AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
by and among
PREDICT IT, INC.,
PII ACQUISITION CORP.,
VIRTUAL STOCK EXCHANGE, INC.,
XXXX XXXXX,
XXXXXX XXX,
and
XXXXX XXXXXXX
dated as of
June 30, 1999
TABLE OF CONTENTS
[S]
I. THE MERGER...........................................................-3-
Section 1.1 Terms of the Merger....................................-3-
Section 1.2 Closing................................................-3-
Section 1.3 Effective Time.........................................-4-
Section 1.4 Certificate of Incorporation and By-Laws of
the Surviving Corporation..............................-4-
Section 1.5 Directors of the Surviving Corporation.................-4-
Section 1.6 Reorganization.........................................-5-
II. STATUS AND CONVERSION OF OUTSTANDING SECURITIES......................-5-
Section 2.1 Conversion of Outstanding Securities; Closing
of Transfer Books......................................-5-
Section 2.2 Merger Consideration...................................-6-
Section 2.3 Non-Registered Shares..................................-9-
III. REPRESENTATIONS AND WARRANTIES OF VSE AND THE SHAREHOLDERS...........-9-
Section 3.1 Organization and Qualification........................-10-
Section 3.2 Capitalization........................................-10-
Section 3.3 Financial Condition...................................-11-
Section 3.4 Tax and Other Liabilities.............................-12-
Section 3.5 Litigation and Claims.................................-14-
Section 3.6 Compliance with Laws, Licenses and Permits............-14-
Section 3.7 Properties of VSE.....................................-15-
Section 3.8 Contracts and Other Instruments.......................-16-
Section 3.9 Employees.............................................-17-
Section 3.10 Intangibles...........................................-17-
Section 3.11 Insurance.............................................-17-
Section 3.12 Authority to Sell.....................................-18-
Section 3.13 Year 2000.............................................-19-
Section 3.14 Brokers and Finders...................................-20-
Section 3.15 Written Technology Documentation......................-20-
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER-SUB.............-23-
Section 4.1 Organization..........................................-23-
Section 4.2 Authority to Buy......................................-24-
Section 4.3 Financial Condition...................................-25-
Section 4.4 Nondistributive Intent................................-25-
Section 4.5 Tax and Other Liabilities.............................-26-
Section 4.6 Compliance with Laws, Licenses and Permits............-28-
Section 4.7 Intangibles...........................................-28-
Section 4.8 Litigation and Claims.................................-28-
Section 4.9 Shares of Capital Stock...............................-29-
Section 4.10 Certificate of Incorporation and Bylaws...............-29-
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Section 4.11 Year 2000.............................................-29-
Section 4.12 Most Favored Nation Status............................-29-
Section 4.13 Required Consents.....................................-30-
Section 4.14 Certain Statutes......................................-30-
Section 4.15 Bulletin Board........................................-30-
Section 4.16 Brokers and Finders...................................-31-
V. INTENTIONALLY OMITTED...............................................-31-
VI. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER-SUB..................-31-
Section 6.1 Accuracy of Representations and Compliance
with Conditions........................................-31-
Section 6.2 Satisfactory Employment Agreements with certain
of the Shareholders....................................-31-
Section 6.3 Opinion of Counsel.....................................-32-
Section 6.4 Other Closing Documents................................-32-
Section 6.5 Legal Action...........................................-32-
Section 6.6 No Governmental Action.................................-32-
Section 6.7 Contractual Consents Needed............................-33-
Section 6.8 Escrow Release.........................................-33-
VII. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND VSE...............-33-
Section 7.1 Accuracy of Representations and Compliance
With Conditions........................................-34-
Section 7.2 Employment Agreements..................................-34-
Section 7.3 Contractual Consents ..................................-34-
Section 7.4 Other Closing Documents................................-34-
Section 7.5 Legal Action...........................................-35-
Section 7.6 No Governmental Action.................................-35-
Section 7.7 Opinion of Counsel.....................................-36-
VIII. POST-CLOSING COVENANTS..............................................-36-
Section 8.1 Income and Franchise Taxes.............................-36-
IX. FEES AND EXPENSES...................................................-37-
Section 9.1 Expenses..............................................-38-
X. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.................-38-
Section 10.1 Indemnification.......................................-38-
Section 10.2 Survival; Limitations on Liability....................-39-
XI. MISCELLANEOUS.......................................................-41-
Section 11.1 Further Actions.......................................-41-
Section 11.2 Submission to Jurisdiction............................-41-
Section 11.3 Merger; Modification..................................-41-
Section 11.4 Notices...............................................-42-
Section 11.5 Waiver................................................-42-
Section 11.6 Assignment............................................-43-
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Section 11.7 No Third-Party Beneficiaries..........................-43-
Section 11.8 Separability..........................................-43-
Section 11.9 Headings..............................................-43-
Section 11.10 Counterparts; Governing Law..........................-44-
Exhibits
Exhibit A. - Employment Agreement for Xxxx Xxxxx
Exhibit B. - Employment Agreement for Xxxxxx Xxx
Exhibit C. - Escrow Agreement
Exhibit D. - Form of VSE Site Storyboard
Exhibit E. - Form of VSE Site Codemap
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is being made as of this 30th day of June, 1999, by and among
PREDICT IT, INC., a Delaware corporation, with offices at 00 Xxxx 00xx Xxxxxx,
00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Parent"); PII ACQUISITION CORP., a
Delaware corporation and wholly-owned subsidiary of Parent, with offices at 00
Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("Merger-Sub"); VIRTUAL
STOCK EXCHANGE, INC., a Delaware corporation, with offices at 00 Xxxxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 ("VSE"); XX. XXXX XXXXX, an individual residing at 000 Xxxx
00xx Xxxxxx, Xxx. 00X, Xxx Xxxx, Xxx Xxxx 00000 ("Cheng"); XX. XXXXXX XXX, an
individual residing at 000 Xxxx 00xx Xxxxxx, Xxx. 00X, Xxx Xxxx, Xxx Xxxx 00000
("Yen") and MR. XXXXX XXXXXXX, an individual residing at 00 Xxxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxx 00000 ("Xxxxxxx," together with Cheng and Yen, the
"Shareholders" and each a "Shareholder").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of Parent,
Merger-Sub and VSE deem it advisable and in the best interests of their
respective companies that Merger-Sub merge with and into VSE solely in exchange
for shares of common stock, par value $.01 per share of Parent (the "Common
Stock"), and, accordingly, have each approved this Agreement and the
transactions contemplated hereby, upon the terms and subject to the conditions
set forth herein;
WHEREAS, contemporaneously with the execution of this
Agreement, the holders of all of the issued outstanding stock of VSE are
executing a unanimous written consent of the shareholders pursuant to Section
228 of the Delaware General Corporation Law (the "DGCL") approving and adopting
this Agreement, and all of the transactions contemplated herein, in accordance
with Section 251 and 252 of the DGCL;
WHEREAS, contemporaneously with the execution of this
Agreement, the holder of all of the issued and outstanding stock of Merger-Sub
is executing a written consent pursuant to Section 228 of the DGCL approving and
adopting this Agreement, and all of the transactions contemplated herein, in
accordance with Section 251 and 252 of the DGCL;
WHEREAS, contemporaneously with the closing of the
transactions contemplated by this Agreement, each of Cheng and Yen is executing
an employment agreement (respectively, the "Cheng Employment Agreement" and the
"Yen Employment Agreement," and collectively, the "Employment Agreements" and
each an "Employment Agreement"), substantially in the form of Exhibits A and B,
respectively, attached hereto;
WHEREAS, it is the express intention of Parent, Merger-Sub,
VSE and the Shareholders that the merger contemplated by this Agreement qualify
for federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute thereto (the "Code") and the receipt by the
Shareholders of the Merger Consideration (as defined in Section 2.2 hereof)
shall not be subject to income tax under the Code;
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NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
I. THE MERGER.
Section 1.1 Terms of the Merger.
