Exhibit 10.1
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ACTIVEWORLDS CORPORATION,
AWLD, INC.,
AWLD LTD.,
BAYTREE LLC, AND
HI-G-TEK, LTD.
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December 10, 2004
TABLE OF CONTENTS
PAGE
1. Definitions.......................................................... 2
2. Basic Transaction ................................................... 5
2.1 The Merger................................................. 5
2.2 The Closing................................................ 5
2.3 Actions at the Closing..................................... 5
2.4 Effect of Merger........................................... 6
2.5 Procedure for Exchange of Common Stock..................... 7
3. Representations and Warranties....................................... 8
3.1 The Company................................................ 8
(a) Organization and Qualification..................... 8
(b) Authorization...................................... 8
(c) Noncontravention................................... 8
(d) Capitalization..................................... 8
(e) Subsidiaries....................................... 9
(f) Brokers' Fees...................................... 9
(g) Taxes.............................................. 9
(h) Title to Assets....................................10
(i) Leases.............................................10
(j) Contracts and Other Documents......................10
(k) Labor Difficulties.................................12
(l) Employees..........................................12
(m) Licenses and Permits...............................12
(n) Accounts Receivable................................13
(o) Financial Statements...............................13
(p) Assets; Ownership of Necessary Assets and Rights...14
(q) Absence of Undisclosed Liabilities.................14
(r) Compliance With Law................................14
(s) Intellectual Property and Intangible Assets........14
(t) Pending Litigation.................................16
(u) Customer List......................................17
(v) Events Subsequent to Most Recent
Fiscal Year End....................................17
(w) Inventory..........................................18
(x) Suppliers..........................................18
(y) No Third Party Option..............................18
(z) Related Party Transactions.........................18
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(aa) Contingent Liabilities.............................18
(bb) Guaranties.........................................19
(cc) Restrictive Covenants..............................19
(dd) Insurance..........................................19
(ee) Disclosure.........................................19
3.2 Activeworlds, the Acquisition Sub and AWLD.................19
(a) Organization and Qualification.....................19
(b) Authorization......................................20
(c) Noncontravention...................................20
(d) Capitalization.....................................20
(e) Filings with the SEC...............................21
(f) Absence of Undisclosed Liabilities.................21
(g) Certain Regulatory Matters.........................21
(h) The Acquisition Sub................................22
(i) Absence of Business Operations.....................22
(j) No Brokers.........................................22
4. Closing..............................................................22
4.1 Conditions to Activeworlds', AWLD's and the
Acquisition Sub's Obligations..............................22
4.2 Conditions to the Company's Obligations....................24
4.3 Conditions to the Parties' Obligations.....................25
4.4 Activeworlds' and the Acquisition Sub's Closing Documents..26
4.5 The Company's Closing Documents............................26
4.6 Israeli Income Tax Ruling..................................27
5. Survival of Representations and Warranties; Indemnification..........27
5.1 Survival of Representations and
Warranties and Covenants...................................27
5.2 Indemnification by the Company.............................27
5.3 Indemnification by Activeworlds and the Acquisition Sub....27
5.4 Successors.................................................28
6. Finders..............................................................28
7. Covenants............................................................28
7.1 Voting of Shares...........................................28
7.2 Future Financing...........................................28
7.3 Piggyback Registration Rights..............................28
7.4 SEC Compliance.............................................28
7.5 Xxxxxxxx-Xxxxx Act of 2002.................................28
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7.6 Marketing..................................................29
7.7 Designee to the Activeworlds' Board of Directors...........29
7.8 Public and Investor Relations..............................29
7.9 Independent Directors......................................29
7.10 Directors' and Officers' Liability Insurance...............29
7.11 Foreign Corrupt Practices Act..............................29
7.12 Power to Enforce Covenants.................................30
8. General Provisions...................................................30
8.1 No Third Party Beneficiaries...............................30
8.2 Expenses of the Parties....................................30
8.3 Construction...............................................30
8.4 Specific Performance.......................................30
8.5 Severability...............................................31
8.6 Counterparts...............................................31
8.7 Benefit ...................................................31
8.8 Notices ...................................................31
8.9 Attorney's Fees............................................32
8.10 Oral Evidence..............................................32
8.11 Governing Law..............................................32
8.12 Arbitration................................................32
8.13 Section or Paragraph Headings..............................32
8.14 Schedules..................................................32
Exhibits
Exhibit A - Post Acquisition Cap Table
Exhibit B - Form of Agreement between Baytree Capital LLC and
Activeworlds
Exhibit C - Form of Investment Letter
Exhibit D - Opinion of the Company's Counsel
Exhibit E - Opinion of Activeworlds and the Acquisition Sub's Counsel
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("AGREEMENT") dated December 10,
2004, by and among Activeworlds Corporation, a Delaware corporation
("ACTIVEWORLDS"); AWLD, Inc., a Delaware corporation and a wholly-owned
subsidiary of Activeworlds ("AWLD"); AWLD Ltd., an Israeli company and a
wholly-owned subsidiary of AWLD (the "ACQUISITION SUB"); Baytree LLC, a Delaware
limited liability company and Hi-G-Tek, Ltd., an Israeli company (the "COMPANY")
Activeworlds, the Acquisition Sub, Baytree and the Company are referred to
individually as a "PARTY" and collectively herein as the "PARTIES."
WHEREAS upon the terms and subject to the conditions of this
Agreement and in accordance with the Israeli Companies Law (as hereinafter
defined), Activeworlds, and the Company intend to enter into a transaction to
effect the merger of the Acquisition Sub with and into the Company (the
"MERGER"), pursuant to which Acquisition Sub will cease to exist and Company
will become an indirect wholly-owned subsidiary of Activeworlds;
WHEREAS the respective Boards of Directors of Activeworlds, the
Acquisition Sub and the Company have each declared advisable the Merger of the
Acquisition Sub with and into the Company (the "MERGER") on the terms and
subject to the conditions set forth in this Agreement;
WHEREAS the respective Boards of Directors of Activeworlds, the
Acquisition Sub and the Company have each determined that the Merger is in the
best interest of their respective stockholders and is in furtherance of and
consistent with their respective long-term business strategies;
WHEREAS the respective Boards of Directors of the Acquisition Sub and
the Company have each (i) determined that this Agreement, the Merger and the
other transactions contemplated by this Agreement are fair to, and in the best
interest of, the Company the Merger Sub and their respective shareholders and
that, considering the financial position of the merging companies, no reasonable
concern exists that the Surviving Corporation will be unable to fulfill its
obligations of the Company or the Merger Sub, as the case may be, to their
respective creditors; (ii) approved this agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) determined to recommend
that the shareholders of each of Acquisition Sub and the Company adopt and
approve this Agreement and approve the Merger;
WHEREAS the respective Boards of Directors of Activeworlds, the
Acquisition Sub and the Company have each approved the merger of the Acquisition
Sub into the Company in a reverse triangular merger, upon the terms and subject
to the conditions set forth in this Agreement, whereby the share capital of the
Company (the "COMPANY SHARE CAPITAL") will be transferred to Activeworlds in
exchange for 24,683,303 shares of Activeworlds' common stock, par value US
$0.0001 per share, ("ACTIVEWORLDS COMMON STOCK"), which shall constitute such
percentage of the issued and outstanding Activeworlds Common Stock immediately
after the Merger as detailed in Exhibit A attached hereto, and whereby the
stockholders of Activeworlds (as determined immediately preceding the Merger)
shall own the such percentage of Activeworlds Common Stock as reflected on
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Exhibit A (which Exhibit A also contains the percentages on a fully diluted
basis);
WHEREAS Activeworlds, the Acquisition Sub and the Company desire to
make certain representations, warranties, covenants and agreements in connection
with the Merger and also to prescribe various conditions to the Merger; and
WHEREAS in exchange for the covenants of Activeworlds contained in
Sections 7.4 through 7.7, Baytree has agreed to (i) cause its affiliates,
Baytree Capital Associates LLC and Xxxxxxx Xxxxxxx, to vote their shares of
Activeworlds Common Stock in favor of a proposal to amend Activeworlds'
certificate of incorporation and thereby, among other things, increase the
number of authorized shares of Activeworlds Common Stock and (ii) provide future
assistance in connection with any financing as described in Section 7.2.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Activeworlds, the Acquisition Sub and the Company hereby agree as
follows:
Section 1. Definitions. As used in this Agreement, the following words
and phrases shall have the meanings ascribed.
"Activeworlds Common Stock" shall have that same meaning as in the
introductory paragraph.
"Activeworlds Indemnitee" and collectively the "Activeworlds
Indemnitees" shall have that same meaning as in Section 5.2.
"Affiliate" means a person or entity which controls, is controlled by,
or is under common control with any of the Parties, as the case may be, either
directly or indirectly through intermediaries.
"Agreement" shall have the meaning as in the introductory paragraph.
"Assets" shall have that same meaning as in Section 3.1(h).
"Closing Date Financial Statements" shall have that same meaning as in
Section 3.1(o).
"Closing Date" shall have that same meaning as in Section 2.2.
"Closing" shall have that same meaning as in Section 2.2.
"Code" means the Internal Revenue Code of 1986 and the rules and
regulations thereunder.
"Companies Registrar" shall mean the Registrar of Companies of the
State of Israel.
"Contracts" shall mean any oral, written or implied agreement, contract
or understanding.
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"Customer" means any person, firm, corporation, limited liability
company, partnership, association or other entity to which the Company sold or
provided services during the 12-month period prior to the time at which any
determination is required to be made as to whether any such person, firm,
corporation, partnership, association or other entity is a Customer, or who or
which was approached by or who or which has approached a senior officer of the
Company for the purpose of soliciting business from the Company or the third
party, as the case may be.
"Effective Time" shall have the meaning contained in Section 2.4.1.
"Employees" shall have that same meaning as in Section 3.1(l).
"Exchange Act" means the Securities Exchange Act of 1934.
