xxxxxxxx Xxxxxxx and Xxxxx Xxxxx, in form and substance reasonably
acceptable to SoftNet, stating that, among other things, such holder has no
rights of any kind to purchase or otherwise acquire any shares of capital stock
or other securities of LLL, nor are there any obligations on the part of LLL to
issue any shares of capital stock or other securities to such holder.
7.11 Outstanding Loans. The principal and accrued interest under all loans and
agreements for borrowed money under which LLL is the borrower which shall not
convert into shares of LLL Common Stock at and as of the Closing (other than the
loans extended by SoftNet pursuant to the Loan Agreement and Second Loan
Agreement), including loans from The Mennen Trust, shall not exceed $3.5 million
in the aggregate (the "Working Capital Loans"); provided, that if any such loans
or agreements are outstanding, no such loans or agreements shall entitle the
holder thereof to any rights of any kind to purchase or otherwise acquire any
shares of capital stock or other securities of LLL.
7.12 Non-Foreign Affidavit. SoftNet shall have received from LLL, pursuant to
Section 1445 of the Code, a Foreign Investment in Real Property Tax Act
Affidavit substantially in the form of Exhibit E hereto.
7.13 Dissenter Rights. Holders of not more than 5% of the LLL Common Stock shall
not have voted in favor of the Merger or not consented thereto in writing and
shall have delivered before the Effective Time timely written notice of such
holder's intent to demand payment as a dissenting shareholder for such shares in
accordance with Washington law.
7.14 Shareholder Representative. Each shareholder of LLL shall have irrevocably
authorized and appointed R. Xxxxx Xxxxxxx (the "Shareholder Representative"),
with full power of substitution and resubstitution, as his, her or its
representative and true and lawful attorney-in-fact and agent to act in his, her
or its name, place and stead as contemplated by this Agreement, including, but
not limited to, by the provisions of Article X hereof.
7.15 Operating Budget. LLL shall have delivered to SoftNet a copy of the
Operating Budget certified as being true and correct by its Chief Operating
Officer.
7.16 Securities Act Exemption. SoftNet (a) shall have received from each
Shareholder a Shareholder Investment Representation Letter addressed to SoftNet,
in form and substance reasonably acceptable to SoftNet, which sets forth, among
other things, that such Shareholder is an "accredited investor" as defined in
Rule 501 under the Securities Act or that such Shareholder shall have appointed
a purchaser representative satisfying the requirements of Section 501(h) of the
Securities Act (which may include, without limitation, the Purchaser
Representative) or (b) shall be satisfied in its reasonable discretion that the
issuance of the Issue Shares and the Additional Shares is exempt from the
registration requirements of the Securities Act.
7.17 LLL Expenses. Not less than five business days prior to the Closing Date,
SoftNet shall have received from LLL a true, correct and complete schedule (the
"Expense Schedule") of all expenses paid or incurred and to be paid and incurred
in conjunction with the negotiation, preparation, execution and performance of
this Agreement and the transactions contemplated hereby by or on behalf of LLL
or the Shareholders (the "LLL Expenses"), accompanied by a certificate signed by
the President of LLL certifying the accuracy and completeness thereof.
7.18 Audited Financial Statements. SoftNet shall (a) have received from LLL
audited balance sheets and related audited statements of income, cash flow and
shareholders' equity for LLL for the (i) 12-month period ended Xxxxx 00, 0000,
(xx) 12-month period ended March 31, 1999 and (iii) 9-month period ended
December 31, 1999, together, in each instance, with the notes thereon and the
opinion of the Accountants with respect thereto (collectively, the "Closing
Statements") and (b) such Closing Statements shall not reflect any material
change in the business of LLL from the Balance Sheet.
7.19 Fully Diluted Common Stock Number. No less than five business days prior to
the Closing Date, LLL shall have delivered to SoftNet a spreadsheet (the "Stock
Spreadsheet"), which shall be certified as being true and correct by the
President of LLL and which shall be true and correct in all respects at and as
of the Closing, which sets forth (a) the name of each Person who owns, or will
at and as of the Closing own, shares of LLL Common Stock, (b) the number of
shares of LLL Common Stock held by each such Person at and as of the Closing and
(c) the Fully Diluted Common Stock Number.
7.20 Foreign Qualifications. LLL Chicago shall have been duly qualified to do
business as a foreign corporation in Illinois and LLL shall have been duly
qualified to do business as a foreign corporation in Maryland and Utah.
ARTICLE VIII.
CLOSING
On the Closing Date at the Closing Place:
8.1 Deliveries by Sellers and LLL to SoftNet and Merger Sub. Each Seller and
LLL, as applicable, shall deliver (or cause to be delivered) to SoftNet or
Merger Sub, as applicable:
(a) the Ancillary Agreements to which it is a party;
(b) a certificate of corporate existence issued by the Secretary
of State of the State of Washington for LLL, dated not more
than five days prior to the Closing Date and a bring-down
certificate of corporate existence;
(c) LLL Closing Certificates and the Secretary's certificate
referenced in Sections 7.1 and 7.7, respectively;
(d) the opinion of counsel to Sellers and LLL described in Section
7.5;
(e) the written resignations of all officers and directors of LLL.
8.2 Deliveries by SoftNet and Merger Sub to Sellers and LLL. SoftNet and Merger
Sub, as applicable, shall deliver to Sellers and LLL, as applicable:
(a) SoftNet's Closing Certificate;
(b) the opinion described in Section 6.5; and
(c) the Ancillary Agreements to which SoftNet is a party.
8.3 Fees and Expenses. SoftNet shall deliver to PGE by wire transfer an amount
equal to PGE's fees and expenses as reflected on the Expense Schedule, less the
amount of such fees and expenses previously paid to PGE by or on behalf of LLL.
ARTICLE IX.
ACTIONS BY LLL, SELLERS, SOFTNET AND
MERGER SUB AFTER THE CLOSING
9.1 Books and Records; Tax Matters.
(a) LLL, Sellers, SoftNet and Merger Sub agree that so long as any books,
records and files relating to the Business, Assets or operations of LLL or any
of its Subsidiaries, to the extent that they pertain to the operations of LLL or
any of its Subsidiaries prior to the Closing Date, remain in existence and
available, each party (at its expense) shall, upon prior notice, have the right
to inspect and to make copies of the same at any time during business hours for
any proper purpose.
(b) SoftNet covenants and agrees that in the event it or LLL receives any notice
or inquiry from the Internal Revenue Service with respect to the
characterization of any payments made under this Agreement or any Ancillary
Agreement, SoftNet will give prompt written notice to the Shareholder
Representative concerning such notice or inquiry. SoftNet agrees to report the
consideration delivered under this Agreement in a manner consistent with the
terms hereof.
