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Exhibit 10.1
MASTER TRANSACTION AGREEMENT
BY AND AMONG
INTEGRATED INFORMATION SYSTEMS, INC.
AND
K2 DIGITAL, INC.
DATED AUGUST 20, 2001
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TABLE OF CONTENTS
PAGE
1. DEFINITIONS
1.1 DEFINITIONS............................................................ 1
2. SALE AND TRANSFER OF ASSETS; EMPLOYMENT MATTERS; LEASE; CLOSING
2.1 EMPLOYMENT MATTERS..................................................... 2
2.2 LEASE.................................................................. 4
2.3 ASSETS TO BE SOLD...................................................... 5
2.4 EXCLUDED ASSETS........................................................ 5
2.5 CONSIDERATION.......................................................... 6
2.6 LIABILITIES............................................................ 6
2.7 ALLOCATION............................................................. 7
2.8 CLOSING................................................................ 8
2.9 CLOSING OBLIGATIONS.................................................... 8
3. REPRESENTATIONS AND WARRANTIES OF K2 DIGITAL
3.1 ORGANIZATION AND GOOD STANDING......................................... 9
3.2 ENFORCEABILITY; AUTHORITY; NO CONFLICT................................. 9
3.3 SEC REPORTS; FINANCIAL STATEMENTS...................................... 10
3.4 BOOKS AND RECORDS...................................................... 11
3.5 TITLE TO ASSETS; ENCUMBRANCES.......................................... 11
3.6 CONDITION OF ASSETS.................................................... 11
3.7 TRANSFERRED RECEIVABLES................................................ 11
3.8 NO UNDISCLOSED LIABILITIES............................................. 11
3.9 TAXES.................................................................. 12
3.10 EMPLOYEE BENEFIT PLANS................................................. 12
3.11 LEGAL PROCEEDINGS; ORDERS.............................................. 13
3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS.................................. 14
3.13 CONTRACTS; NO DEFAULTS................................................. 14
3.14 EMPLOYEES.............................................................. 15
3.15 LABOR; COMPLIANCE...................................................... 15
3.16 INTELLECTUAL PROPERTY ASSETS........................................... 16
3.17 BROKERS OR FINDERS..................................................... 17
3.18 SOLVENCY............................................................... 17
3.19 DISCLOSURE............................................................. 18
4. REPRESENTATIONS AND WARRANTIES OF IIS
4.1 ORGANIZATION AND GOOD STANDING......................................... 18
4.2 AUTHORITY; NO CONFLICT................................................. 18
4.3 BROKERS OR FINDERS..................................................... 18
5. COVENANTS OF K2 DIGITAL
5.1 ACCESS AND INVESTIGATION............................................... 18
5.2 OPERATION OF THE BUSINESS OF K2 DIGITAL................................ 19
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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.3 REQUIRED APPROVALS..................................................... 19
5.4 NO NEGOTIATION......................................................... 19
5.5 PAYMENT OF LIABILITIES................................................. 19
6. COVENANT NOT TO COMPETE
7. CONDITIONS PRECEDENT TO IIS'S OBLIGATION TO CLOSE
7.1 ACCURACY OF REPRESENTATIONS; COVENANTS................................. 20
7.2 ADDITIONAL DOCUMENTS................................................... 20
7.3 NO PROCEEDINGS......................................................... 21
7.4 NO CONFLICT............................................................ 21
8. CONDITIONS PRECEDENT TO K2 DIGITAL'S OBLIGATION TO CLOSE
8.1 ACCURACY OF REPRESENTATIONS; COVENANTS................................. 21
8.2 ADDITIONAL DOCUMENTS................................................... 21
8.3 NO INJUNCTION.......................................................... 21
9. TERMINATION
9.1 TERMINATION EVENTS..................................................... 22
9.2 EFFECT OF TERMINATION.................................................. 22
10. ADDITIONAL COVENANTS; AND AGREEMENTS
10.1 PAYMENT OF ALL TAXES RESULTING FROM SALE OF ASSETS BY K2 DIGITAL....... 22
10.2 PAYMENT OF LIABILITIES................................................. 23
10.3 ASSISTANCE IN PROCEEDINGS.............................................. 23
10.4 CUSTOMER FUNDS......................................................... 23
10.5 USE OF NAMES........................................................... 24
11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL............................................................... 24
11.2 INDEMNIFICATION AND REIMBURSEMENT BY K2 DIGITAL........................ 24
11.3 INDEMNIFICATION AND REIMBURSEMENT BY IIS............................... 25
12. GENERAL PROVISIONS
12.1 EXPENSES............................................................... 25
12.2 PUBLIC ANNOUNCEMENTS................................................... 25
12.3 NOTICES................................................................ 26
12.4 JURISDICTION; SERVICE OF PROCESS....................................... 26
12.5 ENTIRE AGREEMENT AND MODIFICATION...................................... 27
12.6 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS...................... 27
12.7 GOVERNING LAW.......................................................... 27
12.8 EXECUTION OF AGREEMENT................................................. 27
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MASTER TRANSACTION AGREEMENT
This Master Transaction Agreement ("Agreement") is dated August 20,
2001, by and among Integrated Information Systems, Inc., a Delaware corporation
("IIS"), and K2 Digital, Inc., a Delaware corporation ("K2 Digital").
RECITALS
A. IIS desires to employ certain employees of K2 Digital and to that
end will pay to K2 Digital certain amounts;
B. IIS and K2 Digital mutually desire that IIS make arrangements for
IIS to occupy the premises (or portion thereof) currently occupied by K2 Digital
at 00 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, as more particularly set forth in that
certain Agreement of Lease between 30 Broad Associates, L.P., as Landlord and K2
Design, Inc., as Tenant, dated as of April 18, 1997 (the "Lease"); and
C. IIS desires to purchase from K2 Digital and K2 Digital desires to
sell, assign and convey to IIS, certain incidental fixed and other assets.
The parties agree as follows:
1. DEFINITIONS
1.1 DEFINITIONS
In addition to the terms defined throughout this Agreement, for
purposes of this Agreement, the following terms and variations thereof have the
meanings specified or referred to in this Section 1.1:
"DISCLOSURE LETTER" -- the disclosure letter delivered by K2 Digital to
IIS concurrently with the execution and delivery of this Agreement.
"ENCUMBRANCE" -- any charge, claim, community or other marital property
interest, condition, equitable interest, lien, option, pledge, security
interest, mortgage, right of way, easement, encroachment, servitude, right of
first option, right of first refusal or similar restriction, including any
restriction on use, voting (in the case of any security or equity interest),
transfer, receipt of income or exercise of any other attribute of ownership.
"KNOWLEDGE" -- an individual will be deemed to have Knowledge of a
particular fact or other matter if:
(a) that individual is actually aware of that fact or matter; or
(b) a prudent individual could be expected to discover or otherwise become
aware of that fact or matter in the course of conducting a reasonably
comprehensive investigation regarding the accuracy of any
representation or warranty contained in this Agreement.
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"LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign,
international, multinational or other constitution, law, ordinance, principle of
common law, code, regulation, statute or treaty.
"LIABILITY" -- with respect to any Person, any liability or obligation
of such Person of any kind, character or description, whether known or unknown,
absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated
or unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise, and
whether or not the same is required to be accrued on the financial statements of
such Person.
"ORDER" -- any order, injunction, judgment, decree, ruling, assessment
or arbitration award of any governmental authority or arbitrator.
"PERSON" -- an individual, partnership, corporation, business trust,
limited liability company, limited liability partnership, joint stock company,
trust, unincorporated association, joint venture or other entity or a
governmental body.
"PROCEEDING" -- any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted or heard by or before, or otherwise involving, any
governmental body or arbitrator.