"Family Member" means any spouse, child, parent, father or
mother-in-law, brother or sister, brother or sister-in-law, nephew or niece, and
any corporation, partnership, joint venture, limited liability company,
association, trust, joint stock company, unincorporated organization, or entity
in which such a Person has any ownership interest in (excluding any public
company in which a Person owns less than 1% of the outstanding shares of common
stock).
"Financial Statements" shall have that same meaning as in Section
3.1(o).
"GAAP" means Generally Accepted Accounting Principles.
"Intangible Assets" means all right, title and interest in and to all
know-how, technology, slogans, data, studies, confidential information,
restrictive covenants, computer software (including documentation and related
object and source codes), designs, indemnity rights and other intangible assets
now used or presently planned to be used by the Company, and all of the goodwill
associated therewith, confidentiality obligations and similar obligations of
present and former stockholders, officers and employees of the Company.
"Intellectual Property Licenses" has the meaning contained in Section
3.1(s)(i).
"Inventory" shall mean all inventories, including work-in-progress and
raw materials.
"Israeli Companies Law" shall mean the Israeli Companies Law, 5759-1999
"Israeli Tax Ruling" shall have the meaning contained in Section 4.6.
"Knowledge" of the Company or "to the best of the Company's Knowledge"
means the knowledge of any officer, director, manager or Person performing
comparable duties for the Company.
"Laws" has the meaning contained in Section 3.1 (r).
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"Leases" and individually a "Lease" shall have that same meaning as in
Section 3.1(i).
"Liabilities" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses and Permits" shall have that same meaning as in Section
3.1(m).
"Listed Intellectual Property" has the meaning contained in Section
3.1(s).
"Liens" include any liens, encumbrances, security interests, mortgages
or similar charges.
"Losses" shall have that same meaning as in Section 5.2.
"Material Adverse Effect" means, when used with respect to Activeworlds
and/or the Company, as the case may be, any change or effect that is materially
adverse to the business, assets, Liabilities, results of operations, condition
(financial or otherwise), management or future prospects of such Party. More
specifically and without limiting the prior sentence, any loss of a Customer (or
knowledge of a future loss or material reduction in revenues from a Customer)
which accounted for 10% or more of the Company's revenues in 2003 or for the
nine months ended September 30, 2004 shall be considered to have a Material
Adverse Effect.
"Merger" shall have that same meaning as in Section 2.1.
"Merger Consideration" shall have that same meaning as in Section 2.3.
"Merger Proposal" shall have that same meaning as in Section 316 of the
Israeli Companies Law.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Person" shall mean any person, corporation, association, partnership,
limited liability company, joint venture, organization, business, individual,
government, or any agency or political subdivision thereof or any other entity.
"Preferred Stock" shall have that same meaning as in Section 3.2(d)(i).
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" shall have that same meaning as in Section 3.2(e).
"Securities Act" means the Securities Act of 1933.
"Software Products" has the meaning contained in Section 3.1(s)(ii).
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"Stockholder Indemnitee" or "Stockholder Indemnitees" has the meaning
contained in Section 5.3.
"Subsidiaries" mean any corporation, limited liability company or
entity in which a Party owns at least 50.1% of the equity or otherwise has the
power to manage or control.
"Substituted Options" has the meaning contained in Section 4.6.
"Substituted Warrants" has the meaning contained in Section 4.6.
"Surviving Corporation" shall have that same meaning as in Section 2.1.
"Taxes" shall have that same meaning as in Section 3.1(g).
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
Section 2. Basic Transaction.
2.1 The Merger. On and subject to the terms and conditions of
this Agreement and the applicable provisions of the Israeli Companies Law, the
Acquisition Sub (as the target company in the Merger) shall merge with and into
the Company (as the absorbing company in the Merger) at the Effective Time. The
Company shall be the corporation surviving the Merger (the "SURVIVING
CORPORATION"). Following the Merger, the separate corporate existence of the
Acquisition Sub shall cease and the Company shall continue as the Surviving
Corporation.
2.2 The Closing. The closing of the transactions contemplated
by this Agreement (the "CLOSING") at the offices of Activeworlds, 00 Xxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, XX 00000, at 10:00 a.m. local time on the fifth
business day following fulfillment or waiver of all conditions contained in
Sections 4.1 through 4.3, but in no event later than February 28, 2005, or such
place and other date as the Parties may mutually determine (the "CLOSING DATE").
2.3 Actions at the Closing. At the Closing, (a) the Company
shall deliver to Activeworlds and the Acquisition Sub the various certificates,
instruments, and documents referred to in Section 4.1 and 4.5 below, (b)
Activeworlds and the Acquisition Sub shall deliver to the Company the various
certificates, instruments, and documents referred to in Section 4.2 and 4.4
below, and (c) Activeworlds shall deliver Activeworlds Common Stock as further
described in Section 2.4.4 below (the "MERGER CONSIDERATION") to the Company's
stockholders.
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2.4 Effect of Merger.
2.4.1 General. The Merger shall become effective at
the later of: (i) the time of the delivery of the Acquisition Sub and the
Company's Notices to the Companies Registrar, as required in the Israeli
Companies Law or (ii) the 71st day after the delivery of the Merger Proposal to
the Companies Register (the "EFFECTIVE TIME") in the manner provided in Section
323 of the Israeli Companies Law.
2.4.2 Articles of Association. The Articles of
Association of the Company in effect at and as of the Effective Time shall be
the Articles of Association of the Surviving Corporation until thereafter
changed or amended as provided by applicable law.
2.4.3 Directors and Officers of Activeworlds. The
directors and officers of Activeworlds immediately following the Merger shall be
as reflected on Schedule 2.4.3.
2.4.4 Directors and Officers of the Surviving
Corporation. The directors and officers of the Company at and as of the
Effective Time shall be the directors and officers of the Surviving Corporation.
2.4.5 Merger Consideration.
(a) The Merger Consideration shall consist of
24,683,303 shares of restricted Activeworlds Common Stock delivered at the
Closing as reflected on Exhibit A , subject to adjustment as provided in Section
2.4.5(d).
(b) At and as of the Effective Time, each
issued and outstanding share of Company Share Capital shall be converted into
the Merger Consideration. Each issued and outstanding share of Company Share
Capital shall be entitled to share in the Merger Consideration on a pro rata
basis, based upon the number of shares of Company Share Capital owned as of the
record date for the Merger, all as reflected on Exhibit A.
(c) At and as of the Effective Time, each of
the ordinary shares par value NIS 1.00 per share, of the Acquisition Sub shall
be converted into that number of ordinary share par value NIS 0.1, of the
Surviving Corporation equal to the product of: (i) the number shares of the
Company outstanding at the Closing Date and (ii) the number of shares of AWLD
Ltd. outstanding at the Closing Date.
(d) Derivative Securities. To the extent that
any options and warrants of the Company exist as of the Closing Date such
options and warrants shall be assumed by Activeworlds. Each option or warrant so
assumed shall continue to have and shall be subject to the same terms and
conditions (including vesting schedule) as those which existed prior to the
Closing Date except that, as of the Closing Date, (i) each such option or
warrant shall be exercisable for that number of whole shares of Activeworlds
Common Stock equal to the product of the number of Company Shares that were
issuable upon exercise of such option or warrant immediately prior to the
Closing Date multiplied by 14.695 (the "Exchange Ratio"), rounded to the nearest
6
whole number of shares of Activeworlds Common Stock, and (ii) the per share
exercise price for each share of Activeworlds Common Stock issuable upon
exercise of each such option or warrant so converted shall be equal to the
quotient determined by dividing the exercise price per Company Share at which
such option or warrant was exercisable immediately prior to the Closing Date
(expressed in U.S. Dollars based on the exchange rate in effect as of the close
of business on the business day immediately preceding the date hereof) by the
Exchange Ratio, rounded to the nearest whole cent. To the extent such options
and warrants are not reflected on Schedule 2.4.5(a), the number of shares of
Activeworlds Common Stock issued as part of the Merger Consideration shall be
reduced on a share-for-share basis. The note payable to Xxxxx Xxxxxxxx shall be
convertible into shares of Activeworlds Common Stock at $1.00 per share.
(e) At and as of the Effective Time,
Activeworlds shall have a net cash balance of US $3,450,000 after payment of all
Liabilities. Of this cash balance, US $3,150,000 will be held in escrow and will
be raised through the sale of seven units for US $450,000 per unit in a private
offering. Each unit will contain 836,609 shares of Activeworlds Common Stock and
warrants to purchase 418,305 shares of Activeworlds Common Stock exercisable at
US $3.00 per share.
(f) Fractional Shares. No fraction of a share
of Activeworlds Common Stock shall be issued, and such number of shares of
Activeworlds Common Stock shall be rounded down.
(g) Deferred Delivery. To the extent that any
of the Company stockholders fail to (i) execute the investment letter and
receipt (Exhibit C), and (ii) deliver to Activeworlds their stock certificates
of the Company duly endorsed, Activeworlds may refrain from delivering the
Merger Consideration to them, which shares of Activeworlds Common Stock shall be
held in escrow by the attorneys for the Activeworlds.
2.4.6 Adjustments. In the event of any
reclassification, recapitalization, stock split, stock dividend (including any
dividend or distribution of securities convertible into Activeworlds Common
Stock) or subdivision with respect to Activeworlds Common Stock, any change or
conversion of Activeworlds Common Stock into other securities, any other
dividend or distribution with respect to Activeworlds Common Stock (or if a
record date with respect to any of the foregoing should occur), prior to the
Effective Time, appropriate and proportionate adjustments shall be made to the
number of shares of Activeworlds Common Stock issued as part of the Merger
Consideration.
2.5 Procedure for Exchange of Common Stock. At the Closing, or
as soon as practicable following the Closing, the stockholders of the Company
shall deliver to Activeworlds certificates for their shares of Company Share
Capital.
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Section 3. Representations and Warranties.