9.2 Employee Matters. As soon as practicable after the Closing, SoftNet shall
take such action as necessary for each employee of LLL who remains in the
employment of LLL immediately after the Closing to be eligible under each
benefit plan of SoftNet available to similarly situated employees of SoftNet.
For purposes of eligibility in the benefit plans of SoftNet (but not for
purposes of benefit accrual), LLL employees shall receive credit for their years
and months of service with LLL prior to the Closing. As soon as practicable
after the Closing, SoftNet and the Founders shall confer and work together in
good faith to agree upon mutually acceptable compensation arrangements and/or
option grants for those employees of LLL who are employed by SoftNet or LLL
following the Closing. For purposes of option grants to acquire shares of
SoftNet Common Stock made to employees of LLL who are employed by SoftNet or LLL
following the Closing, the grant date of such options shall be the same as the
grant date of such employee's LLL Options, if any.
9.3 Indemnification for Officers and Directors. From the Effective Time through
the date that is two years after the Effective Time, SoftNet agrees that it
will, and will cause LLL to, indemnify and hold harmless the officers and
directors of LLL as of the date hereof, against all losses, claims, damages,
expenses and liabilities arising out of actions or omissions occurring at or
prior to the Effective Time, to the same extent and on the same terms and
conditions (including with respect to advancement of expenses) provided for in
LLL's Articles of Incorporation and bylaws in effect as of the date hereof (to
the extent consistent with applicable law). The provisions of this Section 9.3
are intended to be in addition to the rights otherwise available to the current
officers and directors of LLL by law, charter, bylaw or agreement.
9.4 Working Capital Loans. SoftNet shall pay all principal and accrued interest
under the Working Capital Loans which is not paid by SoftNet contemporaneously
with the Closing.
9.5 Dissenting Shares. In the event that LLL shall fail to make any payment to a
holder of Dissenting Shares who becomes entitled to payment for such Dissenting
Shares in accordance with RCW 23B.12.010 et seq., SoftNet agrees that it shall,
or shall cause Surviving Corporation to, make such payment in accordance with
RCW 23B.12.010 et seq.
ARTICLE X.
SURVIVAL; INDEMNIFICATION
10.1 Survival of Representations. All statements contained in this Agreement,
any schedule or in any certificate or instrument of conveyance delivered by or
on behalf of the parties pursuant to this Agreement or in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the parties hereunder. The representations and warranties of
Sellers and SoftNet and Merger Sub contained herein shall survive the Closing
Date until (and claims based upon or arising out of such representations and
warranties may be asserted at any time before the date which shall be) the date
which is eighteen (18) months following the Closing Date; provided, however, the
representations and warranties of Sellers in Section 3.2 (Capitalization of LLL)
shall survive for a period equal to three years after the Closing Date, the
representations and warranties of Sellers in 3.23 (Tax Matters) shall survive
for a period equal to the relevant statute of limitations (including any
extensions thereof) and the representations and warranties of Sellers in Section
3.30 (Environmental Matters) shall survive for a period equal to three years
following the Closing Date. No investigation made by any of the parties hereto
shall in any way limit the representations and warranties of the parties. On the
Closing Date, all representations and warranties contained in this Agreement and
made by any Seller and LLL shall expire as to LLL and thereafter will be deemed
to have been made exclusively by Sellers and the Shareholders. The termination
of the representations and warranties provided herein shall not affect the
rights of a party in respect of any claim made by such party in a writing
received by the other party prior to the expiration of the applicable survival
period provided herein.
10.2 Indemnification.
(a) Indemnification by the Shareholders. The Shareholders shall severally, and
not jointly, indemnify, save and hold harmless SoftNet and its affiliates and
its and their respective Representatives from and against any and all costs,
losses (including diminution in value), Taxes (including, but not limited to,
any Taxes or other costs or damages arising under, caused by or related to
Section 280G of the Code), liabilities, obligations, damages, lawsuits,
deficiencies, claims, demands, and expenses (whether or not arising out of
third-party claims), including interest, penalties, costs of mitigation, losses
in connection with any Environmental Law (including any clean-up or remedial
action), damages to the environment, attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing, in each case after
taking into account any insurance proceeds received by the indemnified Person
and related tax benefits (herein, "Damages"), incurred in connection with,
arising out of, resulting from or incident to: (i) any breach of any
representation or warranty or the inaccuracy of any representation or warranty,
made by any Seller in this Agreement, except for any breach of any
representation or warranty or the inaccuracy of any representation or warranty
in Section 3.2 hereof (which shall be covered in the following clause (ii));
(ii) any breach of any representation or warranty or the inaccuracy of any
representation or warranty, made by any Seller in Section 3.2 of this Agreement;
(iii) any Damages in excess of $100,000 in the aggregate in any way incurred in
connection with, arising out of, resulting from or incident to (x) the case
titled Wayport, Inc. v. Laptop Lane Limited, Case No. 99-13222, 201 Judicial
District, Xxxxxx County, Texas or (y) any matter, claim, demand, lawsuit or
other action asserted by Xxxxxxxx Xxxxxxx against LLL or SoftNet; and (iv) any
breach of any covenant or agreement made by any Seller in this Agreement.
(b) Indemnification by SoftNet. SoftNet shall indemnify, save and hold harmless
the Shareholders and their affiliates and their respective representatives from
and against any and all Damages incurred in connection with, arising out of,
resulting from or incident to: (i) any breach of any representation or warranty
or the inaccuracy of any representation or warranty, made by SoftNet or Merger
Sub in this Agreement; and (ii) any breach of any covenant or agreement made by
SoftNet or Merger Sub in this Agreement.
The term "Damages" as used in this Article X is not limited to
matters asserted by third parties against an indemnified Person, but includes
Damages incurred or sustained by the indemnified Person in the absence of third
party claims. Payments by an indemnified Person of amounts for which it is
indemnified hereunder shall not be a condition precedent to recovery, provided
that with respect to matters asserted by third parties the payments made
pursuant to this Section 10.2 are fully applied to satisfy any such third party
claim.
(c) Procedure for Claims between Parties. If a claim for Damages is to be made
by a party entitled to indemnification hereunder (a "Claim"), the party claiming
such indemnification shall give written notice to the indemnifying party as soon
as practicable after the indemnified Person becomes aware of any fact, condition
or event which may give rise to Damages for which indemnification may be sought
under this Section 10.2. Any notice of a claim for indemnification by SoftNet
under 10.2 shall be delivered to the Shareholder Representative. Any failure to
submit any such notice of claim to the indemnifying Person(s) shall not relieve
such Person(s) of any liability hereunder, except to the extent such Person(s)
is actually prejudiced by such failure.