"TAX" -- any income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental, windfall
profit, customs, vehicle, airplane, boat, vessel or other title or registration,
capital stock, franchise, employees' income withholding, foreign or domestic
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, value added, alternative, add-on minimum and
other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever
and any interest, penalty, addition or additional amount thereon imposed,
assessed or collected by or under the authority of any governmental body or
payable under any tax-sharing agreement or any other contract.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, declaration, claim for refund or other
document or information filed with or submitted to, or required to be filed with
or submitted to, any governmental body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
2. SALE AND TRANSFER OF ASSETS; EMPLOYMENT MATTERS; LEASE; CLOSING
2.1 EMPLOYMENT MATTERS
(a) The parties acknowledge that IIS has made, with the consent and
approval of K2 Digital, employment offers to certain employees and
officers of K2 Digital, and has hired certain
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of those employees and officers, other than the Hired Consultant (as
defined below) (together with any other K2 Digital employees that may
subsequently be hired by IIS, the "Hired Employees"). The effective
start date for the Hired Employees hired as of the date hereof will be
deemed to be August 1, 2001, and all other Hired Employees will be
deemed to have commenced employment as of their actual start date. IIS
will pay such Hired Employees (at base compensation rates agreed to by
IIS and such Hired Employees) hired as of the date hereof by the close
of business on August 20, 2001 from IIS's payroll, for the pay period
starting August 1, 2001 and ending August 15, 2001. The terms and
conditions of employment of all Hired Employees will be mutually agreed
upon by IIS and such Hired Employees in each case. The Hired Employees
have or will each agree with K2 Digital, in connection with their
employment by IIS, to resign from employment with K2 Digital and its
subsidiaries and to resign from any other officer positions with K2
Digital or its subsidiaries, effective August 1, 2001, and to release
K2 Digital from certain claims, including claims for severance or
salary continuation benefits, and K2 Digital will accept all such
resignations effective August 1, 2001. IIS and certain of the Hired
Employees, each of whom (as well as all other Hired Employees) are
listed on Schedule 2.1(a) (the "Key Employees"), together will enter
into employment agreements (each an "Employment Agreement," and
collectively the "Employment Agreements") in form and substance
acceptable to IIS and such Key Employees. (For all other purposes of
this Agreement, the term "Hired Employees" shall mean and include the
Key Employees.)
(b) The parties acknowledge that IIS has made, with the consent and
approval of K2 Digital, a consulting offer to an officer of K2 Digital
(the "Hired Consultant"). The terms and conditions of the consulting
arrangement with the Hired Consultant will be mutually agreed upon by
IIS and such Hired Consultant. The Hired Consultant may also remain
employed by K2 Digital. At the Closing, IIS and the Hired Consultant
will enter into a consulting agreement in form and substance acceptable
to IIS and such Hired Consultant.
(c) K2 Digital hereby waives any and all non-competition, non-solicitation,
confidentiality, assignment of inventions, and other similar
restrictive covenants and agreements by and between K2 Digital and the
Hired Employees and Hired Consultant (effective as of August 1, 2001),
and hereby releases the Hired Employees and Hired Consultant from such
agreements or restrictions. K2 Digital agrees to assign and transfer to
IIS all of K2 Digital's rights under any such restrictive or other
agreements between K2 Digital and all of the Hired Employees and the
Hired Consultant. K2 Digital will, upon request of IIS and at IIS's
expense, provide reasonable assistance to IIS in such regard.
(d) IIS will pay to K2 Digital a recruitment and placement fee of $75,000
at Closing (the "Initial Placement Fee"), plus $7,500 per Key Employee
and $2,500 for each other Hired Employee that remains employed by IIS
through December 31, 2001 (the "Contingent Placement Fee"). The
Contingent Placement Fee will be paid by IIS in cash in five monthly
installments beginning August 31, 2001, pro rated monthly (but without
any obligation on K2 Digital's part to refund any portion of the
installments received) for the number of Key Employees and other Hired
Employees retained during the period beginning August 31, 2001 and
ending December 31, 2001.
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(e) IIS will pay to K2 Digital $50,000 as consideration for K2 Digital
entering into the non-competition agreement set forth in Section 6
hereof.
(f) The obligation to pay all employee and other benefits, including,
without limitation, health, dental, life, accidental death and
disability, retirement, severance, and related or other benefits, which
are payable to employees (including Hired Employees and Hired
Consultant) under K2 Digital's Employee Plans, including, in the case
of Hired Employees or Hired Consultant, any that arise, are incurred or
are based on events that occur on or prior to the actual date of hire
by IIS (whether or not claims for such benefits are submitted on or
prior to such date), as well as any statutory or other penalties
payable to employees or former employees (including the Hired Employees
and the Hired Consultant) as a result of the late or non-payment (or
underpayment) of wages or other compensation, will remain the sole
responsibility of K2 Digital and will not be assumed by IIS, and K2
Digital will indemnify and hold harmless IIS for such claims and
amounts. IIS will be responsible for any benefits that are payable to
Hired Employees under the terms of IIS's employee plans that arise, are
incurred or are based on events that occur after the date of actual
hire by IIS, including salary and any severance amounts to which such
Hired Employees are or become entitled to under their arrangements with
IIS. For the purpose of this Section 2(f), the term "events" means the
item that is the subject matter of the claim (i.e., medical services,
layoff, vacation, etc.) as well as the condition or injury leading to
the filing of the claim. IIS will not assume or be responsible for any
liability in respect of any benefits that are payable at any time to,
or in respect of, current or former employees of K2 Digital not
employed by IIS. K2 Digital will continue to provide disability and
other benefits coverage, if applicable, to any Hired Employee who is
unable to report to work with IIS due to short- or long-term disability
until such employee returns to work for IIS.
2.2 LEASE
(a) IIS and K2 Digital agree that they will use commercially reasonable
efforts to obtain financial concessions and enter into arrangements
with K2 Digital's landlord for possession by IIS of the office premises
covered under the Lease at Closing (the "Premises"), pursuant to which
IIS will enter into a new lease for the Premises simultaneously with
the termination of the Lease, sublet the Premises, or take an
assignment of the Lease, provided the terms are no less favorable to
IIS than those currently provided to K2 Digital and provided the lease
documentation is reasonably satisfactory to IIS.
(b) K2 Digital shall allow the Hired Employees and Hired Consultant to
remain in the current office space and to utilize all furniture,
fixtures, equipment, supplies and premises currently utilized in the
conduct of business pending completion by IIS of arrangements with K2
Digital's landlord to take assignment of, sublet or lease the Premises.
IIS shall reimburse K2 Digital on a monthly basis for K2 Digital's
office rent during that period. IIS shall provide, at no cost to K2
Digital, office space to the Hired Consultant until December 31, 2001.
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2.3 ASSETS TO BE SOLD
Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing, K2 Digital shall sell, convey, assign, transfer and
deliver to IIS, and IIS shall purchase and acquire from K2 Digital, free and
clear of any Encumbrances, all of K2 Digital's right, title and interest in and
to the following Assets:
(a) the customer contracts (i) of Transferred Customers and (ii) other
customers of K2 Digital listed on Schedule 2.3(a) (the "Contracts");
(b) the furniture, fixtures and equipment utilized prior to the date hereof
by the Hired Employees, including the fixed assets listed on Schedule
2.3(b);
(c) All accounts and notes receivable and other amounts owing, and all
related revenues, of or by clients or customers of K2 Digital
("Transferred Customers") on whose accounts or projects any of the
Hired Employees performed services, or to whom products were shipped,
at any time on or after August 1, 2001, together with and all revenues
generated from services performed or products shipped on or after
August 1, 2001 (whether or not invoiced or constituting a receivable as
of August 1, 2001) (the "Transferred Receivables"). Notwithstanding the
foregoing, the Transferred Receivables shall not include any accounts
receivable created by K2 Digital prior to August 1, 2001 or any
unbilled revenues (revenues earned but not invoiced to the client) from
services performed by K2 Digital prior to August 1, 2001, even though
invoiced after such date.
(d) the Intellectual Property Assets listed on Schedule 2.3(d);
(e) all data and records related to the Contracts, Transferred Customers
(and other K2 Digital customers), Transferred Receivables, Hired
Employees, Hired Consultant and other Assets of K2 Digital, including
client and customer lists and records, referral sources, research and
development reports and records, creative materials, advertising
materials, promotional materials, studies, reports, correspondence and
other similar documents and records and, subject to Legal Requirements,
copies of all personnel records of the Hired Employees and the Hired
Consultant; and
(f) the prepaid expenses of K2 Digital as of July 31, 2001, plus amounts
paid by K2 Digital after July 31, 2001 that are GAAP prepaid expenses
for any period on or after August 1, 2001, all of which are listed on
Schedule 2.3(f) (the "Prepaid Expense").