3.1 The Company. The Company hereby represents and warrants to
Activeworlds, AWLD, the Acquisition Sub and Baytree LLC, all of which
representations and warranties are as of the date hereof and will be as of the
Closing Date true, complete, and correct in all respects, as follows:
(a) Organization and Qualification. The Company is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Israel. The Company has all requisite power and
authority to own its assets, those properties and conduct those businesses
presently owned or conducted by it, and is duly qualified to do business as it
is now being conducted and is in good standing as limited liability company in
the jurisdiction where the property owned, leased or used by it or the conduct
of its business makes such qualification necessary, except where the lack of
such qualification does not have a Material Adverse Effect on the Company. The
copies of the respective Memorandum of Association and Articles of Associations
of the Company, which have been delivered to Activeworlds, AWLD and the
Acquisition Sub, are complete and correct and are in full force and effect.
(b) Authorization. Subject to approval by the Company's
shareholders as required under Israeli law, the Company has full power and
authority to enter into and perform this Agreement and all corporate or other
action necessary to authorize the execution and delivery of this Agreement and
the performance of its obligations hereunder has been duly taken. Without
limiting the generality of the foregoing, the Board of Directors of the Company
has duly authorized the execution, delivery, and performance of this Agreement
by the Company and such resolutions have not been revoked. This Agreement has
been duly executed by the Company and constitutes the legal, valid and binding
obligation of the Company and is enforceable against the Company in accordance
with its terms.
(c) Noncontravention. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any Laws of the state of Israel or any provision of the
Articles of Association of the Company, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which the Company is bound or
to which any of its assets are subject (or result in the imposition of any Lien
upon any of their Assets). The Company does not need to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Capitalization. As of the date hereof, the authorized
capital of the Company is 130,000 New Israeli Shekels "NIS", divided into
1,100,000 Ordinary Shares of NIS 0.1 par value each, 200,000 Ordinary A Shares
of NIS 0.1 par value each. No later than the Closing Date, the authorized
capital of the Company will be 200,000 NIS divided into 2,000,000Ordinary Shares
of NIS 0.1 par value each (ii) 1,679,624 of the Company Share Capital will be
8
issued and outstanding; (iii) up to 50,000 Ordinary Shares of the Company are
reserved for issuance to Catena Holding B.V. (iv) up to 68,000 Ordinary Shares
of the Company will be reserved for issuance to directors, officers, key
employees, consultants and contractors of the Company, pursuant to the terms set
forth in the resolution of the Board of Directors of the Company dated June 1999
(iv) up to 100,000 Ordinary shares of the Company will be reserved for issuance
to officers, key employees, consultants and contractors of the Company. All of
the issued and outstanding shares of the Company Share Capital have been duly
authorized and are validly issued, fully paid, and nonassessable and are free
and clear of any Liens, and are not subject to preemptive rights or rights of
first refusal created by statute, the Company's Articles of Association or any
agreement, other than those agreements listed on Schedule 3.1(d), to which the
Company is a party or by which it is bound. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock, limited liability interest, or
other securities of the Company, or otherwise obligating the Company to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities. There
are no outstanding or authorized performance units, stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Company.
There are no voting trusts or proxies relating to the capital stock of the
Company between or among any of the stockholders of the Company. All outstanding
shares of Company Share Capital were issued in compliance with all applicable
Laws, including the laws of Israel.
(e) Subsidiaries. Other than as listed in Schedule 3.1(e), the
Company has no Subsidiaries and does not own any interest in any other
corporation, partnership, joint venture, limited liability company, association,
trust or entity.
(f) Brokers' Fees. Other than such fee listed in Schedule
3.1(f), as will be paid in full by the Company, the Company has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
Activeworlds, the Acquisition Sub or the Surviving Corporation could become
liable.
(g) Taxes. The Company has timely filed (timely being
understood to include all properly granted extensions) all Tax Returns required
to be filed by them with respect to all Israeli taxes, including taxes based
upon or measured by income, payroll, employment, unemployment, withholding,
excise, sales, personal property, use, business and occupation, franchise and
occupancy, real estate, or other taxes (all of the foregoing taxes including
interest and penalties thereon and including estimated taxes, the "TAXES") and
has paid or reserved all Taxes which are due pursuant to such Tax Returns and
has paid or reserved all other Taxes for which they have received a notice of
assessment or demand for payment or have otherwise been made aware of a
deficiency. All such Tax Returns are true, correct, and complete in all
respects. No claim or notice has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Liens on any of the
Assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax. The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
No Tax Return has been the subject of an investigation, inquiry or an audit by
any Tax authority. The Company has no Knowledge of any basis for, nor do the
9
Company expects any authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or claim concerning any
Tax liability of the Company either (i) claimed or raised by any authority, or
(ii) as to which the Company has Knowledge.
(h) Title to Assets. Except as set forth on Schedule 3.1(h),
the Company is the sole record and beneficial owners of the assets reflected on
their financial statements including the Closing Date Financial Statements,
previously delivered to Activeworlds (the "ASSETS") and has good and marketable
title to all of the Assets, free and clear of any Lien. In particular, without
limiting the generality of the foregoing, there has been no assignment,
subletting, or granting of any license in respect of the Assets or any granting
of any agreement or right capable of becoming an agreement or right for the
purchase of any such Assets. The Company has valid and perfected security
interests in all Assets consigned to third Parties.
(i) Leases. Schedule 3.1(i) sets forth a complete and accurate
listing or description of all real and personal property leases, subleases,
concessions, licenses, occupancy agreements, conditional sales agreements or
other title retention agreements (collectively, the "LEASES" and individually a
"LEASE") to which the Company is a party. Each of the Leases is valid, binding
and enforceable in accordance with its terms, and is in full force and effect;
to the best of the Company's Knowledge, there are no existing defaults on the
part of the Company or, to the best of the Company Knowledge, any other party,
under any Lease, and no event of default under any such Lease has occurred and
is continuing which (whether with or without the giving of notice, lapse of time
or both, or the happening of any other event) would constitute a default under
such Lease; each such Lease will, subject to obtaining any consent listed in
Schedule 3.1(i), continue to be in full force and effect on the same terms and
conditions immediately after the Closing without the need for any action on the
part of the Company; to the best of the Company's Knowledge, each such Lease
reflects the complete understanding among the Parties thereto; and accurate and
complete copies of each such Lease including all amendments thereto, have been
delivered to Activeworlds, AWLD and the Acquisition Sub at or prior to the date
hereof. The Company's interest in each of the Leases is free and clear of all
Liens or other encumbrances and are not, in the case of real property, except as
set forth in Schedule 3.1(i), subject to any rights of way, building use
restrictions, exceptions, variances, easements (recorded or unrecorded), rights
of redemption, reservations or limitations of any nature whatsoever of which the
Company has Knowledge which may materially interfere with the Company's use
thereof in a manner consistent with the Company's use thereof prior to Closing.
(j) Contracts and Other Documents. Schedule 3.1(j) contains a
complete and accurate list of all material Contracts, oral or written, to which
the Company is a party to, including, without limitation, security agreements,
conditional sales agreements, instruments relating to the borrowing of money,
and broker or distributorship agreements; provided, however, that Schedule
3.1(j) need not include: (i) purchase orders received by the Company in the
Ordinary Course of Business from its Customers; (ii) purchase orders issued by
the Company in the Ordinary Course of its Business to its suppliers and
subcontractors involving less than US $10,000 individually and US $25,000 in the
aggregate; or (iii) other Contracts involving less than US $25,000. Except as
set forth on such Schedule 3.1(j), all Contracts set forth in such Schedule are
valid, binding and enforceable in accordance with their terms against each party
10
thereto, are in full force and effect, the Company has performed all material
obligations imposed upon it thereunder, and neither the Company nor any other
party thereto is in default thereunder, nor is there any event which with notice
or lapse of time, or both, would constitute a default thereunder. True and
complete copies of each such Contract have been heretofore delivered to the
Company. Except as specifically set forth on such Schedule 3.1(j), the Company
has no:
(A) agreements, Contracts, commitments or restrictions
requiring the Company to make any charitable contribution;
(B) purchase Contracts or commitments of the Company that
continue for a period of more than 12 months or are in excess of the Ordinary
Course of Business;
(C) Contracts with managers, members or equity owners;
(D) Employment agreements, whether express or implied, or any
other agreement for services that contains any severance or termination pay
Liabilities or obligations, other than provided by applicable law as reflected
on Schedule 3.1(j);
(E) restrictions by agreement from undertaking business
anywhere in the world, or restrictions by agreement from providing services to
any Customer or potential Customer;
(F) Liabilities or obligations with respect to the return of
inventory or merchandise other than on account of defective conditions,
incorrect quantities or missed delivery dates;
(G) debt obligations for borrowed money, including guarantees
of or agreements to acquire any such debt obligations of others in excess of US
$25,000;
(H) loans outstanding to any Person other than expense
advances to employees not in excess of US $10,000 individually or US $25,000 in
the aggregate;
(I) powers of attorney outstanding or any obligations or
Liabilities (whether absolute, accrued, contingent or otherwise) as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any Person;
(J) notices of or any knowledge that any party to a Contract
to which it is a party intends to cancel, terminate or refuse to renew such
Contract or to exercise or decline to exercise any option or right thereunder;
(K) material disagreements with any suppliers or Customers;
and
(L) equipment leases other than leases previously disclosed to
Activeworlds.
11
(k) Labor Difficulties. (i) the Company is not a party to any
union agreement or collective bargaining agreement and no attempt to organize
any employees of the Company has been made, proposed or threatened; (ii) there
is no labor strike, formal labor dispute, formal labor grievance, labor
arbitration proceeding, general slowdown or stoppage, or charge of unfair labor
practice pending before a court, commission, regulatory body or arbitration
tribunal, or, to the best of the Company's Knowledge, threatened against or
affecting any or all of the Assets or the business of the Company, and to the
best of the Company's Knowledge no event has occurred which would constitute
reasonable grounds for any strike, dispute, grievance, proceeding or charge;
(iii) no union representation question exists with respect to any employees of
the Company; (iv) to the best of the Company's Knowledge, there are no charges
or complaints of discrimination pending before the any equal employment
opportunity commission in connection with the business of the Company; and (v)
to the best of the Company's Knowledge, the Company does not presently employ,
and at no time during the past three years did they employ, any illegal aliens
(as such concept exists under the laws of Israel); and (vi) to the best of the
Company's Knowledge, the Company is in compliance in all material respects with
all applicable labor and employment-related Laws.