(d) Defense of Third Party Claims. If any lawsuit or enforcement action is filed
against any indemnified Person, written notice thereof shall be given to the
indemnifying Person(s) as promptly as practicable (and in any event within 15
calendar days after the service of the citation or summons). The failure of any
indemnified Person to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying Person(s)
demonstrate they were actually prejudiced by such failure. After such notice, if
the indemnifying Person(s) shall acknowledge in writing to the indemnified
Person that the indemnifying Person(s) shall be obligated under the terms of its
indemnity hereunder in connection with such lawsuit or action, then the
indemnifying Person(s) shall be entitled, if its so elects at its own cost, risk
and expense, (i) to take control of the defense and investigation of such
lawsuit or action, (ii) to employ and engage attorneys of their own choice to
handle and defend the same unless the named parties to such action or proceeding
include both an indemnifying Person and the indemnified Person and the
indemnified Person has been advised in writing by counsel that there may be one
or more legal defenses available to such indemnified Person that are different
from or additional to those available to the indemnifying Person(s), in which
event the indemnified Person shall be entitled, at the indemnifying Person(s)'s
cost, risk and expense, to separate counsel of its own choosing, and (iii) to
compromise or settle such claim, which compromise or settlement shall be made
only with the written consent of the indemnified Person, such consent not to be
unreasonably withheld. The indemnified Person shall cooperate in all reasonable
respects with the indemnifying Person(s) and its attorneys in the investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom;
provided, however, that the indemnified Person may, at its own cost, participate
in the investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom. The parties shall cooperate with each other in any
notifications to insurers. If the indemnifying Person fails to assume the
defense of such claim within 15 calendar days after receipt of the notice of
claim, the indemnified Person against which such claim has been asserted will
(upon delivering notice to such effect to the indemnifying Person) have the
right to undertake, at the indemnifying Person's cost, risk and expense, the
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying Person; provided, however, that such claim shall
not be compromised or settled without the written consent of the indemnifying
Person, which consent shall not be unreasonably withheld. If the indemnified
Person assumes the defense of the claim, the indemnified Person will keep the
indemnifying Person reasonably informed of the progress of any such defense,
compromise or settlement. The indemnifying Person shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 10.2 and for any final judgment (subject to any right of appeal), and
the indemnifying Persons agree to indemnify and hold harmless an indemnified
Person from and against any Damages by reason of such settlement or judgment.
(e) Brokers and Finders. Pursuant to the provisions of this Section 10.2,
SoftNet, on the one hand, and the Shareholders, on the other, shall indemnify,
hold harmless and defend the other from the payment of any and all brokers' and
finders' expenses, commissions, fees or other forms of compensation which may be
due or payable from or by the indemnifying party, or may have been earned by any
third party acting on behalf of the indemnifying party in connection with the
negotiation and execution hereof and the consummation of the transactions
contemplated hereby.
(f) Limitations.
(i) The obligation of the Shareholders to indemnify SoftNet and the other
indemnified Persons under this Section 10.2 shall be SoftNet's sole remedy under
this Agreement against the Shareholders in the absence of fraud or willful
misrepresentation. SoftNet shall be entitled to satisfy any claims for Damages
under Sections 10.2(a)(i), 10.2(a)(ii), 10.2(a)(iii) and 10.2(a)(iv) by
withholding and setting off against, in accordance with Section 10.3 hereof, any
Additional Shares which are or may be due to the Shareholders pursuant to
Exhibit D and, notwithstanding any other provision hereof, no Shareholder shall
be liable for any Damages pursuant to Section 10.2(a)(i) other than by virtue of
the foregoing offset against Additional Shares. Notwithstanding any provision
hereof to the contrary, except for Damages relating to the breach of any
representation and warranty in Section 3.2 and Section 3.23 hereof and for
Damages under Section 10.2(a)(iii) hereof, SoftNet shall not be entitled to
recover for any Damages or deliver the first Offset Notice pursuant to Section
10.3 hereof until such time as the Damages in the aggregate reasonably claimed
by SoftNet exceed $250,000 (the "Damage Threshold"), at which time SoftNet shall
be entitled to be indemnified against and compensated and reimbursed for all
such Damages, including Damages included in the Damage Threshold.
Notwithstanding any other provision hereof, no Shareholder shall be liable for
more than his pro rata share, based on the number of shares of LLL Common Stock
held by the Shareholder on the Closing Date, of any Damages.
(ii) The obligation of SoftNet to indemnify the Shareholders and the other
indemnified Persons under this Section 10.2 shall be the sole remedy of the
Shareholders under this Agreement against SoftNet in the absence of fraud or
willful misrepresentation. Notwithstanding any other provision hereof, (i) the
maximum indemnification obligation of SoftNet to a Shareholder shall be limited
to the total dollar amount of the product of (y) such Shareholder's pro-rata
portion of any Additional Shares which have been issued or are due to
Shareholders hereunder multiplied by (z) the Closing Average.
10.3 Offset Against Additional Shares.
(a) SoftNet shall have the right to make one or more Claims on or prior to the
date which is eighteen (18) months following the Closing Date against the
Additional Shares, if any, by delivering a notice of such Claim (an "Offset
Notice") to the Shareholder Representative prior to such time. Each Offset
Notice shall state (i) sufficient facts relating to the offset so that the
Shareholder Representative may reasonably evaluate such Claim, (ii) SoftNet's
estimate of the Indemnifiable Amount relating to such Claim and (iii) a
calculation of such number of the Additional Shares to be offset in connection
with such Claim (the "Offset Shares"). For purposes of determining the number of
Additional Shares to be offset as the Indemnifiable Amount, each share of
SoftNet Common Stock shall be valued at the Closing Average. Upon delivery of an
Offset Notice to the Shareholder Representative, SoftNet shall have the right to
withhold from delivery at any Goal Date or Goal Dates at which Additional
Shares, if any, are to be delivered, the Offset Shares.
(b) If the Shareholder Representative disputes either the validity, amount or
calculation of the Claim and the related Indemnifiable Amount, the Shareholder
Representative shall give written notice of such dispute to SoftNet within
fifteen (15) calendar days after delivery of the Offset Notice by SoftNet to the
Shareholder Representative.