All of the property and assets to be transferred to IIS hereunder are
herein referred to collectively as the "Assets." Notwithstanding the foregoing,
the transfer of the Assets pursuant to this Agreement shall not include the
assumption of any Liability related to the Assets unless IIS expressly assumes
that Liability in this Agreement.
2.4 EXCLUDED ASSETS
Notwithstanding anything to the contrary contained in Section 2.3 or
elsewhere in this Agreement, all of the assets of K2 Digital not referenced or
listed in Section 2.3 (collectively, the "Excluded Assets") are not part of the
sale and purchase contemplated hereunder, are excluded
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from the Assets and shall remain the property of K2 Digital after the Closing.
Such Excluded Assets include, but are not limited to, the accounts receivable
and unbilled revenue detailed in Schedule 2.4.
2.5 CONSIDERATION
The consideration for the Assets (the "Purchase Price") will be
$444,000.00 to be paid $419,000.00 in cash and by the assumption by IIS of
capital lease obligations of not more than $25,000.00. At the Closing, the cash
portion of the Purchase Price ($419,000.00) along with the cash fee of
$50,000.00 for the noncompetition agreement of K2 Digital (and $75,000.00 for
the Initial Placement Fee), shall be delivered by IIS to K2 Digital by wire
transfer or other immediately available funds. Notwithstanding the previous
sentence, IIS will wire directly to K2 Digital's creditor(s), included but not
limited to SGI Graphics LLC and its affiliates ("SGI"), the amount of the
purchase price that is necessary to pay off any existing Encumbrance on the
Assets, other than those relating to the assumed portion of the capital leases.
The wire instructions for any payments made directly to creditors will reflect
that the payment is being made for the benefit of K2 Digital.
2.6 LIABILITIES
IIS will not assume and does not agree to discharge any Liabilities of
K2 Digital except for (i) the continuing obligations under the Contracts to the
extent such Contracts require or contemplate performance on or after the Closing
Date, but not for any breach occurring prior to the Closing Date (ii) deferred
revenues not to exceed $74,420 as detailed in Schedule 2.6, and (iii) up to, but
not exceeding, $100,000 of K2 Digital's liabilities for customer advances. IIS
shall also be responsible for and shall indemnify and hold K2 Digital harmless
from any amounts and Liabilities incurred after the date of hire to Hired
Employees as a result of their employment arrangements with IIS (but not as a
result of or arising out of their prior employment by K2 Digital), and
Liabilities incurred by IIS arising out of its use and operation of the Assets
after Closing. All other Liabilities will remain the sole responsibility of and
shall be retained, paid, performed and discharged, except as set forth in
Section 2.5, solely by K2 Digital, including, but not limited to:
(a) any Liability arising out of or relating to products or services of K2
Digital to the extent performed, manufactured, or sold, as the case may
be, prior to the Closing Date;
(b) any Liability under any contract assumed by IIS that arises after the
Closing Date to the extent it arises out of or relates to any breach
that occurred prior to the Closing Date;
(c) any Liability for Taxes, including (A) any Taxes arising as a result of
K2 Digital's operation of its business or ownership of the Assets prior
to the Closing Date, (B) any Taxes that will arise as a result of the
sale of the Assets pursuant to this Agreement and (C) any deferred
Taxes of any nature;
(d) any Liability under any contract not assumed by IIS, including any
Liability arising out of or relating to K2 Digital's credit facilities,
loan agreements or arrangements, debt instruments or any security
interest related thereto;
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(e) any environmental, health and safety liabilities arising out of or
relating to the operation of K2 Digital's business;
(f) any Liability under the K2 Digital Employee Plans or relating to
payroll, vacation, sick leave, workers' compensation, unemployment
benefits, pension benefits, employee stock option or profit-sharing
plans, health care plans or benefits or any other employee plans or
benefits of any kind for K2 Digital's employees or former employees
(including any Hired Employees) or both;
(g) any Liability under any employment, severance, retention or termination
agreement, or any penalties or damages or late-, under- or non-payment
of wages or other compensation, with or relating to any employee or
former employee (including any Hired Employees or the Hired Consultant)
of K2 Digital;
(h) any Liability arising out of or relating to any employee grievance
whether or not the employees filing or initiating such grievance are
hired by IIS;
(i) any Liability to indemnify, reimburse or advance amounts to any
officer, director, employee or agent of K2 Digital;
(j) any Liability to distribute to any of K2 Digital's shareholders or
otherwise apply all or any part of the consideration received
hereunder;
(k) any Liability arising out of any proceeding pending as of the Closing
Date;
(l) any Liability arising out of any proceeding commenced after the Closing
Date to the extent arising out of or relating to any occurrence or
event happening prior to the Closing Date;
(m) any Liability arising out of or resulting from K2 Digital's compliance
or noncompliance with any Legal Requirement or Order of any
governmental body;
(n) any Liability of K2 Digital under this Agreement or any other document
executed in connection with the transactions contemplated hereby; and
(o) any Liability of K2 Digital based upon K2 Digital's acts or omissions
occurring prior to or after the Closing Date.
2.7 ALLOCATION
The Purchase Price shall be allocated in accordance with Schedule 2.7,
attached hereto. After the Closing, the parties shall make consistent use of the
allocation, fair market value and useful lives specified in Schedule 2.7 for all
Tax purposes and in all filings, declarations and reports with the U.S. Internal
Revenue Service ("IRS") in respect thereof, including the reports required to be
filed under Section 1060 of the Internal Revenue Code of 1996, as amended (the
"Code"). IIS shall prepare and deliver IRS Form 8594 to K2 Digital within sixty
(60) days after the Closing Date to be filed with the IRS. In any Proceeding
related to the determination of any
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Tax, neither IIS nor K2 Digital shall contend or represent that such allocation
is not a correct allocation.
2.8 CLOSING
The transactions provided for in this Agreement will take place at the
offices of Xxxxx & Xxxxxx L.L.P., at Xxx Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxx
00000-0000 (the "Closing"), commencing at 5:00 p.m. (local time) on August 31,
2001 (the "Closing Date"), unless IIS and K2 Digital otherwise agree. Subject to
the provisions of Section 9, failure to consummate the transactions provided for
in this Agreement on the date and time and at the place determined pursuant to
this Section 2.8 will not result in the termination of this Agreement and will
not relieve any party of any obligation under this Agreement. In such a
situation, the Closing will occur as soon as practicable, subject to Section 9.
2.9 CLOSING OBLIGATIONS
In addition to any other documents to be delivered under other
provisions of this Agreement, at the Closing:
(a) K2 Digital or any other party thereto shall deliver to IIS:
(i) a xxxx of sale for the Assets that are tangible personal
property in the form of Schedule 2.9(a)(i) (the "Xxxx of
Sale") executed by K2 Digital;
(ii) an assignment of all of the Assets that are intangible
personal property in the form of Schedule 2.9(a)(ii) (the
"Assignment Agreement") executed by K2 Digital;
(iii) assignments of all Intellectual Property Assets and separate
assignments of all registered Marks and Copyrights in the form
of Schedule 2.9(a)(iii) executed by K2 Digital;
(iv) such other deeds, bills of sale, assignments, certificates of
title, documents and other instruments of transfer and
conveyance as may reasonably be requested by IIS, each in form
and substance reasonably satisfactory to IIS and its legal
counsel and executed by K2 Digital;
(v) the Employment Agreements;
(vi) a certificate executed by K2 Digital as to the accuracy of its
representations and warranties as of the date of this
Agreement and as of the Closing in accordance with Section 7.1
and as to its compliance with and performance of its covenants
and obligations to be performed or complied with at or before
the Closing in accordance with Section 7.1;
(vii) a certificate of the Secretary of K2 Digital certifying, as
complete and accurate as of the Closing, attached copies of
the certificate of incorporation and bylaws of K2 Digital,
certifying and attaching all requisite resolutions or actions
of K2 Digital's board of directors approving the execution and
delivery of this
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Agreement and the consummation of the transactions
contemplated hereby and certifying to the incumbency and
signatures of the officers of K2 Digital executing this
Agreement and any other document relating to the contemplated
transactions;
(viii) the lease for the Premises, duly executed by K2 Digital's
landlord, or a sublease or assignment of the existing lease,
in each case in form and substance reasonably acceptable to
IIS, together with any other customary estoppel or other
certificates executed by such landlord and/or K2 Digital; and
(ix) all consents, waivers, authorizations necessary to transfer,
sell and assign the Assets and to consummate the other
transactions contemplated hereby.