At the Effective Time (as defined in Section 1.3 hereof), upon the
terms and subject to the conditions of this Agreement, Merger-Sub shall be
merged with and into VSE and the separate existence of Merger-Sub shall
thereupon cease in accordance with the DGCL. VSE shall be the surviving
corporation in the Merger and shall continue to be governed by the laws of the
State of Delaware, and the separate corporate existence of VSE, and all of its
rights, privileges, immunities and franchises, public or private, and all its
duties and liabilities as a corporation organized under the DGCL, will continue
unaffected by the Merger. VSE, as the surviving corporation after the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation".
Section 1.2 Closing.
The closing of the Merger (the "Closing") will take place at the
offices of Camhy Xxxxxxxxx & Xxxxx LLP, 0000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000-0000, on or about June 30, 1999, or at such other time or place as
the parties hereto mutually agree (the "Closing Date"). The Closing Date shall
occur simultaneously with the Effective Time.
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Section 1.3 Effective Time.
As of the Closing, a certificate of merger meeting the requirements of
Sections 251 and 252 of the DGCL (the "Certificate of Merger") shall be duly
prepared and executed by Surviving Corporation and thereafter delivered to the
Secretary of State of the State of Delaware (the "Secretary") for filing. The
Merger shall become effective at the time of the filing of the Certificate of
Merger with the Secretary (the date and time of such filing being referred to
herein as the "Effective Time") and thereafter the Surviving Corporation shall
file a certified copy of the Certificate of Merger with the Secretary of State
of the State of Delaware. At the Effective Time, all the property, rights,
privileges, powers and franchises of VSE and Merger-Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of VSE and
Merger-Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.4 Certificate of Incorporation and By-Laws of the
Surviving Corporation.
At the Effective Time and without any further action on the part of
VSE, Merger-Sub or their respective stockholders or shareholders, the
Certificate of Incorporation and By-Laws of Merger-Sub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation until duly amended in accordance with
applicable law.
Section 1.5 Directors of the Surviving Corporation.
From and after the Effective Time, the Board of Directors of VSE shall
be the Board of Directors of the Xxxxx-Sub and shall serve until their
successors have been duly elected or appointed and qualified. The Shareholders
shall have the right to designate one person to be included in management's
slate of candidates for election as members of the Board of Directors of the
Parent, until the later of (i) three
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(3) years from the Closing or (ii) such time as the Shareholders no longer hold,
in the aggregate, at least 20% of the total outstanding equity of Parent.
Section 1.6 Reorganization.
The parties intend that the transactions contemplated by this Agreement
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
(a)(2)(E) of the Code. Each party shall treat the transaction as such a
reorganization, including, without limitation, the reporting and record keeping
requirements of Treasury Regulation Section 1.368-3. Except as required by law,
no party shall take or fail to take (or permit any affiliate to take or fail to
take) any action that would adversely effect such characterization. Except as
required by law, no party shall take or fail to take (or permit any affiliate to
take or fail to take) any action that would adversely effect such
characterization. Further, Parent and Merger-Sub represent and warrant to the
Shareholders, on one hand, and the Shareholders represent and warrant to Parent
and Merger-Sub, on the other, that, to their respective actual knowledge, there
is no set of facts, circumstances or other events or requirements, legal or
otherwise, and nothing is contemplated that would require any of the respective
parties to this Agreement to take or fail to take (or permit any affiliate to
take or fail to take) any action that would adversely effect such
characterization, including the execution of this Agreement and the consummation
of the transactions contemplated hereby.
II. STATUS AND CONVERSION OF OUTSTANDING SECURITIES.
Section 2.1 Conversion of Outstanding Securities; Closing of
Transfer Books.
At the Effective Time, by virtue of the Merger and without any action
on the part of any party:
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(a) Each share of common stock, par value $10.00 per
share, of VSE (the "VSE Common Stock") outstanding immediately prior to the
Effective Time shall remain outstanding and shall represent one share of common
stock, par value $.01 per share, of the Surviving Corporation, so that after the
Effective Time, Parent shall be the holder of all of the issued and outstanding
shares of the Surviving Corporation's common stock.
(b) Each share of VSE Common Stock outstanding
immediately prior to the Closing (the "Outstanding Securities") shall be
converted into the Merger Consideration (as defined in Section 2.2(a)) in
proportion to the total number of VSE Common Stock outstanding, without
interest, and, at the Closing, (i) the Outstanding Securities shall otherwise
cease to be outstanding, shall be canceled and retired and shall cease to exist,
and (ii) all of the outstanding shares of Merger-Sub shall be canceled and
retired and shall cease to exist. At the Closing, the Shareholders shall deliver
to Parent certificates representing all of the Outstanding Securities in
exchange for the Merger Consideration.
(c) The stock transfer books of Merger-Sub shall be
delivered to VSE and at the Closing the stock transfer books of Merger-Sub shall
be closed and no transfer of Common Stock of Merger-Sub shall thereafter be
made.
Section 2.2 Merger Consideration.
(a) The aggregate consideration to be paid in the
Merger for the Outstanding Securities (the "Merger Consideration") shall be (i)
Two Million Two Hundred Thousand (2,200,000) shares of Parent Common Stock and
(ii) an additional Five Hundred Thousand (500,000) shares of
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Parent Common Stock which shall be held in escrow, subject to the achievement of
certain performance goals, in accordance with the provisions of Section 2.2(c)
hereof.
(b) At the Closing, the following Merger Consideration
shall be delivered to the Shareholders as set forth below:
(i) One Million Twenty-eight Thousand Thirty-eight
(1,028,038) shares of Parent Common Stock to Cheng;
(ii) One Million Twenty-eight Thousand Thirty-
eight (1,028,038) shares of Parent Common Stock to Yen;
(iii) One Hundred Forty-three Thousand Nine
Hundred Twenty-four (143,924) shares of Parent Common Stock to Xxxxxxx; and
(iv) Two Hundred Thirty-three Thousand Six
Hundred Forty-five (233,645) shares of Parent Common Stock issued and
registered in the name of Cheng, Two Hundred Thirty- three Thousand Six Hundred
Forty-five (233,645) shares of Parent Common Stock issued and registered in the
name of Yen, and Thirty-two Thousand Seven Hundred Ten (32,710) shares of Parent
Common Stock registered in the name of Xxxxxxx, it being agreed that such shares
(the "Escrowed Shares") shall be held in escrow by Parker, Chapin, Flattau, &
Klimpl, LLP as Escrow Agent ("Escrow Agent") pursuant to the terms of an Escrow
Agreement between Parent, Cheng, Yen, Appleby, and Escrow Agent (the "Escrow
Agreement"), dated as of the Closing Date, substantially in the form of Exhibit
C attached hereto, to be distributed in accordance with Section 2.2(c).
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(c) Cheng, Yen, and Xxxxxxx shall be entitled to have
released and delivered to them an aggregate amount of up to Five Hundred
Thousand (500,000) of the Escrowed Shares as follows:
(i) on January 31, 2000, One Hundred Sixteen
Thousand Eight Hundred Twenty-five and one-half (116,822.5) of the
Escrowed Shares shall be released from escrow and delivered to Cheng,
One Hundred Sixteen Thousand Eight Hundred Twenty-five and one-half
(116,822.5) of the Escrowed Shares shall be released from escrow and
delivered to Yen, and Sixteen Thousand Three Hundred Fifty-five
(16,355) of the Escrowed Shares shall be released from escrow and
delivered to Xxxxxxx (for an aggregate of 250,000 of the Escrowed
Shares), if the number of registered users of Parent exceeds 250,000 by
December 31, 1999 and the page views of Parent for December 1999
exceeds 17.5 million; and
(ii) on January 31, 2001, One Hundred Sixteen
Thousand Eight Hundred Twenty-five and one-half (116,822.5) of the
Escrowed Shares shall be released from escrow and delivered to Cheng,
One Hundred Sixteen Thousand Eight Hundred Twenty-five and one-half
(116,822.5) of the Escrowed Shares shall be released from escrow and
delivered to Yen, and Sixteen Thousand Three Hundred Fifty-five
(16,355) of the Escrowed Shares shall be released from escrow and
delivered to Xxxxxxx (for an aggregate of 250,000 of the Escrowed
Shares), if the number of registered users of Parent exceeds 750,000 by
December 31, 2000 and the page views of Parent for December 2000
exceeds 60 million; and
(iii) In the event that the performance based goals
specified in Section 2.2(c)(i) above are not met, then if, by December
31, 2000, the number of registered users of Parent
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exceeds 900,000 and the page views of Parent for December 2000 exceed
72 million, then all of the Escrowed Shares shall be released from
escrow and, in the amounts set forth in Section 2.2(c) (i) and (ii)
above, delivered to Cheng, Yen, and Xxxxxxx on January 31, 2001.