(c) If the Shareholder Representative fails to respond to the Offset Notice
within fifteen (15) calendar days after delivery thereof to the Shareholder
Representative, or if the Shareholder Representative notifies SoftNet that there
is no dispute with respect to the Claim and the related Indemnifiable Amount, no
Offset Shares shall thereafter be delivered to any Shareholder and all rights
and claims of any Shareholder to the Offset Shares shall terminate.
(d) If the Shareholder Representative and SoftNet reach an agreement with
respect to the proper determination of the Claim and the related Indemnifiable
Amount, those Offset Shares that the Shareholder Representative and SoftNet
agree should be subject to the Claim and the related Indemnifiable Amount shall
not be delivered to any Shareholder and all rights and claims of any Shareholder
to such Offset Shares shall terminate. In the event that SoftNet and the
Shareholder Representative agree that the number of Offset Shares exceeds the
number of shares of SoftNet Common Stock that should be subject to the Claim and
the related Indemnifiable Amount, SoftNet shall, within ten (10) business days
following such determination, deliver to each Shareholder such Shareholder's
pro-rata portion of the Offset Shares which are in excess of the agreed upon
amount based upon the number of shares of LLL Common Stock held by the
Shareholder on the Closing Date. In the event that SoftNet and the Shareholder
Representative agree that the Offset Shares are not sufficient to satisfy the
Claim and the related Indemnifiable Amount, SoftNet shall have the right to
withhold from any future delivery of Additional Shares, such number of
additional shares of SoftNet Common Stock as will satisfy in full such Claim and
the related Indemnifiable Amount.
(e) In the event that the Claim involves a third party and has not been reduced
to a liquidated amount, the Shareholder Representative and SoftNet, in the
absence of an agreement with respect to the proper determination of the Claim
and the related Indemnifiable Amount, may agree to defer such determination
until resolution of the Claim with the third party. In such instance, the Offset
Shares with respect to the Claim shall not be delivered to the Shareholders, nor
shall the rights and claims of any Shareholder to such Offset Shares terminate,
until resolution of the Claim with the third party, at which time the procedures
specified in this Section 10.3 shall again apply.
(f) Except with respect to a Claim the resolution of which is deferred pursuant
to Section 10.3(e), if the Shareholder Representative and SoftNet are unable to
reach agreement with respect to the proper determination of the Claim and the
related Indemnifiable Amount within fifteen (15) calendar days after delivery by
the Shareholder Representative of its response to the Offset Notice, SoftNet and
the Shareholder Representative agree that (i) each party shall attempt in good
faith to resolve such dispute by mediation in San Francisco, California in
accordance with the rules of practice of Judicial Arbitration & Mediation
Services, Inc. ("JAMS") as then in effect or such other procedures as the
parties may agree and (ii) if such dispute is not resolved within 30 days of
commencing mediation, or such other period as the parties may agree, such
dispute shall be resolved by a single arbitrator mutually satisfactory to
SoftNet and the Shareholder Representative pursuant to final and binding
arbitration in San Francisco, California, administered by JAMS in accordance
with JAMS' rules of practice then in effect or such other procedures as the
parties may agree. The arbitrator shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties the opportunity, adequate in the sole judgment of the arbitrator, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrator shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys
fees and costs, to the same extent as a court of competent jurisdiction, should
the arbitrator determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The arbitrator's decision shall be written and supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrator. Any determination as to
shares of SoftNet Common Stock to be offset against the Additional Shares, if
any, as a result of such arbitration shall be final and binding upon the parties
hereto, and judgment upon any such award may be entered in any court of
competent jurisdiction. The parties shall pay their own costs and expenses in
connection with any such arbitration and shall share equally (as between the
Shareholders and SoftNet) the administrative fees and costs of the arbitration.
Following the determination by the arbitrator, SoftNet shall be entitled to act
in accordance with such decision.
10.4 No Right of Contribution. After the Closing, LLL shall have no liability to
indemnify SoftNet or any Shareholder on account of the breach of any
representation or warranty or the nonfulfillment of any covenant or agreement of
any Seller; and no Shareholder shall have any right of contribution against LLL
(unless such claim for contribution relates to a Liability of LLL existing at or
arising after the Closing Date and the existence of such Liability does not
breach any of Sellers representations and warranties contained herein).
ARTICLE XI.
MISCELLANEOUS
11.1 Termination.
(a) This Agreement may be terminated:
(i) At any time prior to Closing by mutual written consent of SoftNet and LLL;
(ii) At any time on or prior to February 15, 2000 (the "Diligence Date") by
SoftNet in the event that SoftNet shall not be satisfied on the basis of its due
diligence review that it should proceed with the transactions contemplated
hereby; provided, that in the event that SoftNet shall not have received the
documents, agreements and other items listed on Schedule 11.1 hereto (the
"Diligence Documents") on or before the date hereof, the Diligence Date shall be
extended until such date which is one week following receipt by SoftNet of a
Diligence Document (in each case, the "Extended Diligence Date") and SoftNet
shall be entitled, at any time prior to or on the Extended Diligence Date, to
terminate this Agreement if SoftNet shall not be satisfied on the basis of its
due diligence review of such item that it should proceed with the transactions
contemplated hereby. In no event shall any review by SoftNet hereunder have any
effect whatsoever on the liability of LLL or any Seller to SoftNet under this
Agreement or otherwise for breach of any representations, warranties or
covenants of LLL and Sellers hereunder;
(iii) At any time prior to Closing by SoftNet if the conditions set forth in
Section 7.3 hereof shall not have been satisfied on or before June 15, 2000;
(iv) At any time prior to Closing by LLL if each of the conditions set forth in
Article VII shall have been satisfied and the Closing shall not have occurred on
or before the day which is thirty (30) days following the date on which all
conditions in Article VII have been satisfied;
(v) At any time prior to Closing by SoftNet if there is (a) a material breach of
any representation or warranty set forth in Article III and such breach or
failure would result in a LLL Material Adverse Change (as defined in Section
7.9) or (b) a material breach of any covenant or agreement to be complied with
or performed by LLL or any Seller pursuant to the terms of this Agreement and,
in each case, such breach or failure, if capable of cure, shall not have been
cured within fifteen days after notice thereof is delivered by SoftNet to LLL in
accordance with the provisions of Section 11.3 hereof; or
(vi) At any time prior to Closing by LLL if there is (a) a material breach of
any representation or warranty set forth in Article IV hereof and such breach or
failure would result in a SoftNet Material Adverse Change (as defined in Section
6.6) or (b) a material breach of any covenant or agreement to be complied with
or performed by SoftNet or Merger Sub pursuant to the terms of this Agreement
and, in each case, such breach or failure, if capable of cure, shall not have
been cured within fifteen days after notice thereof is delivered by LLL to
SoftNet in accordance with the provisions of Section 11.3 hereof.