(b) IIS shall deliver to K2 Digital:
(i) $544,000.00 of which approximately $255,274.00 (or such larger
or other amount as is needed to release any Encumbrances on
the Assets) shall be payable to K2 Digital's creditors
pursuant to Section 2.5, and the remainder by wire transfer to
an account specified by K2 Digital in a writing delivered to
IIS; and
(ii) a certificate executed by IIS as to the accuracy of its
representations and warranties as of the date of this
Agreement and as of the Closing in accordance with Section 8.1
and as to its compliance with and performance of its covenants
and obligations to be performed or complied with at or before
the Closing in accordance with Section 8.1.
3. REPRESENTATIONS AND WARRANTIES OF K2 DIGITAL
K2 Digital represents and warrants to IIS as follows:
3.1 ORGANIZATION AND GOOD STANDING. K2 Digital is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware, with full corporate power and authority to conduct its
business as it is now being conducted, to own or use the properties and
assets that it purports to own or use, and to perform all its
obligations under its contracts. K2 Digital is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each state or other jurisdiction in which either the ownership
or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
3.2 ENFORCEABILITY; AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid and binding obligation of
K2 Digital, enforceable against it in accordance with its terms. Upon
the execution and delivery by K2 Digital of the other agreements to be
executed or delivered by K2 Digital at the Closing (collectively, "K2
Digital's Closing Documents"), each of K2 Digital's Closing Documents
will constitute the legal, valid and binding obligation of K2 Digital,
enforceable against it in accordance with its terms. K2 Digital has the
absolute and unrestricted right, power and authority to execute and
deliver this Agreement and K2
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Digital's Closing Documents to which it is a party and to perform its
obligations under this Agreement and K2 Digital's Closing Documents,
and such action has been duly authorized by all necessary action by the
board of directors and stockholders of K-2 Digital.
(b) Except as set forth in Schedule 3.2(b), neither the execution and
delivery of this Agreement nor the consummation or performance of any
of the transactions contemplated hereby will, directly or indirectly
(with or without notice or lapse of time): (i) breach (A) any provision
of any of the certificates of incorporation or bylaws of K2 Digital,
(B) any resolution adopted by the board of directors or stockholders of
K2 Digital; (ii) breach or give any governmental body or other Person
the right to challenge any of the contemplated transactions or to
exercise any remedy or obtain any relief under any Legal Requirement or
any Order to which K2 Digital, or any of the Assets, may be subject;
(iii) contravene, conflict with or result in a violation or breach of
any of the terms or requirements of, or give any governmental body the
right to revoke, withdraw, suspend, cancel, terminate or modify, any
governmental authorization that is held by K2 Digital or that otherwise
relates to the Assets or to the business of K2 Digital; (iv) breach any
provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance
of, or payment under, or to cancel, terminate or modify, any contract
or agreement; or (v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the Assets.
(c) K2 Digital is not required to give any notice to or obtain any consent
from any Person, including its stockholders, in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the contemplated transactions.
3.3 SEC REPORTS; FINANCIAL STATEMENTS
Since January 1, 2000, K2 Digital (or any predecessor) has filed all
forms, reports and documents with the U.S. Securities and Exchange Commission
("SEC") required to be filed by it under the Securities Act of 1933, as amended
(the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (such reports being referred to respectively herein as the" SEC
Reports"), each of which complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in effect on
the dates such SEC Reports were filed. None of the SEC Reports contained, when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except to the extent amended prior to the date
hereof by a subsequently filed SEC Report. The consolidated financial statements
of K2 Digital included in the SEC Reports complied as to form with applicable
accounting requirements and the published rules and regulations of the SEC in
respect thereof and fairly presented, in conformity with GAAP, the consolidated
financial position of K2 Digital and its consolidated subsidiaries, in each case
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended (subject, in the case of the
unaudited interim financial statements, to the absence of footnote disclosure
and to normal year-end adjustments). For purposes of this Agreement, "Last
Balance Sheet" means the consolidated balance sheet of K2 Digital as of June 30,
2001, filed with K2 Digital's quarterly report on Form 10-QSB. Since
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the date of the Last Balance Sheet, there has not been any change, or any
application or request for any change, by K2 Digital or any of its subsidiaries
in accounting principles, methods or policies for financial accounting or tax
purposes, other than as a result of any changes under GAAP or other relevant
accounting principles or changes required by any applicable tax rule or
regulation.
3.4 BOOKS AND RECORDS
The books of account and other financial records of K2 Digital, all of
which have been made available to IIS, are complete and correct and represent
actual, bona fide transactions and have been maintained in accordance with sound
business practices and the requirements of Section 13(b)(2) of the Exchange Act,
including the maintenance of an adequate system of internal controls.
3.5 TITLE TO ASSETS; ENCUMBRANCES
K2 Digital owns (or will by the Closing own) good, marketable and
transferable title to all the Assets. K2 Digital shall, at or before the time of
Closing, transfer and deliver all Assets to IIS free and clear of all
Encumbrances.
3.6 CONDITION OF ASSETS
Each item of tangible personal property is in good repair and good
operating condition, ordinary wear and tear excepted, is suitable for immediate
use in the ordinary course of business and is free from latent and patent
defects. No item of tangible personal property is in need of repair or
replacement other than as part of routine maintenance in the ordinary course of
business.
3.7 TRANSFERRED RECEIVABLES
All Transferred Receivables represent or will represent valid
obligations arising from sales or the provision of services actually made or
services actually performed by Hired Employees in the ordinary course of
business on or after August 1, 2001. To the Knowledge of K2 Digital, each of
such Transferred Receivables will be collected in full, without any setoff,
within ninety (90) days after the day on which it first becomes due and payable.
There is no contest, claim, defense or right of setoff, other than returns in
the ordinary course of business of K2 Digital, under any Contract with any
account debtor of an Transferred Receivable relating to the amount or validity
of such Transferred Receivable. K2 Digital has provided to IIS a complete and
accurate list of all Transferred Receivables, which list sets forth the aging of
each such receivable. Notwithstanding the foregoing, K2 Digital does not
guarantee or warrant the collection of any of the Transferred Receivables.
3.8 NO UNDISCLOSED LIABILITIES
Except as set forth in Schedule 3.8, K2 Digital has no Liability except
for Liabilities reflected or reserved against in the Last Balance Sheet and
current liabilities incurred in the ordinary course of business of K2 Digital
since the date of the Last Balance Sheet.
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3.9 TAXES
(a) K2 Digital has filed or caused to be filed on a timely basis all Tax
Returns and all reports with respect to Taxes that are or were required
to be filed pursuant to applicable Legal Requirements. All Tax Returns
and reports filed by K2 Digital are true, correct and complete. K2
Digital has paid, or made provision for the payment of, all Taxes that
have or may have become due for all periods covered by the Tax Returns
or otherwise, or pursuant to any assessment received by K2 Digital,
except such Taxes, if any, as are listed in Schedule 3.9 (a) and are
being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the
financial statements. Except as provided in Schedule 3.9(a), K2 Digital
currently is not the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been made or is expected to
be made by any governmental body in a jurisdiction where K2 Digital
does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Encumbrances on any of the Assets that
arose in connection with any failure (or alleged failure) to pay any
Tax, and K2 Digital has no Knowledge of any basis for assertion of any
claims attributable to Taxes which, if adversely determined, would
result in any such Encumbrance.