As of December 31, 2000, to the extent any Escrowed Shares have not been
released in accordance with Sections 2.2(c)(i), (ii) or (iii) above, such
Escrowed Shares shall be returned by the Escrow Agent to the Company for
cancellation.
Section 2.3 Non-Registered Shares
The Merger Consideration delivered pursuant to Section 2.2 shall not be
registered under the Securities Act of 1933, as amended (the "Securities Act").
The Shareholders acknowledge that they may not sell or otherwise dispose of such
shares in the absence of either a registration statement under the Securities
Act or an exemption from the registration provisions of the Securities Act. The
certificates representing such shares will contain a legend substantially to the
effect that such shares have not been registered under the Securities Act, and
may not be sold or transferred without an effective registration statement under
the Securities Act or an exemption from the registration provisions under the
Securities Act.
III. REPRESENTATIONS AND WARRANTIES OF VSE AND THE SHAREHOLDERS.
Each of VSE and the Shareholders, jointly and severally, represents and
warrants to Parent and Merger-Sub as follows:
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Section 3.1 Organization and Qualification.
VSE is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use, and lease its assets and properties. VSE is duly
qualified, licensed, or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use, or leasing of its assets and
properties, or the conduct or nature of its businesses, makes such
qualification, licensing, or admission necessary, except for the failure to
qualify in New York and for such failures to be so qualified, licensed, or
admitted and in good standing which, individually or in the aggregate, are not
having and could not reasonably be expected to have a Material Adverse Effect.
As used in this Agreement, a "Material Adverse Effect" shall mean a material
adverse effect on the businesses, properties, assets, liabilities, condition
(financial or otherwise), or results of operations of VSE. Notwithstanding the
foregoing, a Material Adverse Effect shall not include any change in political,
economic or stock market conditions or in the Internet and computer software
industry. VSE does not have any subsidiaries and, except as disclosed in
Schedule 3.1 hereto, VSE does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
Section 3.2 Capitalization.
The authorized capital stock of VSE consists solely of 1,500 shares of
VSE Common Stock, 107 of which are issued and outstanding and owned of record
and beneficially by the Shareholders. All of the issued and outstanding shares
of VSE Common Stock are duly authorized, validly issued, fully paid, and
nonassessable. Except pursuant to this Agreement, there are no outstanding
subscriptions,
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options, warrants, rights (including "phantom" stock rights), preemptive rights
or other contracts, commitments, understandings or arrangements, including any
right of conversion or exchange under any outstanding security, instrument or
agreement (collectively, "Options"), obligating VSE to issue or sell any shares
of capital stock of VSE or to grant, extend, or enter into any Option with
respect thereto.
Section 3.3 Financial Condition.
The Shareholders have delivered to Parent true and correct copies of
the following, which are incorporated by reference herein: the unaudited
consolidated balance sheet of VSE as of March 31, 1999 and December 31, 1998 and
the unaudited consolidated statements of income, statements of retained
earnings, and statements of cash flows of VSE for the three month period ended
March 31, 1999 and the year ended December 31, 1998. Each such balance sheet
presents fairly the financial conditions, assets, liabilities, and stockholders'
equity of VSE as of its date; each such statement of income and statement of
retained earnings presents fairly the results of operations of VSE for the
period indicated and their retained earnings as of the date indicated; and each
such statement of cash flows presents fairly the information purported to be
shown therein. The financial statements referred to in this Section 3.3 (i) are
in accordance with the books and records of the Company in all material respects
and (ii) are prepared on a substantially consistent basis (although not in
accordance with GAAP). Since March 31, 1999:
(a) There has at no time been a material adverse change
in the financial condition, results of operations, business, properties, assets,
liabilities of VSE; and
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(b) VSE has not suffered an extraordinary loss
(whether or not covered by insurance) or waived any right of substantial value.
Section 3.4 Tax and Other Liabilities.
(a) VSE has no liability of any nature, accrued or
contingent, including without limitation liabilities for Taxes (as defined in
Section 3.4(d)) and liabilities to customers or suppliers, other than the
following:
(i) Liabilities for which full provision has been
made on the balance sheet (the "Last Balance Sheet") as of March 31, 1999 (the
"Last Balance Sheet Date"); and
(ii) Any and all other liabilities arising since
the Last Balance Sheet Date and prior to the Closing in the ordinary course of
business which are not inconsistent with the representations and warranties of
the Shareholders or any other provision of this Agreement or which would not
have a Material Adverse Effect on VSE.
(b) Without limiting the generality of Section 3.4(a):
(i) Except as set forth on Schedule 3.4(b), VSE
(A) has paid all Taxes required to be paid on or prior to the date hereof
(including, without limitation, payments of estimated Taxes) for which VSE is
liable, except for Taxes which are being contested in good faith and by
appropriate proceedings or where failure to pay would not have a Material
Adverse Effect on VSE, and (B) has timely filed (or timely filed an extension
for), all material federal, state, local, and foreign tax returns, reports, and
forms with respect to such taxes required to be filed by VSE on or before the
date hereof, which returns are true, correct, and complete in all material
respects.
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(ii) The amount set up as provisions for Taxes on
the Last Balance Sheet are sufficient for all material accrued and unpaid Taxes
of VSE, whether or not due and payable and whether or not in dispute, under tax
laws as in effect on the Last Balance Sheet Date, for the period ended on such
date and for all periods prior thereto.
(c) Except as set forth on Schedule 3.4(c), there is no
material dispute or claim concerning any material liability for Taxes of VSE (i)
asserted by any taxing authority in writing and received by VSE, or (ii) as to
which the Shareholders have actual knowledge based upon personal contact with
any agent of such authority.
(d) For purposes of this Agreement, "Taxes" of a person
shall mean all federal, state, local or foreign taxes, assessments, duties which
are payable or remittable by such person or levied upon such person or any
property of such person, or levied with respect to any of its assets,
franchises, income, receipts, including, without limitation, import duties,
excise, franchise, gross receipts, utility, real property, capital, personal
property, withholding, FICA, unemployment compensation, sales or use,
withholding, governmental charges (whether or not requiring the filing of a
return), and all additions to tax, penalties and interest relating thereto.
(e) Schedule 3.4(e) lists all income tax returns filed
with respect to VSE for all taxable periods ended on or after December 31, 1997,
including those Tax returns that have been audited, and indicates those income
tax returns for which VSE has received written notification that such returns
are currently the subject of audit. VSE shall have delivered to Parent correct
and complete copies of all federal income tax returns of VSE for taxable periods
ended on or after December 31, 1997. Except as set forth on Schedule 3.4(e), VSE
has not waived any statute of
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limitations with respect to income tax or agreed to any extension of time with
respect to an income tax assessment or deficiency.
(f) VSE is currently an S corporation within the
meaning of Section 1361(a) of the Code and has been an S corporation since its
inception.
Section 3.5 Litigation and Claims.