(l) Employees. Schedule 3.1(l) sets forth an accurate and
complete list of: (i) the names and current salaries or wage rate, as
applicable, of all of the Company's employees whose annual compensation is US
$100,000 or more; (ii) any increases required by any agreement or understanding
with each of the foregoing; (iii) all known family relationships by blood,
marriage, and adoption between any of the Company's employees, independent
contractors, officers, and directors (and their Family Members); and (iv) a
description of any informal understanding concerning employees' rights to
continue to receive compensation during any periods during which such employees
are not performing any services for the Company. As of the Closing Date, there
will be no bonuses, profit sharing, incentives, commissions or other
compensation of any kind, including severance benefits, and accrued vacation
time or pay, due to or expected by present or former employees of the Company
which have not been fully paid prior to such date or are expected to be paid by
the Company within 15 days after such date. To the Company's Knowledge, no
executive, key employee, or group of employees has any plans to terminate
employment with the Company. Other than as listed on Schedule 3.1(l), the
Company does not employ any consultants in lieu of employees for which the total
cost in 2003 or anticipated cost in 2004 or 2005 is US $25,000 or more. No
Person has alleged that the Company has committed any act involving (i) sexual
misconduct or harassment, or (ii) discrimination in violation of any applicable
Laws.
(m) Licenses and Permits. The Company has obtained, have fully
paid for, and have in full force and effect all licenses, franchises, permits,
approvals, certificates, certifications and other authorizations from all
applicable governmental authorities which are necessary for the conduct of each
business as currently conducted and the ownership, use, occupancy and operation
of the Assets, except where the failure to do so would not have a Material
Adverse Effect on the Company (the "LICENSES AND PERMITS"). Schedule 3.1(m) sets
forth a complete and accurate list of all Licenses and Permits. To the best of
the Company's knowledge, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
12
result in the revocation, cancellation, suspension, modification, or limitation
of any of the Licenses and Permits and will not give to any Person any right to
revoke, cancel, suspend, modify, or limit any of the Licenses and Permits.
Renewal of each of the Licenses and Permits has been, or will be as of the
Closing Date, timely applied for to the extent required under all Laws and to
the extent appropriate to protect renewal rights thereunder. To the best of the
Company's Knowledge, there is no fact or event which is likely to prevent the
renewal of any of the Licenses and Permits under existing law or which, with the
passage of time or the giving of notice or both, is likely to constitute a
violation of the terms of any of the Licenses and Permits or of any applications
or agreements made in connection therewith. No action or proceeding is pending
or, to the best of the Company's Knowledge, threatened which could result in the
revocation, cancellation, suspension, modification, or limitation of any of the
Licenses and Permits. The Company does not owe any monies for the Licenses and
Permits which have been granted to them.
(n) Accounts Receivable. The Company's Accounts Receivable
arose from bona fide transactions in the Ordinary Course of Business of the
Company and have not been discounted and, except to the extent of the reserve
set forth on Closing Date Balance Sheet, will not be discounted. To the
Company's knowledge the Accounts Receivable of the Company are not subject to
any defense, deduction, reduction, counterclaim or setoff. There are no
agreements or other understandings, whether oral or in writing, with respect to
the write-down, write-off or deferral of any Accounts Receivable.
(o) Financial Statements. Schedule 3.1(o) sets forth the
unaudited financial statements as for the year ended December 31, 2003, which
include the balance sheet, statement of operations and retained earnings of the
Company, and statements of cash flows and equity of the Company, together with
the related notes thereto (collectively, the "FINANCIAL STATEMENTS") and the
unaudited Financial Statements of the Company for the nine-month period ended
September 30, 2004. On or before December 31, 2004, the Company shall deliver to
AWLD and the Acquisition Sub the Financial Statements for the nine-month period
ended September 30, 2004 together with a letter from Ernst & Young stating that
the nine-month Financial Statements have been reviewed by it in accordance with
United States GAAP. In addition, on or before five days prior to the Closing
Date , the Company shall deliver to Activeworlds its Unaudited Financial
Statements for the year ended December 31, 2004 prepared in accordance with US
GAAP. On the Closing Date, the Company shall deliver to Activeworlds, AWLD and
the Acquisition Sub the unaudited balance sheet of the Company as of the close
of business on the last day of the month prior to the Closing Date (without any
adjustments which will result from the Closing), and the audited Financial
Statements of the Company for the year ended December 31, 2003 (collectively,
the "CLOSING DATE FINANCIAL STATEMENTS"), certified by the Chief Executive
Officer of the Company in substantially the same form as the certifications
required by Sections 302 and 906 of the Xxxxxxxx-Xxxxx Act of 2002 and the rules
of the SEC thereunder (the "Certification"). The Financial Statements and the
Closing Date Financial Statements are or will be complete and correct in all
material respects and fairly present the financial condition of the Company as
of the dates thereof and the results of their operations for the fiscal years
and periods ended on such dates. The Financial Statements and Closing Date
Financial Statements have been prepared in accordance with United States
generally accepted accounting principles and the rules of the Public Company
Accounting Oversight Board consistently applied. The Company has no Liabilities
or obligations (whether accrued, absolute, contingent or otherwise) (i) of a
nature required to be disclosed on a balance sheet or in the related notes to
Financial Statements prepared in accordance with GAAP, or (ii) which,
individually or in the aggregate, have had or could reasonably be expected to
13
have a Material Adverse Effect on the Company. The Financial Statements and the
Closing Date Financial Statements do not and/or will not contain any untrue
statements of material facts or omit to state any material facts 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. The audited Financial
Statements of the Company for the year ended December 31, 2003 shall not be
materially different than the unaudited Financial Statements for the same period
which are contained on Schedule 3.1(o).
(p) Assets; Ownership of Necessary Assets and Rights. The
assets, properties and rights included in the Assets comprise all of the assets,
properties, and rights of every type and description, real, personal, and mixed,
tangible and intangible, used by the Company in, and necessary to, the conduct
of their business as presently conducted. The Assets are in good condition and
repair and have received maintenance in the Ordinary Course of Business.
(q) Absence of Undisclosed Liabilities. The Company does not
have any Liabilities or obligations of any nature, whether contingent, accrued,
absolute, unasserted or otherwise, other than Liabilities or obligations
reflected in the Financial Statements or the Closing Date Financial Statements.
(r) Compliance with Law. To the best of the Company's
Knowledge, the Company is presently in compliance in all material respects with
all applicable laws, whether in Israel, the United States or elsewhere, as the
case may be, rules, regulations, guidelines, orders, injunctions, building and
other codes, ordinances, Permits and Licenses, authorizations, judgments,
decrees, and all orders, writs, decrees and consents of any governmental or
political subdivision or agency thereof, or any court or similar Person
established by any such governmental or political subdivision or agency thereof
(collectively, the "LAWS"). To the best of the Company's Knowledge, no event has
occurred which would constitute reasonable grounds for a claim that
non-compliance has occurred or is occurring and any non-compliance will not have
a Material Adverse Effect on the Company. In furtherance of the foregoing: (i)
the Company has not received any written notice that any governmental agency or
department has commenced or threatened to initiate (i) any action against the
Company, (ii) any action to enjoin research at any facility owned or used by the
Company, or (iii) any civil penalty, injunction, seizure or criminal action
against them.
(s) Intellectual Property and Intangible Assets.
(i) Set forth on Schedule 3.1(s) is a true and
complete list of all inventions, patents, patents pending, trademarks, trade
names, brand names, copyrights, Software Products (as defined below), trade
secrets and formulae (collectively, the "LISTED INTELLECTUAL PROPERTY") owned by
the Company, including a list of all governmental registrations and applications
for registration for each. Schedule 3.1(s) contains a complete list of all
licenses or agreements which in any way affect the rights of the Company to any
of the Listed Intellectual Property (the "INTELLECTUAL PROPERTY LICENSES"); such
14
list indicates the specific Listed Intellectual Property affected by each such
Intellectual Property License. To the best of the Company's Knowledge, neither
the Company's operations nor any Listed Intellectual Property or Intellectual
Property License infringes or provides any basis to believe that the Company's
operations or any Listed Intellectual Property or Intellectual Property License
would infringe upon any validly issued or to the Knowledge of the Company any
pending trademark, trade name, service xxxx, copyright or, any validly issued or
pending patent or other right of any other Person, nor, to the best of the
Company's Knowledge, is there any infringement by any other Person of any of the
Listed Intellectual Property or of the intellectual property to which the
Intellectual Property Licenses relate. Except as specifically set forth on
Schedule 3.1(s), consummation of the transactions contemplated hereby will not
alter or impair the Company's rights to any of the Listed Intellectual Property
or under any Intellectual Property License. The manner in which the Company has
manufactured, packaged, shipped, advertised, labeled and sold its products
complies with all applicable Laws pertaining thereto, the failure to comply with
which would have a Material Adverse Effect upon the Company. The Prior Art
Search, annexed as Schedule 3.1(s), is true and correct.
(ii) Except as specifically set forth on Schedule
3.1(s), the Company is the sole and exclusive owner or licensee of:
(A) the Listed Intellectual Property, the
Intellectual Property Licenses and the technology, know-how and processes now
used by the Company, or used in connection with any product now being
manufactured and sold by the Company, in the manner that such product is now
being manufactured and sold; and
(B) all rights, title and interest of whatever
kind or nature throughout the world in and to the fully or partially developed
computer software products listed on Schedule 3.1(s), with all modifications,
enhancements and additions thereto, including, without limitation, all rights in
and to all versions thereof and all source code, object code, manuals and other
documentation and related materials thereof (collectively, the "SOFTWARE
PRODUCTS"). Without limiting the generality of the above, the Software Products
shall also include all of the Company's related programs, trade secrets,
algorithms and processes relating to the Software Products or such programs, the
Company's copyright in and to each of the Software Products and all works
derivative therefrom (including the registrations of copyright listed on
Schedule 3.1(s), all current, previous, enhanced and developmental versions of
the source and object code and any variations thereof, all user and programmer
documentation, all design specifications, all maintenance and installation job
control language, all system documentation (including all flow charts, systems
procedures and program component descriptions), all procedures for modification
and preparation for the release of enhanced versions and all test data available
(excluding all proprietary information of third parties) with respect to the
Software Products.