(b) All Taxes that K2 Digital is or was required by Legal Requirements to
withhold, deduct or collect have been duly withheld, deducted and
collected and, to the extent required, have been paid to the proper
governmental body or other Person.
(c) K2 Digital (A) has not been a member of an affiliated group within the
meaning of Section 1504(a) of the Code, or any similar group defined
under a similar provision of state, local or foreign law and (B) has no
liability for Taxes of any person (other than K2 Digital and its
subsidiaries) under Treas. Reg. sect. 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor
by contract or otherwise.
(d) K2 Digital has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Section
6662.
3.10 EMPLOYEE BENEFIT PLANS
(a) K2 Digital has delivered or will prior to the Closing deliver to IIS
true and complete copies of each deferred compensation, incentive
compensation, stock purchase, stock option and other equity
compensation plan covering any employee or former employee of K2
Digital, "welfare" plan, fund or program (within the meaning of Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) covering any employee or former employee of K2 Digital; each
"pension" plan, fund or program of K2 Digital (within the meaning of
Section 3(2) of ERISA) covering any employee or former employee of K2
Digital; each employment, consulting, termination or severance
agreement to which K2 Digital is a party or by which it is bound; and
each other employee benefit plan, fund, program, agreement or
arrangement, in each case, that is sponsored, maintained or contributed
to or required to be contributed to by K2 Digital, or to which K2
Digital is a party, whether written or oral, for the benefit of any
employee,
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former employee, director, independent contractor, consultants, leased
employees or contingent worker of K2 Digital (the "Employee Plans").
(b) With respect to each Employee Plan, K2 Digital has heretofore delivered
or will prior to the Closing deliver or made or will make available to
IIS, along with true and complete copies of the Employee Plan and any
amendments thereto (or if the Employee Plan is not a written Employee
Plan, a description thereof), any related trust or other funding
vehicle, any reports or summaries required under ERISA or the Code and
the most recent determination letter received from the Internal Revenue
Service with respect to each Employee Plan intended to qualify under
Section 401 of the Code.
(c) No Liability under Title IV or Section 302 of ERISA has been incurred
by K2 Digital or any entity, that together with K2 Digital would be
deemed a "single employer" within the meaning of Section 4001(b) of
ERISA (an "ERISA Affiliate") that has not been satisfied in full, and
no condition exists that presents a risk to K2 Digital or any ERISA
Affiliate of incurring any such Liability.
(d) No Employee Plan is subject to Title IV of ERISA or Section 412 of the
Code; nor is any Employee Plan a "multiemployer pension plan," as
defined in Section 3(37) of ERISA, or subject to Section 302 of ERISA;
nor has K2 Digital nor any ERISA Affiliate maintained or contributed to
any multiemployer pension plan in the last six (6) years.
(e) K2 Digital will be responsible for and pay any and all workers'
compensation and other similar claims asserted by or with respect to
any employee or former employee of K2 Digital (including any Hired
Employee) in respect of any injury or other compensable event or
occupational illness or disease which occurred or is attributable to
any event, state of facts or condition which existed or occurred prior
to the Closing Date (or prior to the actual start date with IIS with
respect to any Hired Employee).
(f) K2 Digital shall be solely responsible for offering and providing any
continuation coverage under Section 4980B of the Code and Part 6 of
Title 1 of ERISA ("COBRA Coverage") with respect to any "qualified
beneficiary" who is covered by a K2 Digital Plan that is a "group
health plan" (as defined under COBRA) and who experiences a qualifying
event on or prior to the Closing Date (or prior to the actual start
date with IIS with respect to any Hired Employee).
(g) K2 Digital shall provide IIS all information relating to each employee
or former employee of K2 Digital (including any Hired Employee), as IIS
may reasonably require in connection with its employment of such
persons, including, without limitation, initial employment dates,
termination dates, reemployment dates, hours of service, compensation
and tax withholding history in a form that will be usable by IIS and
such information shall be true and correct in all respects.
3.11 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.11(a), there is no pending or, to K2
Digital's Knowledge, threatened Proceeding:
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(i) by or against K2 Digital or that otherwise relates to or may
affect the Assets, Transferred Customers, or Hired Employees
(or Hired Consultant); or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, any of
the transactions contemplated hereby.
(b) Except as set forth in Schedule 3.11(b):
(i) there is no Order to which K2 Digital, its business or any of
the Assets is subject; and
(ii) to the Knowledge of K2 Digital, no officer, director, agent or
employee of K2 Digital is subject to any Order that prohibits
such officer, director, agent or employee from engaging in or
continuing any conduct, activity or practice relating to the
business of K2 Digital.
3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS
Since March 31, 2001 K2 Digital has conducted its business only in the
ordinary course of business and there has not been any:
(a) payment (except in the ordinary course of business) or increase by K2
Digital of any bonuses, salaries or other compensation to any
shareholder, director, officer or employee or entry into any
employment, severance or similar contract with any director, officer or
employee, other than as provided to IIS, prior to the date hereof;
(b) adoption of, amendment to or increase in the payments to or benefits
under, any Employee Plan;
(c) damage to or destruction or loss of any Asset, whether or not covered
by insurance;
(d) sale, lease or other disposition of any Asset of K2 Digital (including
the Intellectual Property Assets) or the creation of any Encumbrance on
any Asset, other than the security interest and lien granted to SGI;
(e) indication by any customer of an intention to discontinue or change the
terms of its relationship with K2 Digital; or
(f) contract by K2 Digital to do any of the foregoing.
3.13 CONTRACTS; NO DEFAULTS
(a) K2 Digital has delivered to IIS accurate and complete copies, of each
Contract and any contract or agreement containing covenants that in any
way purport to restrict K2 Digital's business activity or limit the
freedom of K2 Digital to engage in any line of business or to compete
with any Person, in each case to the extent such other contract would
restrict IIS's ability to conduct business with the Transferred
Customers or other
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customers of K2 Digital or restrict or limit the ability of the Hired
Employees or the Hired Consultant to perform services for IIS after
their date of hire.
(b) Each Contract is in full force and effect and is valid and enforceable
in accordance with its terms; and is assignable by K2 Digital to IIS
without the consent of any other Person (other than any consents that
have been obtained or consents of customers required under the
Contracts, which K2 Digital has no reason to believe cannot be obtained
by it).
(c) Except as set forth in Schedule 3.14 K2 Digital and each other party
thereto is, and at all times since January 1, 2000, has been, in
material compliance with all applicable terms and requirements of each
Contract. No event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with or
result in a breach of, or give K2 Digital or other Person the right to
declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or payment under, or to cancel, terminate
or modify, any such Contract. K2 Digital has not given to or received
from any other Person, at any time since January 1, 2000, any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible or potential violation or breach of, or default
under, or cancellation, termination or notice of non-renewal of any
Contract.
3.14 EMPLOYEES
(a) K2 Digital has provided to IIS a complete and accurate list of the
following information for each employee, director, independent
contractor, consultant and agent of K2 Digital, including each employee
on leave of absence or layoff status: employer; name; job title; date
of hiring or engagement; date of commencement of employment or
engagement; current compensation paid or payable; sick and vacation
leave that is accrued but unused; and service credited for purposes of
vesting and eligibility to participate under any Employee Plan, or any
other employee or director benefit plan.
(b) K2 Digital has not violated the Worker Adjustment and Retraining
Notification Act (the "WARN Act") or any similar state or local Legal
Requirement. During the ninety (90) day period prior to the date of
this Agreement, K2 Digital has not terminated more than 25 employees.
3.15 LABOR; COMPLIANCE
K2 Digital has complied in all material respects with all Legal
Requirements relating to employment practices, terms and conditions of
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining and other requirements under all Legal
Requirements, the payment of social security and similar Taxes and occupational
safety and health. K2 Digital is not liable for the payment of any Taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any
of the foregoing Legal Requirements. There has not been and is not pending any
threatened or actual strike, slowdown, work stoppage or employee grievance
involving K2 Digital.