Except as set forth on Schedule 3.5, there are no claims suits, actions
or proceedings pending before any Governmental Entity (as defined in Section
3.6) or arbitration panel or, to the knowledge of VSE or the Shareholders,
threatened against, relating to or affecting VSE; nor is VSE subject to any
judgement, decree, order, injunction, writ or rule of any Governmental Entity or
arbitration panel which could have a Material Adverse Effect.
Section 3.6 Compliance with Laws, Licenses and Permits.
VSE has complied in all material respects with all laws, rules,
regulations, ordinances, codes, statutes, judgments, injunctions, orders,
decrees, permits, policies and other requirements (collectively "Laws") of all
federal, state or local court, administrative agency or commission or other
governmental authority or instrumentality (collectively "Governmental Entities")
and possesses all authorizations, licenses and permits necessary for the conduct
of its businesses, and is not in default with respect to any order, writ,
judgment, award, injunction or decree of any Governmental Entity or arbitration
panel, applicable to its businesses or any of its assets, properties or
operations except where such noncompliance or default would not have a Material
Adverse Effect.
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Section 3.7 Properties of VSE.
(a) Set forth on Schedule 3.7(a) is a list of all real
property leased by VSE. VSE does not own any real property.
(b) Set forth in Schedule 3.7(b) is a true and complete
list of all personal properties and assets (other than real property) owned by
VSE, or leased or licensed by VSE from or to a third party. All such properties
and assets owned by VSE are reflected on the Last Balance Sheet (except for
acquisitions subsequent to the Last Balance Sheet Date which are noted on
Schedule 3.7(b)). All such properties and assets owned, leased, or licensed by
VSE are in good and usable condition (reasonable wear and tear which is not such
as to affect adversely the operation of the business of VSE excepted).
(c) No real property leased, or licensed by VSE lies in
an area which, to the knowledge of the Shareholders, is or will be, subject to
zoning, use, or building code restrictions that would prohibit the continued
effective ownership, leasing, licensing, or use of such real property in the
business which VSE is now engaged.
(d) VSE has not caused or permitted its respective
businesses, properties, or assets to be used to generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce, or process any
Hazardous Substance (as such term is defined in this Section 3.7(d)) except in
compliance with all applicable laws, rules, regulations, orders, judgments, and
decrees, and has not caused or permitted the Release (as such term is defined in
this Section 3.7(d)) of any Hazardous Substance on or off the site of any
property of VSE. The term "Hazardous Substance" shall mean any hazardous waste,
as defined by 42 U.S.C. Section 6903(5), any hazardous substance, as defined by
42 U.S.C. Section 9601(14), any pollutant or contaminant, as defined by 42
U.S.C. Section 9601(33), and all toxic substances,
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hazardous materials, or other chemical substances regulated by any other law,
rule, or regulation. The term "Release" shall have the meaning set forth in 42
U.S.C. Section 9601(22).
Section 3.8 Contracts and Other Instruments.
Schedule 3.8 accurately and completely sets forth a list of all
material contracts, agreements, loan agreements, instruments, leases, licenses,
arrangements, or understandings with respect to VSE. Each such contract,
agreement, loan agreement, instrument, lease, or license is in full force and is
the legal, valid, and binding obligation of VSE and (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally) is enforceable as to it in accordance with its
terms. VSE is not in material violation, in breach of, or in default with
respect to any material terms of any such contract, agreement, loan agreement,
instrument, lease, or license. Except for employment agreements and as disclosed
in Schedule 3.8, VSE is not a party to any contract, agreement, loan agreement,
instrument, lease, license, arrangement, or understanding with, any director,
officer, or employee of VSE, or any relative or affiliate of the Shareholders or
of any such director, officer, or employee. The stock ledgers and stock transfer
books of VSE relating to all issuances and transfers of any capital stock of VSE
and the minute book records of the Board of Directors and committees thereof of
VSE since their incorporation made available to Parent are the original stock
ledgers and stock transfer books and minute book records of VSE or exact copies
thereof.
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Section 3.9 Employees.
The Company does not have and it does not contribute to, any pension,
profitsharing, option, other incentive plan, or any other type of Employee
Benefit Plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and does not have any obligation to
or customary arrangement with employees for bonuses, incentive compensation,
vacations, severance pay, insurance, or other benefits, except as set forth in
Schedule 3.9.
Section 3.10 Intangibles.
VSE has all right, title and interest in, or a valid and binding
license to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
franchises, trade secrets, computer programs (in object or source code form), or
other intangible property or assets (collectively, "Intangibles") which are
individually or in the aggregate material to the conduct of the business of VSE.
VSE is not in default (or with the giving of notice or lapse of time or both,
would be in default) in any respect under any license to use such Intangibles,
such Intangibles are not , to the knowledge of VSE and the Shareholders, being
infringed by any third party, and VSE, to the knowledge of VSE and the
Shareholders, is not infringing any Intangible of any third party.
Section 3.11 Insurance.
The Shareholders have delivered to Parent prior to the execution of
this Agreement a true and complete list of all liability, property, workers'
compensation, directors' and officers' liability and other insurance policies
currently in effect that insure the business, operations, properties, assets, or
employees of VSE. Such insurance policies are placed with, to the knowledge of
VSE and the Shareholders, financially sound and reputable insurers and, in light
of the respective business,
-17-
operations, assets, and properties of VSE, are in amounts and have coverages
that are, to the knowledge of VSE and the Shareholders, reasonable and customary
for persons engaged in such businesses and operations and having such assets and
properties.
Section 3.12 Authority to Sell.
(a) The Shareholders have the capacity to execute,
deliver, and perform this Agreement. This Agreement has been duly executed and
delivered by the Shareholders, is the legal, valid, and binding obligation of
the Shareholders, and subject to applicable bankruptcy, insolvency, and other
laws affecting the enforceability of creditors rights generally, is enforceable
as to them in accordance with its terms, except as set forth in Schedule 3.12.
The Shareholders are not under any contractual restriction of obligation which
is inconsistent with the execution and performance of this Agreement. The
Shareholders have no knowledge of any consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing with, any
Governmental Entity or any court or other tribunal that is required by VSE, or
the Shareholders, for the execution, delivery, or performance of this Agreement
by the Shareholders.
(b) No consent of any party to any material lease,
license, distribution, agency, consulting, employment, financing, lending,
installment sale or conditional sale, security, pledge, guarantee, or other
agreement, arrangement, or understanding to which VSE is, or the Shareholders
are, a party, or to which any of its or their properties or assets are subject,
is required for the execution, delivery, or performance of this Agreement,
except as disclosed in Schedule 3.12. Neither VSE nor the Shareholders have made
any agreement or understanding not approved in writing by Parent as a condition
for obtaining any consent, authorization, approval, order, license, certificate,
or permit required for the consummation of the transactions contemplated by this
Agreement. The
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execution, delivery, and performance of this Agreement by the Shareholders will
not violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to terminate
or call a default under such lease, license, distribution, agency, consulting,
employment, financing, lending, installment sale or conditional sale, security,
pledge, guarantee, or other agreement, or understanding, or violate or result in
a breach of any term of the certificate of incorporation (or other charter
document) or by-laws of VSE or, to the Shareholders' knowledge, violate, result
in a material breach of, or conflict with any Law binding on VSE, or to which
any of its operations, business, properties, or assets are subject, and which
would have a Material Adverse Effect on VSE.
(c) Upon the Closing, the Shareholders will convey to
Parent, good title to all the Acquired Securities, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
voting trusts, and adverse claims of any kind or nature whatsoever.
Section 3.13 Year 2000.
The Information Technology (as defined below) owned, licensed, utilized
and relied upon by VSE is Year 2000 Compliant (as defined below). For purposes
hereof, "Year 2000 Compliant" means that, with respect to any Information
Technology, including without limitation, any function, process, system or other
device or item, regardless of the particular date, year, century or other
chronological variable: (a) will accurately process date information (e.g.,
accept date input, provide date output and perform calculations and comparisons
on dates and portions of dates); (b) will function without interruption due to a
change in date, ensuring that any results, data or information processed,
generated or transmitted in connection therewith, shall be correct, valid and
not adversely affected; and, if
-19-
applicable (c) will include date data century recognition, calculations which
accommodate same century and multi-century date values and formulae, as well as
date data interfaces (to application and operating system software, as
applicable) reflecting the correct date, year and century. For purposes hereof,
"Information Technology" means any computer hardware, computer software,
computer firmware or databases (whether for a specific or general purpose), and
other similar or related items of automated, computerized or software system(s).