(b) In the event of termination of this Agreement:
(i) The provisions of the NDA and Section 5.8 shall continue in full force and
effect; and
(ii) No party hereto shall have any liability to any other party to this
Agreement, except for any willful breach of, or knowing misrepresentation made
in, this Agreement occurring prior to the proper termination of this Agreement.
11.2 Assignment; No Third Party Beneficiaries. Neither this Agreement nor any of
the rights or obligations hereunder may be assigned by LLL or any Seller without
the prior written consent of SoftNet, or by SoftNet or Merger Sub without the
prior written consent of LLL and Sellers. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Nothing herein expressed
or implied shall give or be construed to give to any Person, other than the
parties hereto and such successors and assigns and the Persons indemnified
pursuant to Section 10.2 hereof, any legal or equitable rights hereunder.
11.3 Notices. All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy; the day after it is sent, if sent for
next day delivery to a domestic address by recognized overnight delivery service
(e.g., Federal Express); and upon receipt, if sent by certified or registered
mail, return receipt requested, as follows:
If to LLL prior to Closing or to the Shareholder
Representative after Closing:
Laptop Lane Limited
0000 - 000xx Xxxxxx, XX
Xxxxxxxx, XX 00000
Attn: R. Xxxxx Xxxxxxx
Telecopy: (000) 000-0000
With a copy to:
Xxxxxxx Xxxxx Xxxxx LLP
000 0xx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx
Telecopy: (000) 000-0000
If to SoftNet, Merger Sub or, if after the Closing,
to LLL:
SoftNet Systems, Inc.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Telecopy: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Telecopy: (000) 000-0000
If to a Seller, to the address of
such Seller set forth after the signature page hereto
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
California except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
11.5 Entire Agreement; Amendments and Waivers. This Agreement, together with all
exhibits and schedules hereto, and the NDA (which the parties agree shall
terminate on the Closing Date), constitute the entire agreement among the
parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
11.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11.7 Invalidity. In the event that any one or more of the provisions contained
in this Agreement or in any other instrument referred to herein, shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any other such instrument.
11.8 Expenses. SoftNet, LLL, Merger Sub and Sellers will each be liable for
their own expenses incurred in connection with the negotiation, preparation,
execution and performance of this Agreement and the transactions contemplated
hereby. Notwithstanding the foregoing, SoftNet, LLL, Merger Sub and Sellers
agree that all expenses of LLL in excess of $75,000 (the "Expense Threshold")
incurred in connection with the negotiation, preparation, execution and
performance of this Agreement and the transactions contemplated hereby will
reduce the number of Initial Shares in accordance with Section 2.4(c) hereof.
Such obligation is independent of the indemnification obligations contained
herein.
11.9 Publicity. Except as required by law, the requirements of The Nasdaq
National Market or on advice of counsel, neither party shall issue any press
release or make any public statement regarding the transactions contemplated
hereby without the prior written approval of the other party, and the parties
hereto shall issue a mutually acceptable press release as soon as practicable
after the date hereof.
11.10 Legends.
(a) Each certificate representing the Issue Shares and Additional Shares, if
any, shall be endorsed with a legend in substantially the following form: "THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR QUALIFIED UNDER ANY APPLICABLE
STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" AS DEFINED UNDER RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT, (ii) IN COMPLIANCE WITH RULE 144 OR
(iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO SOFTNET SYSTEMS, INC.,
THAT SUCH DISTRIBUTION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION."
(b) SoftNet, at its discretion, may cause stop transfer orders to be placed with
its transfer agent with respect to certificates representing the Issue Shares
and the Additional Shares, if any, bearing the foregoing legend.
(c) Any legend endorsed on a certificate representing the Issue Shares or the
Additional Shares, if any, and the stop transfer instructions with respect to
such shares shall be removed, and SoftNet shall issue a certificate without such
legend to the holder of such shares if (i) such shares are sold or otherwise
disposed of pursuant to an effective registration statement under the Securities
Act, (ii) the holder of such shares has met the requirements for transfer of
Rule 144(k) of the Securities Act or (iii) the holder of such shares provides to
SoftNet an opinion of counsel, which shall be satisfactory to SoftNet, that such
sale, offer or distribution is otherwise exempt from registration under the
Securities Act.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be duly executed on its behalf by its
officer thereunto duly authorized, as of the day and year first above written.
SOFTNET SYSTEMS, INC.,
a Delaware corporation
By: ____________________________
Name: ____________________
Its:
SSI MERGER SUB, INC.,
a Washington corporation
By: ____________________________
Name: ____________________
Its:
LAPTOP LANE LIMITED,
a Washington corporation
By: ____________________________
Name:
Its:
R. XXXXX XXXXXXX,
an individual
________________________________
Spouse Acknowledgement:
M. XXXXX XXXXX,
an individual
________________________________
Spouse Acknowledgement:
EXHIBIT D
A. Defined Terms
"Airports" means (i) for airports located within the United States or
Canada, those airports that are within the top sixty (60) airports in the United
States and Canada measured in terms of enplanements according to the most recent
Monthly Worldwide Airport Traffic Report issued by Airports Council
International or (ii) for airports not located within the United States or
Canada, those airports that are within the top twenty (20) airports outside the
United States and Canada measured in terms of enplanements according to the most
recent Monthly Worldwide Airport Traffic Report issued by Airports Council
International.
"First Milestone Goals" means that LLL shall have (i) commenced
commercial operations of a LLL Office Center, (ii) commenced construction of a
LLL Office Center, (iii) executed a binding agreement with respect to the
construction and operation of a LLL Office Center, (iv) executed a letter of
intent with respect to the construction and operation of a LLL Office Center or
(v) been notified that it has won a Request For Proposal for a LLL Office Center
in a total of 12 Airports and at 17 locations within such Airports.
"Fourth Milestone Goals" means that LLL shall have (i) commenced
commercial operations of a LLL Office Center, (ii) commenced construction of a
LLL Office Center, (iii) executed a binding agreement with respect to the
construction and operation of a LLL Office Center, (iv) executed a letter of
intent with respect to the construction and operation of a LLL Office Center or
(v) been notified that it has won a Request For Proposal for a LLL Office Center
in a total of 27 Airports and at 35 locations within such Airports.
"Goal Date" means the First Goal Date, the Second Goal Date, the Third
Goal Date or the Fourth Goal Date, as applicable.
"LLL Office Center" means an office center similar to those operated by
LLL in the Atlanta airport, consisting of clusters of private mini-offices that
provide users with rapid telecommunication links supporting advanced computer
technologies, and offer a full service, private, remote office environment with
desks, computers, high-speed printers and copiers.