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3.16 INTELLECTUAL PROPERTY ASSETS
(a) The term "Intellectual Property Assets" means all intellectual property
owned or licensed (as licensor or licensee) by K2 Digital in which K2
Digital has a proprietary interest, and which constitutes part of the
Assets, including:
(i) K2 Digital's name, all assumed fictional business names, trade
names, registered and unregistered trademarks, service marks
and applications (collectively, "Marks");
(ii) all registered and unregistered copyrights in both published
works and unpublished works (collectively, "Copyrights");
(iii) all rights in mask works;
(iv) all know-how, trade secrets, confidential or proprietary
information, customer lists, software, technical information,
data, process technology, plans, drawings and blue prints
(collectively, "Trade Secrets"); and
(v) all rights in internet web sites and internet domain names
presently used by K2 Digital (collectively "Net Names").
(b) K2 Digital has delivered to IIS accurate and complete copies of all K2
Digital contracts relating to the Intellectual Property Assets, except
for any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less
than $5,000 under which K2 Digital is the licensee. There are no
outstanding and, to K2 Digital's Knowledge, no threatened (overtly or
in writing) disputes or disagreements with respect to any such
contract. K2 Digital has no patents, patent applications, or, to its
Knowledge, inventions or discoveries that may be patentable.
(c) K2 Digital is the owner or licensee of all right, title and interest in
and to each of the Intellectual Property Assets, free and clear of all
Encumbrances, and has the right to use without payment to a third party
all of the Intellectual Property Assets. All former and current
employees of K2 Digital have executed written contracts with K2 Digital
that assign to K2 Digital all rights to any inventions, improvements,
discoveries or information relating to the business of K2 Digital.
(d) All of the Intellectual Property Assets are currently in compliance
with formal Legal Requirements, are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date. No Intellectual Property Asset
is infringed or, to K2 Digital's Knowledge, has been challenged or
threatened in any way and (B) none of the services of K2 Digital or
products manufactured or sold, nor any process or know-how used, by K2
Digital, and none of the Intellectual Property Assets, infringes or is
alleged to infringe any intellectual property asset or other
proprietary right of any other Person and is not a derivative work
based on the work of any other Person.
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(e) All Marks have been registered with the United States Patent and
Trademark Office. No Xxxx has been or is now involved in any
opposition, invalidation or cancellation Proceeding and, to K2
Digital's Knowledge, no such action is threatened with respect to any
of the Marks. To K2 Digital's Knowledge, there is no potentially
interfering trademark or trademark application of any other Person. All
products and materials containing a Xxxx xxxx the proper federal
registration notice where permitted by law.
(f) With respect to each Trade Secret, the documentation relating to such
Trade Secret is current, accurate and sufficient in detail and content
to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual. K2 Digital has
taken all reasonable precautions to protect the secrecy,
confidentiality and value of all Trade Secrets (including the
enforcement by K2 Digital of a policy requiring each employee or
contractor to execute proprietary information and confidentiality
agreements substantially in K2 Digital's standard form, and all current
and former employees and contractors of K2 Digital have executed such
an agreement). K2 Digital has good title to and an absolute right to
use the Trade Secrets. The Trade Secrets are not part of the public
knowledge or literature and, to K2 Digital's Knowledge, have not been
used, divulged or appropriated either for the benefit of any Person
(other than K2 Digital) or to the detriment of K2 Digital.
(g) All Net Names have been registered in the name of K2 Digital. To K2
Digital's Knowledge, there is no domain name application pending of any
other person which would or would potentially interfere with or
infringe any Net Name.
3.17 BROKERS OR FINDERS
Neither K2 Digital nor any of its representatives have incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payments in connection with the
transactions contemplated by this Agreement for which IIS will or could be
liable or responsible.
3.18 SOLVENCY
(a) K2 Digital is not now insolvent and will not be rendered insolvent by
any of the transactions contemplated hereby. As used in this section,
"insolvent" means that the sum of the debts and other probable
Liabilities of K2 Digital exceeds the present fair saleable value of K2
Digital's assets.
(b) Immediately after giving effect to the consummation of the transactions
contemplated hereby: (i) K2 Digital will be able to pay its Liabilities
as they become due in the usual course of its business, assuming full
performance of IIS's payment obligations under this Agreement; (ii) K2
Digital will not have unreasonably small capital with which to conduct
its present or proposed business; and (iii) K2 Digital will have assets
(calculated at fair market value) that exceed its Liabilities.
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3.19 DISCLOSURE
No representation or warranty or other statement made by K2 Digital in
this Agreement, the Disclosure Letter, the certificates delivered pursuant to
Section 2.9(a) or otherwise in connection with the transactions contemplated
hereby contains any untrue statement or omits to state a material fact necessary
to make any of them, in light of the circumstances in which it was made, not
misleading. K2 Digital does not have Knowledge of any fact that has specific
application to K2 Digital (other than general economic or industry conditions)
and that may materially adversely affect the Assets (including without
limitation the Contracts, Prepaid Expenses and Transferred Receivables),
Transferred Customers (or other customers), Hired Employees or Hired Consultant,
that has not been set forth in this Agreement or the Disclosure Letter.
4. REPRESENTATIONS AND WARRANTIES OF IIS
IIS represents and warrants to K2 Digital as follows:
4.1 ORGANIZATION AND GOOD STANDING
IIS is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to conduct its business as it is now conducted.
4.2 AUTHORITY; NO CONFLICT
This Agreement constitutes the legal, valid and binding obligation of
IIS, enforceable against IIS in accordance with its terms. Upon the execution
and delivery by IIS of the agreements to be executed or delivered by IIS at
Closing (collectively, "IIS's Closing Documents"), each of IIS's Closing
Documents will constitute the legal, valid and binding obligation of IIS,
enforceable against IIS in accordance with its respective terms. IIS has the
absolute and unrestricted right, power and authority to execute and deliver this
Agreement and IIS's Closing Documents and to perform its obligations under this
Agreement and IIS's Closing Documents, and such action has been duly authorized
by all necessary corporate action.
4.3 BROKERS OR FINDERS
Neither IIS nor any of its representatives have incurred any obligation
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with the transactions
contemplated hereby.
5. COVENANTS OF K2 DIGITAL
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date and thereafter
if reasonably required by IIS, K2 Digital shall (a) afford IIS and its
representatives full and free access, during regular business hours, to K2
Digital's personnel, properties, contracts, governmental authorizations, books
and records and other documents and data, such rights of access to be
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exercised in a manner that does not unreasonably interfere with the operations
of K2 Digital; (b) furnish IIS with copies of all such contracts, governmental
authorizations, books and records and other existing documents and data as IIS
may reasonably request; (c) furnish IIS with such additional financial,
operating and other relevant data and information as IIS may reasonably request;
and (d) otherwise cooperate and assist, to the extent reasonably requested by
IIS, with IIS's investigation of the properties, assets and financial condition
related to K2 Digital.
5.2 OPERATION OF THE BUSINESS OF K2 DIGITAL
Between the date of this Agreement and the Closing, K2 Digital shall:
(a) use its best efforts to preserve intact its current business organization,
keep available the services of its officers, employees (other than the Hired
Employees) and agents and maintain its relations and goodwill with suppliers,
customers, landlords, creditors, employees, agents and others having business
relationships with it; (b) report periodically to IIS concerning the status of
its business, operations and finances; (c) maintain the Assets in a state of
repair and condition that complies with Legal Requirements and is consistent
with the requirements and normal conduct of K2 Digital's business; and (d)
comply with all Legal Requirements and contractual obligations applicable to the
operations of K2 Digital's business.
5.3 REQUIRED APPROVALS
K2 Digital shall cooperate with IIS and its representatives in
obtaining all consents necessary to IIS to assume the Contracts, acquire the
Assets and otherwise consummate the transactions contemplated hereby.