(iii) Except as set forth on Schedule 3.1(s), each of the
Intellectual Property Licenses is valid, binding and enforceable in accordance
with its terms against the parties thereto, the Company has performed all
obligations imposed upon it thereunder, and neither the Company nor any other
party thereto is in default thereunder, nor is there any event which with
15
notice or lapse of time, or both, would constitute a default thereunder. The
Company has not received notice that any party to any of the Intellectual
Property Licenses intends to cancel, terminate or refuse to renew the same or to
exercise or decline to exercise any option or other right thereunder. No
licenses, sublicenses, covenants or agreements have been granted or entered into
by the Company in respect of any of the Listed Intellectual Property except the
Intellectual Property Licenses. Except as set forth on Schedule 3.1(s), the
Company has no Knowledge and has no reason to believe that there exists any new
developments in the creation, publication or marketing of the products of the
Company or any new or improved products or processes useful in connection with
the business of the Company as now conducted or as presently anticipated to be
conducted, except such developments, products and processes as would not have a
Material Adverse Effect upon the Company. None of the Company's members,
employees, consultants, distributors, agents, representatives or advisers has
entered into any agreement regarding know-how, trade secrets, assignment of
rights in inventions, or prohibition or restriction of competition or
solicitation of customers, or any other similar restrictive agreement or
covenant, whether written or oral, with any Person other than the Company.
(iv) No Person has asserted any claim of infringement or other
interference with third-party rights with respect to the Listed Intellectual
Property. Except as set forth on the on Schedule 3.1(s), (A) the Company has not
disclosed any source code regarding the Software Products to any Person other
than to an employee of the Company, (B) the Company has at all times maintained
reasonable procedures to protect and has enforced all trade secrets of the
Company; (C) neither the Company nor any escrow agent is under any contractual
or other obligation to disclose the source code or any other proprietary
information included in or relating to the Software Products, nor is any other
party to the Intellectual Property Licenses or any escrow agent under any such
obligation to disclose any source code or other proprietary information included
in or relating to Software Products, if any, that are licensed to the Company,
or to any Person, and no event has taken place, including the execution of this
Agreement or any related change in the Company's business activities, which
would give rise to such obligation, and (D) the Company has not deposited any
source code regarding the Software Products into any source code escrows or
similar arrangements. If, as disclosed on Schedule 3.1(s), the Company has
deposited any source code to Software Products into source code escrows or
similar arrangements, no event has occurred that has or could reasonably form
the basis for a release of such source code from such escrows or arrangements.
(v) Except as set forth on Schedule 3.1(s), the Software
Products currently being marketed by the Company are free from known significant
defects and substantially conform to the specifications and documentation
therefor.
(vi) Except as set forth on Schedule 3.1(s), no manager,
employee or member of the Company, directly or indirectly, has any ownership,
financial or other interest in any of the Listed Intellectual Property.
(t) Pending Litigation. Other than as set forth in Schedule
3.1(t) the Company is not (i) subject to any outstanding injunction, judgment,
order, decree, ruling, or charge, or (ii) Party or, to the Company's Knowledge,
threatened to be made parties to any action, suit, proceeding, hearing, or
16
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
(u) Customer List. To the Company's Knowledge, the Company has
not received any notice, whether written or oral, indicating that any Customer
intends to cease doing business with the Company, or to materially alter the
amount of business it has previously done or is presently doing with the
Company.
(v) Events Subsequent to Most Recent Fiscal Year End. Since
December 31, 2003, there has not been any Material Adverse Effect in the
business, financial condition, operations, results of operations or future
prospects of the Company. Without limiting the generality of the foregoing,
since that date:
(i) The Company has not sold, leased, transferred, or
assigned any of its Assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) No Person has accelerated, terminated, modified,
or cancelled any agreement, Contract, lease or license (or series of related
agreements, contracts, leases, and licenses) to which the Company is a party or
by which it is bound involving (A) more than US $25,000; or (B) a term of more
than one year;
(iii) Except for capital equipment expenditures
reflected on the Closing Date Balance Sheet, the Company has not made any
capital expenditure (or series of related capital expenditures) either involving
more than US $25,000 or outside the Ordinary Course of Business;
(iv) The Company has not made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and acquisitions)
either involving (A) more than US $25,000, (B) or outside the Ordinary Course of
Business;
(v) The Company has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course of
Business;
(vi) The Company has not cancelled, compromised,
waived, or released any right or claim (or series of related rights and claims)
either involving (A) more than US $25,000, or (B) outside the Ordinary Course of
Business;
(vii) The Company has not granted any license or
sublicense of any rights under or with respect to any intellectual property;
(viii) The Company has not entered into any
collective bargaining agreement except as reflected on Schedule 3.1(v);
17
(xiv) The Company has not granted any increase in the
base compensation of any of their directors, or officers or any of their Family
Members except as reflected on Schedule 3.1(v);
(xv) The Company has not made any other change in
employment terms for any of its directors and officers or any of their Family
Members except as reflected on Schedule 3.1(v);
(xvi) The Company has not made or pledged to make any
charitable or other capital contribution in excess of US $25,000 and outside the
Ordinary Course of Business;
(xvii) There has not been any other occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
(xviii) The Company has not committed to do any of
the foregoing.
(w) Inventory. All Inventory of the Company was acquired and
has been maintained in the Ordinary Course of Business.
(x) Suppliers. To the best of the Company's Knowledge, no
Customer or supplier has disclosed to the Company its intention to discontinue
or substantially reduce the size or number of transactions it consummates with
the Company prior or subsequent to the Closing or will consummate upon the
consummation of the transactions contemplated herein or thereafter.
(y) No Third Party Option. There are no existing agreements,
options, commitments or rights with, of or to any Person to acquire any of the
Company Assets or equity interest or any interest therein, except for those
contracts entered into in the Ordinary Course of Business, except as herein
above described.
(z) Related Party Transactions. No officer, supervisory
employee, director, manager, member or stockholder of the Company or any of its
Family Members (i) owns, directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
Customer, competitor, or a supplier of the Company or any organization which has
a Contract or arrangement with the Company, or (ii) has any Contract or
agreement with the Company, and all such agreements are on arms-length terms.
Schedule 3.1(z) describes (i) any transaction which is and effect as of the date
hereof between the Company or any of its subsidiaries and any officer, director
or shareholder of the Company or their Family Members, and (ii) all transactions
which caused the Company to recognize revenues or expenses since December 31,
2003 (or will cause Activeworlds, the Company to do so in the future) as the
result of any transaction between Activeworlds or the Company and any of their
officers, directors, managers, members, or stockholders or their Family Members.
(aa) Contingent Liabilities. The Company has no contingent
Liabilities to any Person, except: (i) Liabilities, obligations or contingencies
less than US $3,000 which were incurred after September 30, 2004 and were
18
incurred in the Ordinary Course of Business; (ii) Liabilities, obligations or
contingencies which (A) would not, in the aggregate, have a Material Adverse
Effect on the Company, or (B) have been discharged or paid in full prior to the
date hereof; (iii) Liabilities and obligations which are of a nature not
required to be reflected in the financial statements of the Company prepared in
accordance with generally accepted accounting principles consistently applied
and which were incurred in the Ordinary Course of Business; and (iv) Liabilities
reflected in the Company's Financial Statements or the Closing Date Financial
Statements.
(bb) Guaranties. The Company is not a guarantor, surety, or
otherwise liable for any Liability or obligation (including indebtedness) to any
other Person except as reflected in the Company's Financial Statements or the
Closing Date Financial Statements.
(cc) Restrictive Covenants. The Company is not a party to or
is bound or affected by any commitment, agreement or document containing any
covenant or other provision limiting the freedom of the Company to compete in
any line of business, acquire products or services from any supplier or vendor,
sell or market products or services to any Customer or potential Customer, or
transfer or move any of its operations. The Company is not a Party to or bound
or affected by any commitment, agreement or document containing any covenant or
other provision which materially or adversely affects the Assets or equity
interests of the Company.
(dd) Insurance. The Company maintains such policies of
insurance, as are appropriate to the Company's operations, property, and assets,
including, but not limited to, the Assets, in such amounts and against such
risks as are customarily carried and insured against by owners of comparable
businesses, properties and assets. All such current policies of insurance are in
full force and effect. The Company is not in default, as to the payment of
premiums or otherwise, under the terms of any such policy. Schedule 3.1(dd) sets
forth a complete list of all policies of insurance which the Company maintains
and, with respect to such policies, the name of the insurer, the risk insured
against, the amount of coverage and the amount of any deductible and a summary
of all claims under each such policy for the past two years. No coverage
provided in such policies of insurance shall be diminished, lost or otherwise
adversely affected as a result of the transactions contemplated in this
Agreement.
(ee) Disclosure. No statement, representation or warranty by
the Company in this Agreement, including the Schedules hereto, contains any
untrue statement of material fact, or omits to state a material fact, necessary
to make such statements, representations and warranties not misleading. To the
Company's Knowledge, there are no facts, which may have a Material Adverse
Effect on the Company or its business which have not been set forth in this
Agreement or the Schedules hereto.
3.2 Activeworlds, the Acquisition Sub and AWLD. Activeworlds,
the Acquisition Sub and AWLD hereby jointly and severally represent and warrant
to the Company, all of which representations and warranties are as of the date
hereof and will be as of the Closing Date true, complete, and correct in all
respects, as follows:
(a) Organization and Qualification. Each of Activeworlds, AWLD
and the Acquisition Sub is a corporation duly organized, validly existing and,
19
where applicable, in good standing under the laws of the jurisdiction of its
incorporation and each is duly qualified to do business in each other
jurisdiction where the property owned, leased or used by it or the conduct of
its business makes such qualification necessary.