"Milestone Goals" means each of the First Milestone Goals, Second
Milestone Goals, Third Milestone Goals and Fourth Milestone Goals.
"Operating Budget" means an operating budget mutually acceptable to
SoftNet and LLL which reflects SoftNet's and LLL's operating objectives,
including, but not limited to, the objectives of the Milestone Goals.
"Second Milestone Goals" means that LLL shall have (i) commenced
commercial operations of a LLL Office Center, (ii) commenced construction of a
LLL Office Center, (iii) executed a binding agreement with respect to the
construction and operation of a LLL Office Center, (iv) executed a letter of
intent with respect to the construction and operation of a LLL Office Center or
(v) been notified that it has won a Request For Proposal for a LLL Office Center
in a total of 17 Airports and at 25 locations within such Airports.
"SoftNet Change in Strategic Direction" means that SoftNet shall have
changed its strategic direction such that SoftNet could no longer continue to
report revenues for purposes of the Notification and Report Form for Certain
Mergers and Acquisitions under the HSR Act under the 4-digit (SIC Code) industry
code 7370 or 7371 as listed in the 1987 edition of the Standard Industrial
Classification Manual.
"Third Milestone Goals" means that LLL shall have (i) commenced
commercial operations of a LLL Office Center, (ii) commenced construction of a
LLL Office Center, (iii) executed a binding agreement with respect to the
construction and operation of a LLL Office Center, (iv) executed a letter of
intent with respect to the construction and operation of a LLL Office Center or
(v) been notified that it has won a Request For Proposal for a LLL Office Center
in a total of 22 Airports and at 30 locations within such Airports.
B. Additional Shares Payment
1. General. Subject to the terms and conditions hereof and Sections 2.5
and 10.3, the Shareholders shall be eligible to receive an aggregate of 250,000
additional shares of SoftNet Common Stock (the "Additional Shares"), consisting
of (i) one tranche of 62,500 shares of SoftNet Common Stock upon the
satisfaction of the First Milestone Goals (the "First Tranche Shares"), (ii) one
tranche of 62,500 shares of SoftNet Common Stock upon the satisfaction of the
Second Milestone Goals (the "Second Tranche Shares"), (iii) one tranche of
62,500 shares of SoftNet Common Stock upon the satisfaction of the Third
Milestone Goals (the "Third Tranche Shares") and (iv) one tranche of 62,500
shares of SoftNet Common Stock upon the satisfaction of the Fourth Milestone
Goals (the "Fourth Tranche Shares").
2. First Tranche. In the event that LLL satisfies the First Milestone
Goals on or before March 31, 2000 (the "First Goal Date"), then, subject to
Section 10.3 hereof, SoftNet shall deliver to each Shareholder, on the date
which is no more than ten (10) business days following the satisfaction of such
goals (or, if the Closing shall not have then occurred and shall subsequently
occur, on the date which is no more than (10) business days following the
Closing), such Shareholder's pro-rata portion of the First Tranche Shares based
on the number of shares of LLL Common Stock held by the Shareholder on the
Closing Date. If LLL shall fail to satisfy the First Milestone Goals on or
before the First Goal Date, the First Tranche Shares shall be terminated and no
Shareholder shall have any rights or claims to the First Tranche Shares.
3. Second Tranche. In the event that LLL satisfies the Second Milestone
Goals on or before June 30, 2000 (the "Second Goal Date"), then, subject to
Section 10.3 hereof, SoftNet shall deliver to each Shareholder, on the date
which is no more than ten (10) business days following the satisfaction of such
goals (or, if the Closing shall not have then occurred and shall subsequently
occur, on the date which is no more than (10) business days following the
Closing), such Shareholder's pro-rata portion of the Second Tranche Shares based
on the number of shares of LLL Common Stock held by the Shareholder on the
Closing Date. If LLL shall fail to satisfy the Second Milestone Goals on or
before the Second Goal Date, the Second Tranche Shares shall be terminated and
no Shareholder shall have any rights or claims to the Second Tranche Shares.
4. Third Tranche. In the event that LLL satisfies the Third Milestone
Goals on or before September 30, 2000 (the "Third Goal Date"), then, subject to
Section 10.3 hereof, SoftNet shall deliver to each Shareholder, on the date
which is no more than ten (10) business days following the satisfaction of such
goals (or, if the Closing shall not have then occurred and shall subsequently
occur, on the date which is no more than (10) business days following the
Closing), such Shareholder's pro-rata portion of the Third Tranche Shares based
on the number of shares of LLL Common Stock held by the Shareholder on the
Closing Date. If LLL shall fail to satisfy the Third Milestone Goals on or
before the Third Goal Date, the Third Tranche Shares shall be terminated and no
Shareholder shall have any rights or claims to the Third Tranche Shares.
5. Fourth Tranche. In the event that LLL satisfies the Fourth Milestone
Goals on or before March 31, 2001 (the "Fourth Goal Date"), then, subject to
Section 10.3 hereof, SoftNet shall deliver to each Shareholder, on the date
which is no more than ten (10) business days following the satisfaction of such
goals (or, if the Closing shall not have then occurred and shall subsequently
occur, on the date which is no more than (10) business days following the
Closing), such Shareholder's pro-rata portion of the Fourth Tranche Shares based
on the number of shares of LLL Common Stock held by the Shareholder on the
Closing Date. If LLL shall fail to satisfy the Fourth Milestone Goals on or
before the Fourth Goal Date, the Fourth Tranche Shares shall be terminated and
no Shareholder shall have any rights or claims to the Fourth Tranche Shares.
6. No Fractional Shares. No fractional shares of SoftNet Common Stock
shall be issued as part of the Additional Shares. In lieu thereof, fractional
shares shall be rounded down to the nearest whole number and the value of the
fractional shares, based on the Closing Average, will be paid in cash within ten
(10) business days following the First Goal Date, the Second Goal Date, the
Third Goal Date or the Fourth Goal Date, as applicable, to each Shareholder who
would otherwise be entitled hereunder to a fraction of a share of SoftNet Common
Stock.
C. Additional Agreements Regarding Milestone Goals
1. Convention Centers. SoftNet and LLL hereby agree that if LLL shall
have (i) commenced commercial operations of a LLL Office Center, (ii)
construction of a LLL Office Center, (iii) executed a binding agreement with
respect to the construction and operation of a LLL Office Center, (iv) executed
a letter of intent with respect to the construction and operation of a LLL
Office Center or (v) been notified that it has won a Request For Proposal for a
LLL Office Center in a convention center that is in a location that is mutually
acceptable to each of SoftNet and LLL, then such convention center shall be
treated as an "Airport" for purposes of satisfying the Milestone Goals.