5.4 NO NEGOTIATION
Until such time as this Agreement shall be terminated pursuant to
Section 9.1, K2 Digital shall not directly or indirectly solicit, initiate,
encourage or entertain any inquiries or proposals from, discuss or negotiate
with, provide any nonpublic information to or consider the merits of any
inquiries or proposals from any Person (other than IIS) relating to any business
combination transaction involving K2 Digital, including the merger or
consolidation of K2 Digital or the sale of its business, securities or any of
the Assets. K2 Digital shall notify IIS of any such inquiry or proposal within
twenty-four (24) hours of receipt or awareness of the same by K2 Digital.
5.5 PAYMENT OF LIABILITIES
K2 Digital shall pay or otherwise satisfy in the ordinary course of
business all of its Liabilities and obligations.
6. COVENANT NOT TO COMPETE
As consideration for IIS entering into this Agreement, each of K2
Digital and its respective subsidiaries and successors will not at any time
during the five (5) year period immediately following the date hereof, directly
or indirectly, in sole proprietorship, in any partnership or joint venture, or
as owner of an equity interest in any corporation, limited liability company or
other business entity (other than the ownership of one percent (1%) or less of
the outstanding equity securities of any publicly-traded corporation or entity),
or as an agent of or
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consultant to any of the foregoing: (i) engage in any business of substantially
the same character as the business engaged in by it, or provide any services of
substantially the same character as the services provided by it, to any person
or entity, including without limitation the Transferred Customers, anywhere in
the world, (ii) solicit or attempt to solicit for employment any person who is,
at the time of such solicitation, a Hired Employee, Key Employee or other
employee or officer of IIS, or induce or attempt to induce any such person to
terminate his or her employment with IIS, or (iii) ) solicit or attempt to
solicit any client or customer, including without limitation any Transferred
Customer, to do business with K2 Digital or its affiliates or successors, or
induce or attempt to induce any such customer to terminate his or her
relationship with IIS; provided, however, that after the date hereof, K2 Digital
may take such steps as are necessary to collect its accounts and otherwise take
such actions as are necessary to wind up its business to the extent not
inconsistent with the purposes and intent of this Section 6 and the value to IIS
of the transactions contemplated by this Agreement; and provided further that,
solely for purposes of Section 6(i) above, K2 Digital shall not be prohibited
from merging with or into another corporation or other entity that provides
competitive services or products.
7. CONDITIONS PRECEDENT TO IIS'S OBLIGATION TO CLOSE
IIS's obligation to consummate the transactions contemplated hereby and
to take the other actions required to be taken by IIS at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by IIS in its sole discretion, in whole
or in part):
7.1 ACCURACY OF REPRESENTATIONS; COVENANTS
Each of K2 Digital's representations and warranties in this Agreement
shall have been accurate in all material respects as of the date of this
Agreement, and shall be accurate in all material respects as of the time of the
Closing as if then made, except that any representations and warranties already
qualified by materiality shall be true and correct in all respects. Each of the
covenants and obligations that K2 Digital are required to perform or to comply
with pursuant to this Agreement at or prior to the Closing shall have been duly
performed and complied with in all material respects.
7.2 ADDITIONAL DOCUMENTS
K2 Digital shall have caused the documents and instruments required by
Section 2.9(a) and the following documents to be delivered (or tendered subject
only to Closing) to IIS:
(a) Payment and releases of all Encumbrances on the Assets;
(b) Such other documents as IIS may reasonably request for the purpose of:
(i) evidencing the accuracy of any of K2 Digital's representations
and warranties;
(ii) evidencing the performance by K2 Digital, or the compliance by
K2 Digital with, any covenant or obligation required to be
performed or complied with by K2 Digital;
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(iii) evidencing the satisfaction of any condition referred to in
this Section 7; or
(iv) otherwise facilitating the consummation or performance of any
of the transactions contemplated hereby.
7.3 NO PROCEEDINGS
Since the date of this Agreement, there shall not have been commenced
or threatened against IIS, any Proceeding (a) involving any challenge to, or
seeking Damages (as defined in Section 11.2) or other relief in connection with,
any of the transactions contemplated hereby or (b) that may have the effect of
preventing, delaying, making illegal, imposing limitations or conditions on or
otherwise interfering with any of the transactions contemplated hereby.
7.4 NO CONFLICT
Neither the consummation nor the performance of any of the transactions
contemplated hereby will, directly or indirectly (with or without notice or
lapse of time), contravene or conflict with or result in a violation of or cause
IIS to suffer any adverse consequence under (a) any applicable Legal Requirement
or Order, or (b) any governmental authorizations or (c) any material contract
(including the Contracts), agreement or credit arrangement of K2 Digital.
8. CONDITIONS PRECEDENT TO K2 DIGITAL'S OBLIGATION TO CLOSE
K2 Digital's obligation to sell the Assets and to take the other
actions required to be taken by K2 Digital at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by K2 Digital in its sole discretion in whole or in
part):
8.1 ACCURACY OF REPRESENTATIONS; COVENANTS
Each of IIS's representations and warranties in this Agreement shall
have been accurate in all material respects as of the date of this Agreement and
shall be accurate in all material respects as of the time of the Closing as if
then made, except that any representations and warranties already qualified by
materiality shall be true and correct in all respects. Each of the covenants and
obligations that IIS is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing shall have been performed and complied with
in all material respects.
8.2 ADDITIONAL DOCUMENTS
IIS shall have caused the documents and instruments required by Section
2.9(b) to be delivered (or tendered subject only to Closing) to K2 Digital.
8.3 NO INJUNCTION
There shall not be in effect any Legal Requirement or any injunction or
other Order that prohibits the consummation of the transactions contemplated
hereby.
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9. TERMINATION
9.1 TERMINATION EVENTS
By notice given prior to or at the Closing, subject to Section 9.2,
this Agreement may be terminated as follows:
(a) by IIS if a material breach of any provision of this Agreement has been
committed by K2 Digital and such breach has not been waived by IIS;
(b) by K2 Digital if a material breach of any provision of this Agreement
has been committed by IIS and such breach has not been waived by K2
Digital;
(c) by IIS if any condition in Section 7 has not been satisfied as of the
date specified for Closing or if satisfaction of such a condition by
such date is or becomes impossible (other than through the failure of
IIS to comply with its obligations under this Agreement), and IIS has
not waived such condition on or before such date;
(d) by K2 Digital if any condition in Section 8 has not been satisfied as
of the date specified for Closing or if satisfaction of such a
condition by such date is or becomes impossible (other than through the
failure of K2 Digital to comply with their obligations under this
Agreement), and K2 Digital has not waived such condition on or before
such date;
(e) by mutual consent of IIS and K2 Digital; or
(f) by IIS or K2 Digital if the Closing has not occurred on or before
September 30, 2001, or such later date as the parties may agree upon,
unless IIS is in material breach of this Agreement, in which event IIS
may not terminate pursuant to this clause (f).
9.2 EFFECT OF TERMINATION
If this Agreement is terminated pursuant to Section 9.1, all
obligations of the parties under this Agreement will terminate, except that the
obligations of the parties in Section 2.1(a), (b), (c), and (f), Section 10.4
and Section 11 will survive, provided, however, that, if this Agreement is
terminated because of a breach of this Agreement by the nonterminating party or
because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the party's failure to
comply with its obligations under this Agreement, the terminating party's right
to pursue all legal remedies will survive such termination unimpaired.
10. ADDITIONAL COVENANTS; AND AGREEMENTS
10.1 PAYMENT OF ALL TAXES RESULTING FROM SALE OF ASSETS BY K2 DIGITAL
K2 Digital shall pay in a timely manner all Taxes resulting from or
payable in connection with the sale of the Assets and other transactions
contemplated by this Agreement, regardless of the Person on whom such Taxes are
imposed by Legal Requirements.
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10.2 PAYMENT OF LIABILITIES
In addition to payment of Taxes pursuant to Section 10.1, K2 Digital
shall pay, or make adequate provision for the payment, in full all Liabilities
of K2 Digital (assuming full performance by IIS of its payment obligations under
this Agreement). If any such Liabilities (other than Liabilities contested in
good faith by K2 Digital and for which appropriate reserves have been made and
adequate funds available) are not so paid or provided for, or if IIS reasonably
determines that failure to make any payments will materially impair IIS's use or
enjoyment of the Assets or conduct of the business previously conducted by K2
Digital with the Assets, IIS may, at any time after the Closing Date, elect with
at least 5 days' prior notice to K2 Digital to make all such payments directly
(but shall have no obligation to do so) and set off and deduct the full amount
of all such payments from the Contingent Placement Fee or any other amounts
payable to K2 Digital. IIS shall receive full credit against the Contingent
Placement Fee or such other amounts for all payments so made, except to the
extent it is ultimately determined that such payments were not required to be
made by K2 Digital.