(b) Authorization. Activeworlds, AWLD and the Acquisition Sub
have full power and authority to enter into and perform this Agreement and all
corporate action necessary to authorize the execution and delivery of this
Agreement and the performance of their obligations hereunder have been duly and
validly authorized by all necessary corporate action on the part of
Activeworlds, AWLD and Acquisition Sub, and no other corporate proceedings on
the part of Activeworlds, AWLD or Acquisition Sub are necessary to authorize
this Agreement or for each of Activeworlds, AWLD and Acquisition Sub to perform
its obligations hereunder, except that Activeworlds must amend its certificate
of incorporation to increase the number of authorized shares of Activeworlds
Common Stock and take other action as provided in this Agreement. Without
limiting the generality of the foregoing, the board of directors of each of
Activeworlds, AWLD and the Acquisition Sub has duly authorized the execution,
delivery, and performance of this Agreement by Activeworlds, AWLD and the
Acquisition Sub. This Agreement has been duly executed by each of Activeworlds,
AWLD and the Acquisition Sub and constitutes the legal, valid and binding
obligation of Activeworlds, AWLD and the Acquisition Sub, enforceable against
each in accordance with its terms, subject to the ability of Activeworlds to
amend its certificate of incorporation.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any Laws to which any of Activeworlds, AWLD and the Acquisition
Sub is subject or any provision of the charter, Bylaws or Articles of
Association of any of Activeworlds, AWLD and the Acquisition Sub, respectively,
(ii) conflict with, result in a beach of, constitute a default under, result in
the acceleration of, create in any Party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which any of Activeworlds, AWLD and
the Acquisition Sub is a party or by which it is bound or to which any of their
assets is subject (or result in the imposition of any Lien upon any of their
assets). None of Activeworlds, AWLD and the Acquisition Sub needs to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except for filings
necessary to consummate the Merger.
(d) Capitalization.
(i) The authorized capital stock of Activeworlds
consists of 100,500,000 shares of capital stock divided into two classes (A)
500,000 shares of preferred stock, US $.001 par value per share (the "PREFERRED
STOCK"), and (B) 50,000,000 shares of Activeworlds Common Stock, US $.001 par
value per share, which will be 100,000,000 shares as of the Closing Date. As of
the date of this Agreement, there are no shares of Preferred Stock outstanding,
and without giving effect to delivery of the Merger Consideration, there are
5,317,116 shares of common stock outstanding. All of the issued and outstanding
20
shares of Activeworlds Common Stock are validly issued and are fully paid,
non-assessable and free and clear of all preemptive rights. When issued in
accordance with the terms of this Agreement, the Merger Consideration to be
issued pursuant to the Merger to the holders of Company Shares hereunder will be
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, security interests, liens, claims, pledge, agreements, and
limitations in Activeworlds' voting rights, charges or other encumbrances of any
nature whatsoever.
(ii) Except as disclosed on Schedule 3.2(d) hereof,
as of the date hereof, there are (a) no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement and also including any
rights plan or other anti-takeover agreement, obligating Activeworlds to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
Preferred Stock or common stock or obligating Activeworlds to grant, extend or
enter into any agreement or commitment except for as otherwise herein, and (b)
no voting trusts, proxies or other agreements or understandings to which
Activeworlds is a party or is bound with respect to the voting of any shares of
Preferred Stock or Common Stock. The shares of Common Stock to be issued as the
Merger Consideration will be as of the Closing duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights, but will be
restricted securities under the Securities Act.
(e) Filings with the SEC. Activeworlds has made all filings
with the SEC that it has been required to make under the Securities Act and the
Exchange Act (the "SEC DOCUMENTS"). All documents required to be filed as
exhibits to the SEC Documents have been so filed, and all material Contracts so
filed as exhibits since September 9, 2000 are in full force and effect, except
those which have expired in accordance with their terms, and Activeworlds is not
in material default with respect to such Contracts. Each of the SEC Documents
has complied in all material respects with the Securities Act and the Exchange
Act in effect as of their respective dates. None of the SEC Documents, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. None
of Activeworlds' subsidiaries is required to file any reports or other documents
with the SEC. Based upon its current lack of business activity, Activeworlds
maintains adequate disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act).
(f) Absence of Undisclosed Liabilities. Since June 30, 2004,
Activeworlds has not incurred any Liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except: (i) Liabilities,
obligations or contingencies which were incurred after September 30, 2004 and
described in Schedule 3.2(f); and; (ii) Liabilities, obligations or
contingencies which (A) would not, in the aggregate, have a value of more than
$10,000 except relating to the Merger, or (B) have been discharged or paid in
full prior to the date hereof.
(g) Certain Regulatory Matters. Activeworlds has not received
any notice that the US Justice Department or the SEC has initiated, commenced or
threatened to initiate any action (1) to enjoin its business activities; or (2)
alleging any civil or criminal violations of law by it nor is it aware of any
circumstances which may give raise to any such action.
21
(h) The Acquisition Sub. Acquisition Sub was organized under
Israeli law on November 28, 2004. Except in connection with this Agreement,
Acquisition Sub has not conducted any operations nor entered into any
agreements, nor will it do either prior to the Effective Time. Acquisition Sub
has no obligations or Liabilities, accrued, absolute, contingent or otherwise,
nor will either have any such obligations or Liabilities prior to the Effective
Time or the earlier termination of this Agreement. Immediately prior to the
Closing, Activeworlds will make a capital contribution to the Acquisition Sub
consisting of the Merger Consideration.
(i) Absence of Business Operations. Activeworlds has not
conducted any business after September 9, 2002.
(j) No Brokers. Other than the obligations to Baytree Capital
Associates LLC ("BAYTREE") pursuant to a renewal of its Consulting Agreement as
provided in Section 4.1(o) including the Activeworlds Common Stock and/or
warrants issued to Baytree and Xxxxx Juroslawicz as reflected in Post
Acquisition Cap Table attached as Exhibit A to this Agreement, Activeworlds,
AWLD and the Acquisition Sub have no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Activeworlds or any other Party could
become liable.
Section 4. Closing.
4.1 Conditions to Activeworlds', AWLD's and the Acquisition
Sub's Obligations. The obligations of Activeworlds, AWLD and the Acquisition Sub
under this Agreement, including, without limitation, the obligation to
consummate and effect the Merger, shall be subject to satisfaction of the
following conditions, unless waived by them:
(a) The Company shall have performed in all material respects
all agreements, and satisfied in all material respects all conditions on each
other's part to be performed or satisfied hereunder at or prior to the Closing
Date.
(b) All representations and warranties of the Company herein
shall have been true and correct in all respects when made, shall have continued
to have been true and correct in all respects at all times subsequent thereto,
and shall be true and correct in all material respects on and as of the Closing
Date as though made on, as of and with reference to such date.
(c) All consents, approvals, certificates and authorizations
required to be obtained by the Company in connection with the Merger, including
without limitation, all approvals by and clearances from all governmental
authorities (including, if necessary, the Office of Chief Scientist), lenders,
and other third parties, shall have been obtained and no such consent, approval
or authorization shall be subject to any condition which is unduly burdensome;
and as of the Closing Date, no Laws shall have been enacted or deemed applicable
to the transactions contemplated by this Agreement which would materially
interfere with or restrict the use and operation of the business of the Company
after the Closing or detract from the value of its Assets.
22
(d) The Company shall have obtained written consents of each
Lease and Contract listed on Schedule 4.1(d) with respect to which consent is
required in connection with the consummation of the transactions contemplated by
this Agreement.
(e) There shall not have occurred, since December 31, 2003,
any event which would have a Material Adverse Effect with respect to the
Company.
(f) All Preferred Stock of the Company shall have converted to
an equal number of Ordinary Shares.
(g) Activeworlds, AWLD and the Acquisition Sub shall have
received from counsel to the Company an opinion covering the matters contained
on Exhibit D hereto which is reasonably acceptable to Activeworlds and the
Acquisition Sub.
(h) The Company shall have delivered the Closing Date
Financial Statements to Activeworlds, AWLD and the Acquisition Sub.
(i) The Company shall deliver to Activeworlds, AWLD and the
Acquisition Sub a certificate dated the Closing Date in form and substance
satisfactory to Activeworlds, AWLD and the Acquisition Sub to the effect that
all of the above conditions have been met.
(j) Each Company stockholder shall deliver to Activeworlds an
investment letter and receipt in the form annexed as Exhibit C.
(k) Activeworlds shall have amended its certificate of
incorporation so as to provide that its board of directors shall have an
executive committee consisting of at least two persons. The executive committee
shall have the exclusive authority, which shall require unanimous consent of all
members, to appoint Activeworlds' chief executive officer, chief financial
officer and chief marketing officer and AWLD's president. One member of the
Activeworlds board of directors and executive committee shall be a designee of
Baytree LLC. This provision relating to the executive committee shall not be
amended without the affirmative vote or consent of 75% of the outstanding shares
of the Activeworlds Common Stock unless Baytree and Xxxxxxx Xxxxxxx shall
beneficially own less than 250,000 shares of Activeworlds Common Stock (without
giving effect to any reverse stock splits or recapitalizations).
(l) The Company shall have executed and delivered a license to
AWLD providing AWLD with (i) an exclusive North American license to all of its
Listed Intellectual Property and the Intellectual Property Licenses listed on
Schedule 4.1(l), including all inventions, improvements, concepts, know-how,
ideas, and technology made or conceived by Company, including that which may
provide the subject matter for any trademark, copyright, patent, patent
application, any extensions, supplementary protection certificates,
continuations, continuation-in-part, divisions, reissues, re-examinations,
additions, substitutions, confirmations, registrations or re-validations.
23
(m) Each officer, director and 10% stockholder of the Company
who receives shares of common stock as part of the Merger Consideration shall
sign a lock-up letter restricting his public sale of Activeworlds Common Stock
for a period of 18 months following the Closing, which lock-up letter shall be
in form reasonably satisfactory to Baytree.