2. Goal Dates. In the event that SoftNet unreasonably fails to provide
LLL with the financial resources specified in the Operating Budget which are
reasonably necessary to achieve the Milestone Goals for more than three (3)
consecutive weeks following the good-faith written request of either Founder to
SoftNet for such financial resources to pursue the Milestone Goals, the Goal
Date which is then applicable shall be automatically extended from the date
scheduled until the end of the next calendar quarter (the "Extended Goal Date").
If, following such extension, LLL satisfies the applicable Milestone Goal on or
before the Extended Goal Date, SoftNet shall deliver to each Shareholder such
Additional Shares as such Shareholder is entitled under Section B hereof. If,
following such extension, LLL shall fail to satisfy the applicable Milestone
Goal on or before the Extended Goal Date, no such Additional Shares shall be
delivered by SoftNet.
D. Acceleration of Additional Share Payments
1. Termination of Merrell and Sharp. Subject to Section 10.3, in the
event that either Founder (i) is terminated during the term of his Employment
Agreement, except for any termination for death, "disability" or "cause" as
defined in such Employment Agreement or (ii) terminates his employment for "good
reason" as defined in the Employment Agreement, SoftNet shall deliver to each
Shareholder, on the date which is no more than ten (10) business days following
such termination, such Shareholder's pro-rata portion, based on the number of
shares of LLL Common Stock held by the Shareholder on the Closing Date, of all
Additional Shares which have not previously been delivered to the Shareholders
or terminated because of LLL's failure to achieve any Milestone Goal.
2. Failure to Fund LLL Operations. Subject to Section 10.3, in the
event that SoftNet unreasonably fails to provide LLL with the financial
resources specified in the Operating Budget which are reasonably necessary to
achieve the Milestone Goals for more than three (3) consecutive months following
the good-faith written request of either Founder to SoftNet for such financial
resources to pursue the Milestone Goals, SoftNet shall deliver to each
Shareholder, on the date which is no more than ten (10) business days following
the lapse of the three (3) month period, such Shareholder's pro-rata portion,
based on the number of shares of LLL Common Stock held by the Shareholder on the
Closing Date, of all Additional Shares which have not previously been delivered
to the Shareholders or terminated because of LLL's failure to achieve any
Milestone Goal.
3. Change of Control. Subject to Section 10.3, in case of any
reclassification or change in the SoftNet Common Stock (other than a change in
par value or as a result of a subdivision or combination) or in case of any
consolidation or merger of SoftNet with or into another corporation (other than
a merger with another corporation in which SoftNet is the continuing corporation
and which does not result in any reclassification or change in the SoftNet
Common Stock) or any other corporate reorganization in which SoftNet shall not
be the continuing or surviving entity of such consolidation, merger or
reorganization, or any transaction in which in excess of 50% of SoftNet's voting
power is transferred, SoftNet shall, immediately prior to the closing of such
transaction, deliver to each Shareholder, such Shareholder's pro-rata portion,
based on the number of shares of LLL Common Stock held by the Shareholder on the
Closing Date, of all Additional Shares which have not previously been delivered
to the Shareholders or terminated because of LLL's failure to achieve any
Milestone Goal; provided, that no Shareholder shall have any rights of
appraisal, any dissenters' rights and any similar rights relating to such
transaction that such Shareholder may have by virtue of the ownership of any
Additional Shares delivered pursuant hereto.
4. Change of Strategic Direction. Subject to Section 10.3, in the event
that there is a SoftNet Change in Strategic Direction in a manner that
practically prevents achievement of any of the Milestone Goals, SoftNet shall
promptly deliver to each Shareholder, such Shareholder's pro rata portion, based
on the number of shares of LLL Common Stock held by the Shareholder on the
Closing Date, of all Additional Shares which have not been previously delivered
to the Shareholders or terminated because of LLL's failure to achieve any
Milestone Goals.
E. Other
1. Section 2.5 Adjustment. In the event that the number of Additional
Shares is adjusted pursuant to Section 2.5, then the number of shares in the
First Tranche, Second Tranche, Third Tranche and Fourth Tranche shall also be
adjusted and each tranche shall, as nearly as practicable, consist of the same
number shares of SoftNet Common Stock as each other tranche. After any such
adjustment, references herein to the "First Tranche," "Second Tranche," "Third
Tranche," and "Fourth Tranche," shall mean the First Tranche, Second Tranche,
Third Tranche and Fourth Tranche, as so adjusted.
2. No Closing. Notwithstanding any other provision contained
herein or in the Merger Agreement, SoftNet shall not be obligated to deliver any
Additional Shares if the Closing shall not occur.