Section 3.14 Brokers and Finders.
The Shareholders have not employed any broker, financial advisor or
finder or incurred any liability for any broker, financial advisory or finders'
fees in connection with this Agreement or the transactions contemplated hereby.
Section 3.15 Written Technology Documentation.
(a) VSE and the Shareholders have delivered, or within
sixty (60) days from the Closing will deliver, to Parent and Merger-Sub, in
writing, in order for Parent and Merger-Sub to properly integrate and utilize
the assets of VSE, to the mutual satisfaction of Parent and the Shareholders,
the following:
(i) a graphic representation of the site directory structure of
xxx.xxxxxxxxxxxxxxxxxxxx.xxx;
(ii) a "site storyboard" of the user's page flow as demonstrated
in Exhibit D;
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(iii) a codemap for the site, linking page functions with specific
script-names and data-sources as demonstrated in Exhibit E;
(iv) a commenting standard for all code deployed within the site,
including, but not limited to, the following:
(A) Standard information such as author and date of creation;
(B) Functional standards such as general script-functionality
commenting on what this script does and how it does it;
(C) Subroutine functions such as what these functions do and how
they do it;
(v) an identification, explanation, and profile of the datasources
used within the site, including items such as internal
information, flat file information (including, but not limited
to, information identifying and profiling the flat files used
within the site and a list of the field format of the various
flat files), external information, and data feed information
(including, but not limited to, an overview of how they are
used in the site and the identity of the vendor and the
technology required to be featured on the site;
(vi) maintenance schedules which identify normal maintenance
procedures and their timing and which identify normal site
down times;
(vii) network architecture, such as machine statistics, software
statistics, and usage statistics;
(viii) known issues of ongoing development, including, but not limited
to, the identification and profile of any issues with the
current site codebase, the identification and detail of
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ongoing corrective actions, and the identification and profile
any code currently under development; and
(ix) provide an electronic copy of the code (html, cgi, all
associated files including all user records) used within the
site itself, provided on either a CD or ZIP.
(b) Upon delivery by the Shareholders to the Parent of the items
specified in subsections (i) through (ix) above (the "Materials"), the Parent
shall have five (5) business days during which to review the Materials presented
and shall notify the Shareholders by the end of such period if there are any
deficiencies, corrections, or alterations to the Materials provided to them.
Upon receipt of such notice, the Shareholders shall have ten (10) business days
in which to respond to Parent to explain the Material in question or revise such
Materials accordingly. In the event the Material provided to Parent by the
Shareholders is acceptable to Parent, it shall provide the Shareholders with
written confirmation of its acceptance of the Materials. In the event the Parent
does not respond within the ten-day period described above, the Materials shall
be deemed accepted by the Parent.
(c) Upon the earlier of final delivery of the materials set
forth in Section 3.15(a) or sixty (60) days from the Closing, the Shareholders
shall deliver a certificate to Parent certifying and representing that all of
the documentation set forth in Section 3.15(a) that had not been delivered as of
the Closing Date has been so delivered.
(d) The representation set forth in this Section 3.15 shall not
be subject to the "Basket" set forth in Section 10.2(b)(ii) (as such term is
defined therein).
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IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER-SUB.
Parent and Merger-Sub, jointly and severally, represent and warrant to
each Shareholder as follows:
Section 4.1 Organization.
(a) Parent and Merger-Sub are each a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, and has full power and authority to conduct its
business as and to the extent now conducted and to own, use, and lease its
assets and properties. Parent is duly qualified, licensed, or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use, or leasing of its assets and properties, or the conduct or nature of its
businesses, makes such qualification, licensing or admission necessary, except
for such failures to be so qualified, licensed, or admitted and in good standing
which, individually or in the aggregate, are not having and could not reasonably
be expected to have a Material Adverse Effect.
(b) Merger-Sub has not conducted any business
activities prior to the date of this Agreement, other than the negotiation and
execution of this Agreement. All outstanding shares of capital stock of
Merger-Sub are owned, beneficially and of record, by Parent. Except for this
Agreement, there are no agreements, arrangements, warrants, options, puts,
calls, rights or other commitments, plans or understandings of any character
relating to the issuance, sale, purchase, redemption, conversion, exchange,
registration, voting or transfer of any shares of Merger-Sub's Common Stock or
any other securities of Merger-Sub.
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Section 4.2 Authority to Buy.
(a) Parent and Merger-Sub have all requisite power and
authority to execute, deliver, and perform this Agreement. All necessary
corporate proceedings of Parent and Merger-Sub have been duly taken to authorize
the execution, delivery, and performance of this Agreement by Parent and
Merger-Sub. This Agreement has been duly authorized, executed and delivered by
Parent and Merger-Sub, is the legal, valid, and binding obligation of each of
Parent and Merger-Sub, and is enforceable as to it in accordance with its terms.
(b) No consent of any party to any material lease,
license, distribution, agency, consulting, employment, financing, lending,
installment sale or conditional sale, security, pledge, guarantee, or other
agreement, arrangement, or understanding to which Parent or Merger-Sub is a
party, or to which any of its properties or assets are subject, is required for
the execution, delivery, or performance of this Agreement. Neither Parent nor
Merger-Sub has made any agreement or understanding not approved in writing by
the Shareholders as a condition for obtaining any consent, authorization,
approval, order, license, certificate, or permit required for the consummation
of the transactions contemplated by this Agreement. The execution, delivery, and
performance of this Agreement by Parent and Merger-Sub will not violate, result
in a breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
such lease, license, distribution, agency, consulting, employment, financing,
lending, installment sale or conditional sale, security, pledge, guarantee, or
other agreement, or understanding, or violate or result in a breach of any term
of the certificate of incorporation (or other charter document) or by-laws of
either Parent or Merger-Sub or, to Parent's or Merger-Sub's knowledge,
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violate, result in a breach of, or conflict with any Law binding on Parent or
Merger-Sub, or to which any of their operations, business, properties, or assets
are subject.
Section 4.3 Financial Condition.
Parent has delivered to VSE true and correct copies of the following,
which are incorporated by reference herein: the unaudited consolidated balance
sheet of Parent as of March 31, 1999 and December 31, 1998 and the unaudited
consolidated statements of income, statements of retained earnings, and
statements of cash flows of Parent for the three month period ended March 31,
1999 and the year ended December 31, 1998. Each such balance sheet presents
fairly the financial conditions, assets, liabilities, and stockholders' equity
of Parent as of its date; each such statement of income and statement of
retained earnings presents fairly the results of operations of Parent for the
period indicated and their retained earnings as of the date indicated; and each
such statement of cash flows presents fairly the information purported to be
shown therein. The financial statements referred to in this Section 4.3 (i) are
in accordance with the books and records of the Company in all material respects
and (ii) are prepared in accordance with GAAP. Since March 31, 1999:
(a) There has at no time been a material adverse change
in the financial condition, results of operations, business, properties, assets,
liabilities of Parent; and
(b) Parent has not suffered an extraordinary loss
(whether or not covered by insurance) or waived any right of substantial value.
Section 4.4 Nondistributive Intent.
Parent, as contemplated hereunder, is acquiring the Outstanding
Securities for its own account (and not for the account of others) for
investment and not with a view to the distribution thereof. Parent will not sell
or otherwise dispose of such shares without registration under the Securities
Act, or
-25-
an exemption therefrom, and the certificate or certificates representing such
shares may contain a legend to the foregoing effect. By virtue of its position,
Parent has access to the kind of financial and other information about VSE as
would be contained in a registration statement filed under the Securities Act.