(n) The stockholders of the Company shall waive their rights
of first refusal and preemptive or other similar rights with respect to the
Company's securities.
(o) Activeworlds shall have entered into a two-year Consulting
Agreement with Baytree (Exhibit B) issuing to it 750,000 three-year warrants
exercisable at $2.00 per share.
(p) The loan payable from the Company to Xxxxx Xxxxxxxx shall
be extended for a period of two years from the Closing Date and be convertible
into shares of Activeworlds Common Stock at $1.00 per share.
(q) Creditors owed not more than $100,000 of the Company's
Liabilities (based upon the records of the creditors) have filed objections with
the authorized court.
(r) Xxxxxx Xxxxx has provided written notice to Activeworlds
of his willingness to serve as a member of Activeworlds' board of directors for
at least one year following the Closing.
(s) No more than 25% of the outstanding Company Share Capital
shall vote against the Merger.
(t) The Company shall have resolved to Activeworlds'
reasonable satisfaction any claim for any fees owed to Xxxxxx Xxxxxx arising
from this Agreement or the transactions contemplated hereby.
(u) The Financial Statements of the Company for the year ended
December 31, 2003 shall not be materially different from the Financial
Statements for the same period contained on Exhibit A.
(v) This Agreement, the Merger and the transaction
contemplated thereby have been approved by the Company's shareholders as
required under Israeli law.
(w) The Company shall not, without Activeworlds' written
consent which may not be unreasonably withheld, hire any new officers or any new
employees who are expected to be officers of Activeworlds following the Closing.
4.2 Conditions to the Company's Obligations. The obligations
of the Company under this Agreement, including, without limitation, the
obligation to consummate and effect the Merger shall be subject to satisfaction
of the following conditions, unless waived by the Company:
24
(a) Activeworlds and the Acquisition Sub shall have performed
in all material respects all agreements, and satisfied in all material respects
all conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date.
(b) All of the representations and warranties of Activeworlds,
the Acquisition Sub and AWLD herein shall have been true and correct in all
material respects when made, shall have continued to have been true and correct
in all material respects at all times subsequent thereto, and shall be true and
correct in all material respects on and as of the Closing Date as though made
on, as of, and with reference to such date.
(c) All consents, approvals and authorizations required to be
obtained by Activeworlds or the Acquisition Sub in connection with the Merger,
including all approvals by and clearances from all governmental authorities
(including, if necessary, the Office of the Chief Scientist), have been
obtained.
(d) Activeworlds and the Acquisition Sub shall deliver to the
Company a certificate dated the Closing Date in form and substance satisfactory
to the Company to the effect that all of the above conditions have been met.
(e) The Company shall have received from counsel to
Activeworlds and the Acquisition Sub an opinion covering the matters contained
on Exhibit E which is reasonably acceptable to the Company.
(f) At and as of the Effective Time, Activeworlds shall have a
net cash balance of US $3,450,000 after payment of all Liabilities.
(g) The Company has received the Israeli Income Tax Ruling (as
such terms defined in Section 4.6 below).
(h) This Agreement, the Merger and the transaction
contemplated thereby have been approved by the Company's shareholders as
required under Israeli law.
(i) The person listed on Schedule 2.4.3 have been duly
appointed as directors and officers of Activeworlds as of the Closing Date.
4.3 Conditions to Parties' Obligations. The obligations of the
Parties to consummate and effect the Merger pursuant to this Agreement shall be
subject to the following additional condition, unless waived in writing by each
Party: No injunction or temporary restraining order shall have been granted
restraining or prohibiting the consummation of the transactions contemplated by
this Agreement, and no action, suit or other proceeding instituted by any
federal, state, or local governmental authority seeking such an injunction or
order shall be pending or threatened.
25
4.4 Activeworlds' and the Acquisition Sub's Closing Documents.
At the Closing, Activeworlds and the Acquisition Sub will deliver to the
Company, in form and substance reasonably satisfactory to the Company:
(a) Copies of resolutions of the board of directors of
Activeworlds and the Acquisition Sub authorizing the execution and delivery of,
and performance of their obligations under this Agreement, certified by the
Secretary of Activeworlds and the Acquisition Sub.
(b) A Good Standing Certificate for Activeworlds issued by the
Secretary of State of Delaware dated not more than five business days prior to
the Closing Date.
(c) A certificate of an officer of Activeworlds, AWLD and the
Acquisition Sub certifying that the representations, warranties and agreements
of Activeworlds, AWLD and the Acquisition Sub contained in this Agreement are
true and accurate in all material respects as of the Closing Date and that
Activeworlds and the Acquisition Sub has satisfied and performed all of its
respective obligations hereunder.
(d) Certificates for the shares of Activeworlds Common Stock
required to be delivered to the Company's stockholders registered in the name of
the stockholders.
4.5 The Company's Closing Documents. At the Closing, the
Company shall deliver to Activeworlds and the Acquisition Sub, in form and
substance reasonably satisfactory to Activeworlds and the Acquisition Sub:
(a) All consents required under the Contracts required upon a
change in control of the Company.
(b) Copies of resolutions adopted by the board of directors,
the stockholders, the manager and the members, as the case may be, of the
Company authorizing the execution and delivery of, and performance of the
Company's obligations under this Agreement, certified by the Secretary manager
of the Company.
(c) The Company will provide Activeworlds with a copy of the
Company Register of the State of Israel reflecting the Company's status as an
active corporation.
(d) A certificate of the manager of the Company certifying
that the representations, warranties and agreements of the Company contained in
this Agreement are true and accurate in all material respects as of the Closing
Date and that the Company has satisfied and performed all of its obligations
hereunder.
(e) Evidence of any authorization, consent, approval or filing
with any public body or governmental authority or any other Person necessary in
connection with this Agreement.
(f) Such other documents as Activeworlds and the Acquisition
Sub shall reasonably request.
26
4.6 Israeli Income Tax Ruling. As soon as reasonably
practicable after the execution of this Agreement, the Company shall cause the
Company's counsel, advisors and accountants to prepare and file with the Israeli
Income Tax Commissioner an application for a ruling: (i) deferring any
obligation to pay capital gains tax on the exchange of the Company Shares in the
Merger until the date on which a shareholder sells the shares of Activeworlds
Common Stock received as of the Closing, and (ii) confirming that the conversion
of certain of the Company Options into options to purchase shares of
Activeworlds Common Stock pursuant to Section 2.4.5(d) (the "SUBSTITUTED
OPTIONS") and the exchange of certain of the Company Warrants into warrants to
purchase shares of Activeworlds Common Stock pursuant to Section 2.4.5 (d) (the
"SUBSTITUTED WARRANTS") will not result in a requirement for an immediate
Israeli tax payment and that the Israeli taxation will be deferred until the
exercise or sale, as the case may be, of the Substituted Options (the "ISRAELI
TAX RULING")
Section 5. Survival of Representations and Warranties;
Indemnification.
5.1 Survival of Representations and Warranties and Covenants.
The representations and warranties of Activeworlds, AWLD, the Acquisition Sub
and the Company set forth in this Agreement and in any certificate, agreement,
or instrument delivered in connection with the transactions contemplated hereby,
shall survive the Closing for a period equal to 12 months from Closing after
which no suit may be initialized or claim made for indemnity under the
Agreement. The covenants contained in Section 7 shall survive the Closing
indefinitely without regard to this 12 month period.
5.2 Indemnification by the Company. In addition to and not in
limitation of the Company's indemnification obligations set forth elsewhere in
this Agreement, the Company shall, defend, indemnify, and hold harmless
Activeworlds and its Affiliates and its respective officers, directors, agents
and employees (individually, a "ACTIVEWORLDS INDEMNITEE" and collectively the
"ACTIVEWORLDS INDEMNITEES"), from and against any and all claims, losses,
deficiencies, Liabilities, obligations, damages, penalties, punitive damages,
costs, and expenses (including, without limitation, reasonable legal, expert
witness, accounting and consulting fees), whether or not resulting from third
Party claims (collectively, "LOSSES"), suffered by the Activeworlds Indemnitee,
which arise out of or result from: any inaccuracy or material misrepresentation
in or breach of any of the representations, warranties, covenants or agreements
made by the Company in this Agreement or in any document or certificate
delivered by the Company pursuant to the provisions of this Agreement.
5.3 Indemnification by Activeworlds and the Acquisition Sub.
Activeworlds and the Acquisition Sub shall defend, indemnify and hold harmless,
the stockholders of the Company (individually, a "STOCKHOLDER INDEMNITEE" and
collectively the "STOCKHOLDER INDEMNITEES") from and against any and all Losses,
suffered by a Stockholder Indemnitee, which arise out of or result from any
material inaccuracy or misrepresentation in or breach of any of the
representations, warranties, covenants or agreements made by Activeworlds or the
Acquisition Sub in this Agreement or in any document or certificate delivered by
Activeworlds or the Acquisition Sub pursuant to the provisions of this
Agreement.
27
5.4 Successors. The merger, consolidation, liquidation,
dissolution or winding up of, or any similar transaction with respect to, the
Parties hereto shall not affect in any manner the obligations of the Parties
pursuant to this Section 6 or any other term or provision of this Agreement, and
the Parties covenant and agree to make adequate provision for their Liabilities
and obligations hereunder in the event of any such transaction.
Section 6. Finders. Baytree and Xxxxx Juroslawicz have acted as Finders
and as to Baytree, also as a consultant, in connection with the transactions
contemplated by this Agreement. Activeworlds shall issue its Common Stock and
warrants to each Finder in the amounts reflected on Schedule 6.
Section 7. Covenants.
7.1 Voting of Shares. In order to permit Activeworlds to amend
its certificate of incorporation as provided in Section 4.1, Baytree LLC shall
cause its affiliates, Baytree and Xxxxxxx Xxxxxxx, to execute stockholders'
consents or vote their shares of Activeworlds Common stock in favor of such
amendment.