TABLE OF CONTENTS
Page(s)
ARTICLE I. DEFINITIONS.........................................................1
1.1 Defined Terms................................................1
-------------
1.2 Other Defined Terms..........................................6
-------------------
1.3 Interpretation Provisions....................................8
-------------------------
ARTICLE II. the merger; conversion of shares...................................9
2.1 Filings......................................................9
-------
2.2 Merger.......................................................9
------
2.3 Directors and Officers.......................................9
----------------------
2.4 Conversion of Securities.....................................9
------------------------
2.5 Adjustment to Initial Shares and Additional Shares..........11
--------------------------------------------------
2.6 Exchange of Certificates....................................11
------------------------
2.7 Certificate Not Surrendered by Holders
of Shares of LLL Common Stock...............................12
--------------------------------------
2.8 No Transfers After the Effective Time.......................12
-------------------------------------
2.9 Dissenting Shareholders.....................................13
-----------------------
2.10 Taking of Necessary Action; Further Action..................13
------------------------------------------
2.11 Old LLL Options.............................................13
---------------
2.12 LLL Securities..............................................14
--------------
2.13 Additional Shares...........................................15
-----------------
2.14 New LLL Options.............................................15
---------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF AND LLL AND SELLERs............15
3.1 Organization of LLL.........................................15
-------------------
3.2 Capitalization of LLL.......................................16
---------------------
3.3 Xxxx-Xxxxx-Xxxxxx...........................................17
-----------------
3.4 Authorization...............................................17
-------------
3.5 Officers and Directors......................................18
----------------------
3.6 Bank Accounts...............................................18
-------------
3.7 Subsidiaries, Etc...........................................18
-----------------
3.8 Absence of Certain Changes or Events........................18
------------------------------------
3.9 Title to Assets.............................................20
---------------
3.10 Sufficiency of Assets.......................................21
---------------------
3.11 Fixtures and Equipment......................................21
----------------------
3.12 Contracts...................................................21
---------
3.13 No Conflict or Violation; Consents..........................23
----------------------------------
3.14 Permits.....................................................23
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3.15 Financial Statements; Books and Records.....................24
---------------------------------------
3.16 Liabilities.................................................24
-----------
3.17 Litigation..................................................24
----------
3.18 Labor Matters...............................................25
-------------
3.19 Employee Benefit Plans......................................26
----------------------
3.20 Transactions with Related Parties and Shareholders..........28
--------------------------------------------------
3.21 Compliance with Law.........................................29
-------------------
3.22 Intellectual Property.......................................29
---------------------
3.23 Tax Matters.................................................30
-----------
3.24 Insurance...................................................32
---------
3.25 Accounts Receivable.........................................32
-------------------
3.26 Inventory...................................................32
---------
3.27 Purchase Commitments and Outstanding Bids...................33
-----------------------------------------
3.28 Payments....................................................33
--------
3.29 Customers, Suppliers and Competitors........................33
------------------------------------
3.30 Environmental Matters.......................................34
---------------------
3.31 Brokers; Transaction Costs..................................35
--------------------------
3.32 No Other Agreements to Sell LLL or the Assets...............35
---------------------------------------------
3.33 Material Misstatements or Omissions.........................35
-----------------------------------
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SOFTNET AND MERGER SUB..........36
4.1 Organization................................................36
------------
4.2 Authorization...............................................36
-------------
4.3 No Conflict or Violation; Consents..........................37
----------------------------------
4.4 No Brokers..................................................37
----------
4.5 Litigation..................................................37
----------
4.6 SoftNet Common Stock........................................37
--------------------
4.7 SEC Documents...............................................37
-------------
4.8 Compliance with Law.........................................38
-------------------
4.9 Liabilities.................................................38
-----------
ARTICLE V. ACTIONS PRIOR TO THE CLOSING.......................................38
5.1 Conduct of Business.........................................38
-------------------
5.2 Investigation by SoftNet....................................40
------------------------
5.3 Notification of Certain Matters.............................40
-------------------------------
5.4 No Alternative Transactions.................................40
---------------------------
5.5 Approval of Shareholders....................................41
------------------------
5.6 Dissenting Shares...........................................41
-----------------
5.7 Confidentiality.............................................41
---------------
5.8 Tax Treatment...............................................42
-------------
5.9 Further Assurances..........................................42
------------------
5.10 Audit Costs.................................................42
-----------
5.11 LLL Financing Agreements, The Mennen Note,
the Placement Warrants and Old LLL Options..................43
------------------------------------------
5.12 Purchaser Representative....................................43
------------------------
5.13 Corex and Belkin Agreements.................................43
---------------------------
ARTICLE VI. CONDITIONS TO Obligations of lll and sellers......................44
6.1 Representations, Warranties and Covenants...................44
-----------------------------------------
6.2 Consents....................................................44
--------
6.3 No Actions or Court Orders..................................44
--------------------------
6.4 Closing Documents...........................................44
-----------------
6.5 Opinion of Counsel..........................................44
------------------
6.6 SoftNet Material Adverse Change.............................44
-------------------------------
6.7 Shareholder Approval........................................44
--------------------
6.8 Second Loan Agreement.......................................45
---------------------
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF SOFTNET AND MERGER SUB..............45
7.1 Representations, Warranties and Covenants...................45
-----------------------------------------
7.2 Shareholder Approval........................................45
--------------------
7.3 Approvals...................................................45
---------
7.4 No Actions or Court Orders..................................46
--------------------------
7.5 Opinion of Counsel..........................................46
------------------
7.6 Employees...................................................46
---------
7.7 Certificates................................................46
------------
7.8 Closing Documents...........................................46
-----------------
7.9 LLL Material Adverse Change.................................46
---------------------------
7.10 LLL Securities and Old LLL Options..........................46
----------------------------------
7.11 Outstanding Loans...........................................47
-----------------
7.12 Non-Foreign Affidavit.......................................47
---------------------
7.13 Dissenter Rights............................................47
----------------
7.14 Shareholder Representative..................................47
--------------------------
7.15 Operating Budget............................................47
----------------
7.16 Securities Act Exemption....................................47
------------------------
7.17 LLL Expenses................................................48
------------
7.18 Audited Financial Statements................................48
----------------------------
7.19 Fully Diluted Common Stock Number...........................48
---------------------------------
7.20 Foreign Qualifications......................................48
----------------------
ARTICLE VIII. CLOSING.........................................................48
8.1 Deliveries by Sellers and LLL to
SoftNet and Merger Sub......................................48
--------------------------------
8.2 Deliveries by SoftNet and Merger
Sub to Sellers and LLL......................................49
--------------------------------
8.3 Fees and Expenses...........................................49
-----------------
ARTICLE IX. ACTIONS BY LLL, SELLERS, SOFTNET AND
MERGER SUB AFTER THE CLOSING......................................49
9.1 Books and Records; Tax Matters..............................49
------------------------------
9.2 Employee Matters............................................49
----------------
9.3 Indemnification for Officers and Directors..................50
------------------------------------------
9.4 Working Capital Loans.......................................50
---------------------
9.5 Dissenting Shares...........................................50
-----------------
ARTICLE X. SURVIVAL; INDEMNIFICATION..........................................50
10.1 Survival of Representations.................................50
---------------------------
10.2 Indemnification.............................................51
---------------
10.3 Offset Against Additional Shares............................53
--------------------------------
10.4 No Right of Contribution....................................55
------------------------
ARTICLE XI. MISCELLANEOUS.....................................................55
11.1 Termination.................................................55
-----------
11.2 Assignment; No Third Party Beneficiaries....................56
----------------------------------------
11.3 Notices.....................................................56
-------
11.4 Choice of Law...............................................57
-------------
11.5 Entire Agreement; Amendments and Waivers....................57
----------------------------------------
11.6 Counterparts................................................57
------------
11.7 Invalidity..................................................58
----------
11.8 Expenses....................................................58
--------
11.9 Publicity...................................................58
---------
11.10 Legends.....................................................58
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TABLE OF EXHIBITS
Exhibit A Form of Employment Agreement
Exhibit B Form of Non-Compete Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Additional Shares Payment Schedule
Exhibit E Form of Foreign Investment in Real Property Tax Act Affidavit
SCHEDULES
1.1(a) Financial Statements
2.3 Officers of Surviving Corporation
2.11(a) Aggregate Option Spread
7.6 Employees
11.1 Diligence Documents