Parent understands that it may not sell or otherwise dispose of such shares in
the absence of either a registration statement under the Securities Act or an
exemption from the registration provisions of the Securities Act.
Section 4.5 Tax and Other Liabilities.
(a) Parent has no liability of any nature, accrued or
contingent, including without limitation liabilities for Taxes (as defined in
Section 4.5(d)) and liabilities to customers or suppliers, other than the
following:
(i) Liabilities for which full provision has been
made on the balance sheet (the "Parent's Last Balance Sheet") as of the Last
Balance Sheet Date; and
(ii) Any and all other liabilities arising since
the Last Balance Sheet Date and prior to the Closing in the ordinary course of
business which are not inconsistent with the representations and warranties of
Parent or Merger-Sub or any other provision of this Agreement.
(b) Merger-Sub has no liability of any nature, accrued
or contingent, including, without limitation, liabilities for Taxes or liability
to any customer or supplier.
(c) Without limiting the generality of Section 4.5(a):
(i) Except as set forth on Schedule 4.5(c), Parent
(A) has paid all Taxes required to be paid on or prior to the date hereof
(including, without limitation, payments of estimated
-26-
Taxes) for which Parent is liable, except for Taxes which are being contested in
good faith and by appropriate proceedings or where failure to pay would not have
a Material Adverse Effect on Parent, and (B) has timely filed (or timely filed
an extension for and has or will file within such extension of time), all
material federal, state, local, and foreign tax returns, reports, and forms with
respect to such taxes required to be filed by Parent on or before the date
hereof, which returns are true, correct, and complete in all material respects.
(ii) The amount set up as provisions for Taxes on
the Parent's Last Balance Sheet are sufficient for all material accrued and
unpaid Taxes of Parent, whether or not due and payable and whether or not in
dispute, under tax laws as in effect on the Last Balance Sheet Date, for the
period ended on such date and for all periods prior thereto.
(d) Except as set forth on Schedule 4.5(d), there is no
material dispute or claim concerning any material liability for Taxes of Parent
(i) asserted by any taxing authority in writing and received by Parent, or (ii)
as to which Parent has knowledge based upon personal contact with any agent of
such authority.
(e) Schedule 4.5(e) lists all income tax returns filed
with respect to Parent for all taxable periods ended on or after December 31,
1997, including those Tax returns that have been audited, and indicates those
income tax returns for which Parent has received written notification that such
returns are currently the subject of audit. Parent shall have delivered to VSE
and the Shareholders correct and complete copies of all federal income tax
returns of Parent for taxable periods ended on or after December 31, 1997.
Parent has not waived any statute of limitations with respect to income tax or
agreed to any extension of time with respect to an income tax assessment or
deficiency.
-27-
Section 4.6 Compliance with Laws, Licenses and Permits.
Parent has complied in all material respects with all Laws of all
Governmental Entities and possesses all authorizations, licenses and permits
necessary for the conduct of its businesses, and is not in default with respect
to any order, writ, judgment, award, injunction or decree of any Governmental
Entity or arbitration panel, applicable to its businesses or any of its assets,
properties or operations except where such noncompliance or default would not
have a Material Adverse Effect.
Section 4.7 Intangibles.
Parent has all right, title and interest in, or a valid and binding
license to use all Intangibles which are individually or in the aggregate
material to the conduct of the business of Parent. Parent is not in default (or
with the giving of notice or lapse of time or both, would be in default) in any
respect under any license to use such Intangibles, such Intangibles are not , to
the knowledge of Parent, being infringed by any third party, and Parent, to its
knowledge, is not infringing any Intangible of any third party.
Section 4.8 Litigation and Claims.
Except as set forth on Schedule 4.8, there are no claims, suits,
actions or proceedings pending before any Governmental Entity or arbitration
panel nor, to the knowledge of Parent or Merger-Sub, threatened against,
relating to or affecting Parent or Merger-Sub; nor is Parent or Merger-Sub
subject to any judgment, decree, order, injunction, writ or rule of any
Governmental Entity or arbitration panel which could have a Material Adverse
Effect.
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Section 4.9 Shares of Capital Stock.
All of the Merger Consideration issued to the Shareholders pursuant to
this Agreement, will be duly authorized and validly issued and shall, upon
issuance, be fully paid and nonassessable.
Section 4.10 Certificate of Incorporation and Bylaws.
Parent and Merger-Sub shall have delivered to Shareholders certified
copies of Parent's and Merger-Sub's Certificate of Incorporation and copies of
the bylaws of Parent and Merger-Sub, which shall be in effect at the Closing, as
well as all other relevant corporate documents.
Section 4.11 Year 2000.
The Information Technology owned, licensed, utilized and relied upon by
Parent is Year 2000 Compliant. Merger-Sub does not own, license, utilize or rely
upon any Information Technology.
Section 4.12 Most Favored Nation Status.
As of the date of this Agreement, neither Parent nor Merger-Sub has
entered into any agreement to effect the acquisition of an Internet or computer
software company (any such agreement an "Acquisition Agreement") the terms of
which Acquisition Agreement (in the aggregate and in light of the size and
circumstances of such acquisition) are more favorable in any material respect
than the terms of this Agreement.
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Section 4.13 Required Consents.
The execution and delivery of this Agreement by Parent and Merger-Sub
does not, and the performance of this Agreement by Parent and Merger-Sub will
not, require any consent, approval, authorization or permit of any Governmental
Entity, if any, where the failure to obtain such consents, approvals,
authorizations or permits, individually or in the aggregate, has not resulted
and could not reasonably be expected to result in a Material Adverse Effect to
Parent or Merger-Sub.
Section 4.14 Certain Statutes.
Parent and Merger-Sub have taken all appropriate and necessary actions
to ensure that the merger of Parent with WDC Development, Inc., a Delaware
corporation, which was consummated on April 28, 1999 is in full compliance with
any and all applicable laws, including DGCL and Parent has obtained all
necessary approvals required for such merger.
Section 4.15 Bulletin Board.
Parent's Common Stock is currently trading on the Over-the-Counter
Bulletin Board (the "OTCBB") and an active market exists, and such trading is in
full compliance with the applicable rules and regulations of the National
Association of Securities Dealers, Inc. As of the last trading date prior to the
date of the Agreement, the bid and asked price for such Common Stock was $17/8
and $21/8, respectively. As a requirement for maintaining the listing of its
common stock on the OTCBB, Parent is required to file a registration statement
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") by
March 1, 2000 and thereby become a reporting company under the Exchange Act.
Parent shall use its reasonable best efforts to comply with such requirements.
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Section 4.16 Brokers and Finders.
Neither Parent nor Merger-Sub has employed any broker, financial
advisor or finder or incurred any liability for any broker, financial advisory
or finders fee in connection with this Agreement or the transaction contemplated
hereby.
V. INTENTIONALLY OMITTED.
VI. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER-SUB.
The obligations of Parent and Merger-Sub under this Agreement are
subject, at the option of Parent and Merger-Sub, to the following conditions:
Section 6.1 Accuracy of Representations and Compliance With
Conditions.
All representations and warranties of VSE and the Shareholders
contained in this Agreement shall be accurate in all material respects as of the
Closing as though such representations and warranties were then made in exactly
the same language by VSE and the Shareholders and regardless of knowledge or
lack thereof on the part of the Shareholders or changes beyond its control; as
of the Closing, VSE and the Shareholders shall have performed and complied with
all material covenants and agreements and satisfied all material conditions
required to be performed and complied with by them at or before such time by
this Agreement; and Parent shall have received a certificate executed by VSE and
each of the Shareholders, dated the date of the Closing, to that effect.
Section 6.2 Satisfactory Employment Agreements with certain of the
Shareholders.
Cheng and Yen shall each execute and deliver their respective
Employment Agreements to Parent as of the Effective Time.
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Section 6.3 Opinion of Counsel.