7.2 Future Financing. For a period of 18 months following the
Closing, should the Company determine that the Parent requires additional
financing and requests such, Baytree shall cause Baytree, within 10 days,
present a term sheet for funding US $2,000,000 and Baytree shall use its best
efforts to have such term sheet represent a fair and reasonable offer
considering the security being purchased, the standing of the Company and market
conditions.
7.3 Piggyback Registration Rights. If Activeworlds shall file
a Registration Statement with the SEC covering the public sale of its securities
for the account of selling stockholders (except Forms S-4 or S-8 and successor
forms), it shall include in such Registration Statement the shares of
Activeworlds Common Stock issued to the investors who purchase units in the
private placement, Baytree and the Finders hereunder pursuant to Sections
2.4.5(e), 3.2(j) and 4.1(p) including shares issuable upon exercise of warrants
and pay all of the costs of such Registration Statement and all amendments
including counsel and auditing fees and disbursements, except counsel, if any,
to the selling stockholders. Activeworlds shall enter into a Registration Rights
Agreement, which Registration Rights Agreement shall be reasonably satisfactory
to Baytree.
7.4 SEC Compliance. Following the Closing Date, at all times
Activeworlds shall continue to comply with all of the provisions applicable to
it of the Exchange Act, unless and until Activeworlds has sold all or
substantially all of its assets in a transaction requiring the approval of its
stockholders or merged with and into another issuer.
7.5 Xxxxxxxx-Xxxxx Act of 2002. Unless and until Activeworlds
lists a class of its securities on the New York or American Stock Exchange, it
shall comply with all of the provisions of the Xxxxxxxx-Xxxxx Act of 2002 as if
Activeworlds Common Stock were listed on the Nasdaq Stock Market.
28
7.6 Marketing. As promptly as possible following the Closing
Date but no later than April 30, 2005, Activeworlds shall prepare a professional
marketing plan designed to market its products to United States and foreign
governments and to corporations and other entities and have such marketing plan
approved by the Activeworlds board of directors. As promptly as possible
following the Closing Date and not later than April 30, 2005, Activeworlds shall
hire a full-time vice president of marketing who has a demonstrated background
as a marketing executive and experience in marketing products to governments and
corporations which products shall have been useful to national or international
security.
7.7 Designee to the Activeworlds' Board of Directors. For five
years following the Closing Date or such earlier date as Baytree and Xxxxxxx
Xxxxxxx beneficially own less than 250,000 shares of Activeworlds Common Stock
(without giving effect to any reverse splits or recapitalizations), Baytree
shall have the right to appoint a member or non-voting observer to the
Activeworlds board of directors, which person shall be a member of the executive
committee (or attend meetings of the executive committee) and to be a member of
(or attend meetings of) the audit committee (as long as such person maintains
the requisite criteria established by the Nasdaq Stock Market or applicable
stock exchange on which Activeworlds Common Stock is listed). Such member of the
board of directors or observer shall be entitled to the same compensation paid
to other non-employee directors and be fully reimbursed for all reasonable
travel and other expenses. Furthermore, such member or observer shall be
entitled to the same indemnification provisions, including advancement of
expenses, which the Company offers to any of its other officers or directors.
7.8 Public and Investor Relations. Activeworlds shall appoint
one public relations and investor relations firm reasonably satisfactory to
Baytree LLC for a period of three years following the Closing.
7.9 Independent Directors. For a period of two years following
the Closing, none of the Activeworlds' officers shall serve on the compensation
and audit committees of its board of directors.
7.10 Directors' and Officers' Liability Insurance.
Activeworlds shall obtain directors' and officers' liability insurance in an
amount reasonably satisfactory to Baytree LLC and maintain such insurance in
effect as long as a designee of Baytree serves on Activeworlds' board of
directors. Additionally, as long as Baytree has the power to appoint a designee
to Activeworlds' board of directors, there shall be at least two persons on the
board of directors who are United States citizens.
7.11 Foreign Corrupt Practices Act. At all times, Activeworlds
and its subsidiaries, including the Company, shall comply with United States
Foreign Corrupt Practices Act.
29
7.12 Power to Enforce Covenants. Baytree LLC shall have the
power to waive or enforce any of the covenants of Activeworlds contained in this
Section 7 and be entitled to the remedy of specific performance contained in
Section 8.4.
Section 8. General Provisions.
8.1 No Third Party Beneficiaries. Except as provided in
Section 7.12, nothing in this Agreement is intended, nor shall it be construed,
to confer any rights or benefits upon any Person (including, but not limited to,
any employee or former employee of the Company) other than the Parties hereto,
and solely to the extent provided in Article 6, Stockholder Indemnitees, and no
other Person shall have any rights or remedies hereunder.
8.2 Expenses of the Parties. All expenses involved in the
preparation, authorization, and consummation of this Agreement, incurred up to
and including the Closing, including, without limitation, all fees and expenses
of agents, representatives, counsel, and accountants in connection therewith,
shall be borne solely by the Party who shall have incurred the same, and the
other Parties shall have no Liability in respect thereof; provided, however,
that nothing herein shall be construed to release or impair any claim for
damages by any Party.
8.3 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
8.4 Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled, without the necessity of
pleading or proving irreparable harm or lack of an adequate remedy at law, to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof. Any such claim for specific performance or other equitable
relief shall be brought and determined in the appropriate federal or state court
in the State of New York located in New York City and in no other forum. The
Parties hereby irrevocably submit to the jurisdiction of any such New York state
court or federal court in connection with such claim for a specific performance
or other equitable relief.
30
8.5 Severability. In the event any parts of this Agreement are
found to be void, the remaining provisions of this Agreement shall nevertheless
be binding with the same effect as though the void parts were deleted.
8.6 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. The execution of this
Agreement may be by actual or facsimile signature.
8.7 Benefit. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their legal representatives, successors
and permitted assigns.
8.8 Notices. Any notice, report, demand, waiver, consent or
other communication given by a Party under this Agreement shall be in writing,
may be given by a Party or its legal counsel, and shall deemed to be duly given
upon delivery by Federal Express or similar next business day courier service
which provides evidence of delivery, or when delivered by facsimile transmission
if a copy thereof is also delivered in person or by next business day courier.
Notices of address change shall be effective only upon receipt notwithstanding
the provisions of the foregoing sentence.
Notice to the Company shall be Hi-G-Tek Ltd.
sufficient if given to: 00 Xxxxxxxxxxx Xxxxxx
Xx-Xxxxxx 00000, Xxxxxx
Attention: Xx. Xxxxx Xxxxxxxx
Facsimile: 972-3-5339225
with a copy to: Xxxxxxx Xxxxx Xxxx & Co.
0 Xxxxxx Xxxxxx Xxxxxx
Xxx Xxxx 00000 Israel
Attention: Xxxxxx Xxxxx, Esq.
Facsimile: 972.3.6091117
Notice to Activeworlds, AWLD and the Activeworlds Corporation
Acquisition Sub shall be sufficient if given to: AWLD, Inc.
AWLD Ltd.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xx. Xxxx Xxxxx
Facsimile: (000) 000-0000
Notice to Baytree shall be sufficient if given to: Baytree LLC
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Mr. Xxxxxxx Xxxxxxx
Facsimile: (000) 000-0000
31
with a copy to: Xxxxxxx Xxxxxx, P.A.
1555 Palm Beach Xxxxx Xxxxxxxxx
Xxxxx 000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
8.9 Attorney's Fees. In the event that there is any
controversy or claim arising out of or relating to this Agreement, or to the
interpretation, breach or enforcement thereof, and any action or proceeding
including an arbitration proceeding is commenced to enforce the provisions of
this Agreement, the prevailing parties shall be entitled to an award by the
court or arbitrator, as appropriate, of reasonable attorney's fees, costs and
expenses.
8.10. Oral Evidence. This Agreement constitutes the entire
Agreement between the Parties and supersedes all prior oral and written
agreements between the Parties hereto with respect to the subject matter hereof.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, except by a statement in writing signed by the
Party or Parties against which enforcement of the change, waiver discharge or
termination is sought.
8.11 Governing Law. This Agreement and any dispute,
disagreement, or issue of construction or interpretation arising hereunder
whether relating to its execution, its validity, the obligations provided herein
or performance shall be governed or interpreted according to the internal laws
of the State of Delaware without regard to choice of law considerations.
8.12 Arbitration. Except for an action seeking equitable
relief, any controversy, dispute or claim arising out of or relating to this
Agreement, or its interpretation, application, implementation, breach or
enforcement which the Parties are unable to resolve by mutual agreement, shall
be settled by submission by either Party of the controversy, claim or dispute to
binding arbitration in New York County, New York (unless the Parties agree in
writing to a different location), before one arbitrator (three if the amount in
controversy is over $50,000) in accordance with the rules of the American
Arbitration Association then in effect. In any such arbitration preceding the
Parties agree to provide all discoveries deemed necessary by the arbitrator(s).
The decision and award made by the arbitrator(s) shall be final, binding and
conclusive on all Parties hereto for all purposes, and judgment may be entered
thereon in any court having jurisdiction thereof.
8.13 Section or Paragraph Headings. Section headings herein
have been inserted for reference only and shall not be deemed to limit or
otherwise affect, in any matter, or be deemed to interpret in whole or in part
any of the terms or provisions of this Agreement.
8.14 Schedules. The Schedules are an integral part of this
Agreement and modify representations and warranties and other provisions as
reflected herein. All Schedules have been prepared by the appropriate Parties
and not their counsel.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed under seal as of the date first above written.
__________________________ ACTIVEWORLDS CORPORATION
__________________________ By:_________________________________________
Xxxx Xxxxx, President
__________________________ AWLD, INC.
__________________________ By:_________________________________________
Xxxx Xxxxx, President
__________________________
AWLD LTD.
__________________________ By:_________________________________________
Xxxx Xxxxx, President
BAYTREE LLC
By:_________________________________________
Xxxxxxx Xxxxxxx, Managing Member
HI-G TEK, LTD.
By:_________________________________________
_________________________________________
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