The Shareholders shall have delivered to Parent the opinion of Xxxxxx
Xxxxxx Flattau & Klimpl, LLP, special counsel to VSE, dated as of the Closing
Date, in form and substance reasonably satisfactory to counsel for Parent.
Section 6.4 Other Closing Documents.
The Shareholders and VSE shall have delivered to Parent at or prior to
the Closing such other documents as Parent may reasonably request in order to
enable Parent to determine whether the conditions to its obligations under this
Agreement have been met and otherwise to carry out the provisions of this
Agreement.
Section 6.5 Legal Action.
There shall not have been instituted, or to the knowledge of VSE or the
Shareholders threatened, any legal proceeding relating to, or seeking to
prohibit or otherwise challenge the consummation of, the transactions
contemplated by this Agreement, or to obtain substantial damages with respect
thereto.
Section 6.6 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any Governmental Entity or by any court or other tribunal,
including the entry of a preliminary or permanent injunction, which, in the
reasonable judgment of Parent or Merger-Sub, (a) makes any of the transactions
contemplated by this Agreement, illegal, (b)
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results in a material delay in the ability of Parent or Merger-Sub to consummate
any of the transactions contemplated by this Agreement, (c) requires the
divestiture by Parent of any of the Outstanding Securities or of a material
portion of the business of either Parent and its subsidiaries taken as a whole,
or of VSE, (d) imposes material limitations on the ability of Parent or
Merger-Sub effectively to exercise full rights of ownership of such shares, or
(e) otherwise prohibits, restricts, or materially delays consummation of any of
the transactions contemplated by this Agreement or impairs the contemplated
benefits to Parent or Merger-Sub of any of the transactions contemplated by this
Agreement.
Section 6.7 Contractual Consents Needed.
The Shareholders and VSE shall have obtained at or prior to the Closing
all consents required for the consummation of the transactions contemplated by
this Agreement from any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding to which any of them is a party, or to
which any of them or any of their respective businesses, properties, or assets
are subject.
Section 6.8 Escrow Release.
The Shareholders shall deliver to the Escrow Agent stock powers,
executed in blank, relating to the Escrowed Shares.
VII. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND VSE.
The obligations of the Shareholders and VSE under this Agreement are
subject, at the option of the Shareholders and VSE, to the following conditions:
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Section 7.1 Accuracy of Representations and Compliance With
Conditions.
All representations and warranties of Parent and Merger-Sub contained
in this Agreement shall be accurate in all material respects when made and, in
addition, shall be accurate as of the Closing as though such representations and
warranties were then made in exactly the same language by Parent and Merger-Sub
and regardless of the knowledge or lack thereof on the part of Parent or
Merger-Sub or changes beyond its control; as of the Closing, Parent and
Merger-Sub shall have performed and complied with all material conditions
required to be performed and complied with by it at or before such time by this
Agreement, and the Shareholders shall have received a certificate executed an
executive officer of Parent and Merger-Sub, dated the date of the Closing, to
that effect.
Section 7.2 Employment Agreements
Parent shall execute and deliver the Cheng Employment Agreement and the
Yen Employment Agreement to Cheng and Yen, respectively, as of the Effective
Time.
Section 7.3 Contractual Consents Needed.
Parent and Merger-Sub shall have obtained at or prior to the Closing
all consents required for the consummation of the transactions contemplated by
this Agreement from any party to any contract, agreement, instrument, lease,
license, arrangement, or understanding to which any of them is a party, or to
which any of them or any of their respective businesses, properties, or assets
are subject.
Section 7.4 Other Closing Documents.
Parent and Merger-Sub shall have delivered to the Shareholders at or
prior to the Closing such other documents as the Shareholders may reasonably
request in order to enable VSE and the
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Shareholders to determine whether the conditions to their obligations under this
Agreement have been met and otherwise to carry out the provisions of this
Agreement.
Section 7.5 Legal Action.
There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transactions contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
Section 7.6 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, judgment, or decree proposed, promulgated, enacted, entered,
enforced, or deemed applicable to the transactions contemplated by this
Agreement by any Governmental Entity or by any court or other tribunal,
including the entry of a preliminary or permanent injunction, which, in the
reasonable judgment of the Shareholders, (a) makes any of the transactions
contemplated by this Agreement, illegal, (b) results in a material delay in the
ability of the Shareholders to consummate any of the transactions contemplated
by this Agreement, (c) requires the divestiture by the Shareholders of any of
the shares or of a material portion of VSE, (d) imposes material limitations on
the ability of the Shareholders effectively to exercise full rights of ownership
of such shares, or (e) otherwise prohibits, restricts, or materially delays
consummation of any of the transactions contemplated by this Agreement or
impairs the contemplated benefits to the Shareholders of any of the transactions
contemplated by this Agreement.
-35-
Section 7.7 Opinion of Counsel.
Parent shall have delivered to the Shareholders the opinion of Camhy
Xxxxxxxxx & Xxxxx LLP, general counsel to Parent, dated as of the Closing Date,
in form and substance reasonably satisfactory to counsel for the Shareholders.
VIII. POST-CLOSING COVENANTS.
Section 8.1 Income and Franchise Taxes.
(a) Returns and Payments.
(i) The Shareholders shall cause to be prepared,
consistent with past practice, and shall file or submit to Parent for filing,
all required income and franchise tax returns of VSE for any period which ends
on or before the Closing Date, for which tax returns are not required to have
been filed as of the Closing Date. Parent shall cause VSE to timely pay to the
appropriate taxing authority the tax shown on such tax return.
(ii) Parent shall cause to be prepared, consistent
with past practice, and timely file, all required tax returns of VSE for taxable
periods ending after the Closing Date. Parent shall not amend or permit to be
amended any tax return of VSE for any period ending on or before the Closing
Date without the Shareholder's consent, except as may be required by law.
(b) Audits. Parent shall promptly notify the
Shareholders in writing upon receipt by Parent, or any affiliate of Parent
(including VSE), of notice of any pending or threatened federal, state, local or
foreign tax audit or assessment for which Parent may seek indemnification
pursuant to the terms of Section 10.1. The Shareholders shall have the sole
right to represent VSE's interests in any federal, state, local or foreign tax
matter, including any audit or administrative or judicial proceeding or the
filing of any amended return (a "Tax Matter"), involving a tax liability or
potential
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tax liability for which Parent may seek indemnification pursuant to the terms of
Section 10.1, and to employ counsel of the Shareholders' choice and reasonably
acceptable to Parent at the Shareholders' expense. Parent agrees that it will
cooperate fully with Shareholders and its counsel (including, without
limitation, executing and delivering applicable powers of attorney) in
connection with the preparation or filing of any applicable tax return or the
defense or compromise of any Tax Matter. The Shareholders will not concede the
correctness of any part of any proposed adjustment pertaining to Taxes of VSE
for which the Shareholders may be required to indemnify Parent and will not
enter into any closing or compromise agreement with respect to any of the issues
which form the basis for such proposed adjustment without the consent of Parent;
provided, however, that if Parent fails to so consent, Parent may not thereafter
seek indemnification for an amount in excess of the amount it would have been
entitled to had it consented to such closing or compromise agreement.
(c) Cooperation. After the Closing Date, Parent and its
affiliates (including VSE) and the Shareholders shall make available to the
other, as reasonably requested, all information, records and documents relating
to the tax liabilities or potential tax liabilities of VSE or items of VSE that
pass-through to the Shareholders for all periods ending prior to the Effective
Time or relating to any Tax of VSE for which the Shareholders may be required to
indemnify any Parent Indemnities (as defined below) and shall preserve all such
information, records and documents until sixty (60) days after the expiration of
any applicable statute of limitations (including any waiver or extension
thereof). Prior to disposing of any such information, records or documents,
Parent shall give the Shareholders at least thirty (30) days prior written
notice and opportunity to take possession of such items.
IX. FEES AND EXPENSES.
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Section 9.1 Expenses.
(a) Parent shall bear the expenses and fees of counsel
to VSE and the Shareholders and VSE's accountants incurred by the Company or the
Shareholders in connection with the preparation, negotiation and execution of
the Agreement, the Employment Agreements, the Escrow Agreement, and other
transaction documents and consummation of the transactions contemplated hereby
and thereby, and any and all such expenses shall be paid prior to or at Closing;
provided, however, that Parent shall not be required to pay or be liable for any
of such expenses and fees which exceed $25,000.
(b) Parent shall bear its own expenses and fees and
commissions (including, but not limited to, all compensation and expenses of
counsel, consultants and accountants) incurred in connection with its
preparation, negotiation and execution of the Agreement, the Employment
Agreements and other transaction documents and consummation of the transactions
contemplated hereby or thereby.
X. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY.
Section 10.1 Indemnification.
(a) Subject to the terms and conditions set forth in
Section 10.3, each of the Shareholders, jointly and severally, agree to
indemnify and hold harmless Parent and Merger-Sub, and their respective
officers, directors, employees, counsel, and agents (collectively, the "Parent
Indemnitees"), against and in respect of any and all claims, suits, actions,
proceedings (formal or informal), investigations, judgments, deficiencies,
damages, settlements, liabilities, and reasonable legal and other expenses
related thereto (collectively, "Claims"), as and when incurred, arising out of
or based upon any material breach of any representation, warranty, covenant, or
agreement of each of the Shareholders contained in this Agreement.
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(b) Subject to the provisions of Section 10.2(b),
Parent and Merger-Sub agree to indemnify and hold harmless each of the
Shareholders and their employees, affiliates and agents (the "Seller
Indemnitees") against and in respect of any and all Claims as and when incurred,
arising out of or based upon any material breach of any representation,
warranty, covenant or agreement of Parent and Merger-Sub contained in this
Agreement.
(c) Each Indemnitee shall give the indemnifying party
prompt notice of any claim asserted or threatened against such Indemnitee on the
basis of which such Indemnitee intends to seek indemnification (but the
obligations of the indemnifying party shall not be conditioned upon receipt of
such notice, except to the extent that the indemnifying party is actually
prejudiced by the failure of the Indemnitee to give notice). The indemnifying
party shall promptly assume and control the defense of any Indemnitee, with
counsel reasonably satisfactory to such Indemnitee, and the fees and expenses of
such counsel shall be at the sole cost and expense of the indemnifying party.
Notwithstanding the foregoing, any Indemnitee shall be entitled, at his or its
expense, to employ counsel separate from counsel for the indemnifying party and
from any other party in such action, proceeding, or investigation. No Indemnitee
may agree to a settlement of a claim without the prior written approval of the
indemnifying party, which approval shall not be unreasonably withheld.
Section 10.2 Survival; Limitations on Liability.
(a) Subject to the provisions of Section 10.2(b), the
covenants, agreements, representations, and warranties contained in or made
pursuant to this Agreement shall survive the Closing.
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(b) The liabilities and obligations of the parties
under this Agreement shall be subject to the following limitations:
(i) No party shall have liability or obligation
with respect to any claim for a breach of a representation or warranty under
this Agreement made after one (1) year from the Closing Date except for claims
arising out of a breach of the representations as to tax liabilities under
Section 3.4 hereof, with respect to which the Shareholders shall remain liable
until ninety (90) days after the expiration of the applicable statute of
limitations relating to such potential liabilities; and
(ii) No indemnifying party shall be liable to all
or any of its indemnitees under this Agreement unless the aggregate amount of
any Claims which are covered by the indemnifying party's obligations under this
Section (the "Covered Claims") exceed $25,000 (the "Basket") (except as set
forth in Section 3.15 herein) and in such event the indemnifying party shall
only be liable for Covered Claims in excess of the Basket; and
(iii) An indemnifying party shall only be liable
to its indemnitees under this Agreement for a maximum amount which, in the
aggregate for all Covered Claims, shall not exceed $3,000,000 (the "Cap). With
regard to the Shareholders, the Cap shall be applied to them as a whole.
(iv) The parties hereby agree that any amount
required to be paid by the Shareholders hereunder in connection with any Covered
Claims may be paid either in full or in part from the Merger Consideration
received by the Shareholders. The Merger Consideration shall be valued at the
fair market value of such shares as of the close of business on the last
business day prior to when payment is required hereunder and any of such shares
are to be tendered. Parent agrees that in the event
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that the fair market value for such Merger Consideration at the time of tender
shall be less than the total amount owed by the Shareholders, the Shareholders
may satisfy their entire obligation for all Covered Claims by tendering all of
the Merger Consideration (net of any forfeitures) back to Parent.
(v) Xxxxx Xxxxxxx'x indemnity hereunder shall be
limited to the amount of Merger Consideration received by Xxxxx Xxxxxxx
hereunder.
XI. MISCELLANEOUS.
Section 11.1 Further Actions.
At any time and from time to time, each party agrees, at its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of this Agreement.
Section 11.2 Submission to Jurisdiction.
Each of the parties hereto irrevocably submits to the jurisdiction of
the courts of the State of New York, and of any federal court located in the
State of New York, in connection with any action or proceeding arising out of or
relating to, or a breach of, this Agreement, or of any document or instrument
delivered pursuant to, in connection with, or simultaneously with this
Agreement.
Section 11.3 Merger; Modification.
This Agreement, the Schedules and Exhibits attached hereto and the
Employment Agreements set forth the entire understanding of the parties with
respect to the subject matter hereof, supersede all existing agreements among
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party to be charged.
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Section 11.4 Notices.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or to
a location outside of the United States) or by Federal Express, Express Mail, or
similar overnight delivery or courier service or delivered in person or by
telecopy, or similar telecommunications equipment against receipt to the party
to whom it is to be given at the address of such party set forth in the preamble
to this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 11.4). Any notice
given to Parent or Merger-Sub (or VSE following the Closing) shall be addressed
to the attention of Xxxxxx X. Xxxxxxx, President, and a copy of such notice
(which copy shall not constitute notice) shall also be sent to Camhy Xxxxxxxxx &
Xxxxx LLP, 0000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000 Attention:
Xxxx X. Xxxx, Esq. A copy of any notice given to VSE (prior to the Closing) or
the Shareholders (which copy shall not constitute notice) shall also be sent to
Xxxxxx Xxxxxx Flattau & Klimpl, LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx,
Xxx Xxxx, XX 00000, Attention: Xxxxx X. Xxxxxxx, Esq. Any notice or other
communication given by certified mail (or by such comparable method) shall be
deemed given at the time of certification thereof (or comparable act) except for
a notice changing a party's address which will be deemed given at the time of
receipt thereof. Any notice given by other means permitted by this Section 11.4
shall be deemed given at the time of receipt thereof.
Section 11.5 Waiver.
Any waiver by any party of a breach of any terms of this Agreement
shall not operate as or be construed to be a waiver of any other breach of that
term or of any breach of any other term of this Agreement. The failure of a
party to insist upon strict adherence to any term of this Agreement on one or
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more occasions will not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
Section 11.6 Assignment.
This Agreement may not be assigned by any of the parties hereto and any
attempted assignment of this Agreement shall be null and void ab initio.
Section 11.7 No Third-Party Beneficiaries.
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Section 11.6).
Section 11.8 Separability.
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 11.9 Headings.
The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
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Section 11.10 Counterparts; Governing Law.
This Agreement may be executed in any number of counterparts (and by
facsimile), each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. It shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the rules governing the conflict of laws, that would defer to the
substantive laws of another jurisdiction.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
PREDICT IT, INC.
By:
----------------------------------------
Name:
Title:
PII ACQUISITION CORP.
By:
----------------------------------------
Name:
Title:
VIRTUAL STOCK EXCHANGE, INC.
By:
----------------------------------------
Name:
Title:
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Xxxx Xxxxx
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Xxxxxx Xxx
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Xxxxx Xxxxxxx