10.3 ASSISTANCE IN PROCEEDINGS
K2 Digital will reasonably cooperate with IIS and its counsel in the
contest or defense of, and make available its personnel and provide any
testimony and access to its books and records in connection with, any Proceeding
involving or relating to (a) any transaction contemplated hereunder or (b) any
action, activity, circumstance, condition, conduct, event, fact, failure to act,
incident, occurrence, plan, practice, situation, status or transaction on or
before the Closing Date involving K2 Digital or its business.
10.4 CUSTOMER FUNDS
(a) In the event K2 Digital receives payments on account of any Transferred
Receivable ("IIS Customer Funds"), K2 Digital will immediately transfer
to IIS all IIS Customer Funds received by K2 Digital or its affiliates
and will, if required by IIS, execute and provide to any depository
institutions any irrevocable or automatic funds transfer instructions
needed to transfer such funds (electronic or otherwise) deposited into
K2 Digital's accounts to accounts of IIS. K2 Digital hereby authorizes
IIS to endorse in IIS's name all notes, checks, draft money orders or
other instruments of payment or utilize credit memos in respect of the
foregoing which may come into the possession of K2 Digital or IIS, and
K2 Digital hereby ratifies all that IIS may lawfully do or cause to be
done by virtue hereof. In the event IIS receives any funds allocable to
accounts receivable or unbilled revenue existing as of July 31, 2001,
or other amounts belonging to K2 Digital hereunder, IIS shall promptly
pay such amounts over to K2 Digital.
(b) Prior to the Closing, and until termination of this Agreement in
accordance with its terms, IIS will have the sole irrevocable right and
authority to invoice for and collect all monies or credits payable in
respect of the IIS Customer Funds, no matter how or when earned. If any
of K2 Digital or its affiliates receive any such monies or credit
memos, it will hold all such monies or credit memos in trust for the
sole benefit of IIS and pay all such amounts to IIS in accordance with
Section 10.4(a) above. In the event IIS receives any
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funds allocable to accounts receivable, or other amounts retained by or
belonging to K2 Digital hereunder, IIS shall promptly pay such amounts
over to K2 Digital.
(c) Each party shall reasonably cooperate (including making its relevant
employees available) with the other with respect to the collection of
their respective accounts receivables that have a common customer
(provided that no party shall have any obligation to act as a
collection agent for the other).
10.5 USE OF NAMES
Until termination of this Agreement in accordance with its terms, IIS
shall have the right to use, and K2 Digital hereby grants to IIS the
irrevocable, exclusive right and license to use (except that K2 Digital may use
such names for the limited purpose of winding up its business) on a perpetual,
royalty free basis, all of K2 Digital's trade or business names, service marks,
copyrights, brands, processes and methodologies used or usable in K2 Digital's
business, including without limitation the names "K2 Digital," "K2," "W3," and
the domain name and sites used or owned by K2 Digital, including
xxx.X0Xxxxxxx.xxx. Following the Closing, K2 Digital may continue to use the
names "K2 Digital" and "K2" for a 12-month period in describing the corporate
entity as it transitions to a new corporate name and tradename. Such names and
marks shall not be transferred to, licensed by or otherwise used by any
successor or acquiror of the assets, securities or business of K2 Digital,
whether by merger or otherwise.
11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL
All representations, warranties, covenants and obligations in this
Agreement, the Disclosure Letter, the certificates delivered pursuant to this
Agreement shall survive the Closing and the consummation of the transactions
contemplated hereby. The right to indemnification, reimbursement or other remedy
based upon such representations, warranties, covenants and obligations shall not
be affected by any investigation (including any environmental investigation or
assessment) conducted with respect to, or any Knowledge acquired (or capable of
being acquired) at any time, whether before or after the execution and delivery
of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with any such representation, warranty, covenant or
obligation. The waiver of any condition based upon the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification,
reimbursement or other remedy based upon such representations, warranties,
covenants and obligations.
11.2 INDEMNIFICATION AND REIMBURSEMENT BY K2 DIGITAL
K2 Digital will indemnify and hold harmless IIS, and its
representatives, officers, directors, employees, shareholders, subsidiaries and
related persons (collectively, the "IIS Indemnified Persons"), and will
reimburse the IIS indemnified Persons for any loss, liability, claim, damage,
expense (including costs of investigation and defense and reasonable attorneys'
fees and expenses) or diminution of value, whether or not involving a
third-party claim (collectively, "Damages"), arising from or in connection with:
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(a) any breach of any representation or warranty made by K2 Digital in (i)
this Agreement, (ii) the Disclosure Letter, (iii) the certificates
delivered pursuant to this Agreement (iv) any transfer instrument or
(v) any other certificate, document, writing or instrument delivered by
K2 Digital pursuant to this Agreement;
(b) any breach of any covenant or obligation of K2 Digital in this
Agreement or in any other certificate, document, writing or instrument
delivered by K2 Digital pursuant to this Agreement;
(c) any Liability arising out of the ownership or operation of the Assets
prior to the Closing Date;
(d) any Employee Plan established or maintained by K2 Digital; or
(e) any Liabilities of K2 Digital not expressly assumed by IIS hereunder.
11.3 INDEMNIFICATION AND REIMBURSEMENT BY IIS
IIS will indemnify and hold harmless K2 Digital and its
representatives, officers, directors employees, shareholders, subsidiaries, and
related persons (collectively, the "K2 Indemnified Persons"), and will reimburse
the K2 Indemnified Persons, for any Damages arising from or in connection with:
(a) any breach of any representation or warranty made by IIS in this
Agreement or in any certificate, document, writing or instrument
delivered by IIS pursuant to this Agreement;
(b) any breach of any covenant or obligation of IIS in this Agreement or in
any other certificate, document, writing or instrument delivered by IIS
pursuant to this Agreement;
(c) any Liabilities of K2 Digital expressly assumed by IIS hereunder; or
(d) any Liability arising out of the ownership or operation of the Assets
by IIS from and after the Closing Date, except as otherwise provided by
this Agreement.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise provided in this Agreement, each party to this
Agreement will bear its respective fees and expenses incurred in connection with
the preparation, negotiation, execution and performance of this Agreement and
the transactions contemplated hereby, including all fees and expense of its
representatives, except that IIS will reimburse K2 Digital for up to, but not
exceeding, $10,000 of its outside legal fees upon presentation of proper
invoices.
12.2 PUBLIC ANNOUNCEMENTS
Except as required by law or the rules of any stock exchange on which
either party's shares of common stock are publicly traded, neither party will
issue any press release or make
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any public announcement concerning the subject of this Agreement without the
prior consent of the other party, which shall not be unreasonably withheld. With
respect to any required disclosures, the disclosing party shall provide advance
copies of any press release or public filing and provide the non-disclosing
party a reasonable opportunity to review and revise such release or filing.
12.3 NOTICES
All notices, consents, waivers and other communications required or
permitted by this Agreement shall be in writing and shall be deemed given to a
party when (a) delivered to the appropriate address by hand or by nationally
recognized overnight courier service (costs prepaid); (b) sent by facsimile or
e-mail with confirmation of transmission by the transmitting equipment; or (c)
received or rejected by the addressee, if sent by certified mail, return receipt
requested, in each case to the following addresses, facsimile numbers or e-mail
addresses and marked to the attention of the person (by name or title)
designated below (or to such other address, facsimile number, e-mail address or
person as a party may designate by notice to the other parties):
K2 Digital: 00 Xxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000
Attention: Mr. Xxxx Xxxxx
Fax no.: (000) 000-0000
IIS: Integrated Information Systems, Inc.
0000 X. Xxxxxxxxxxxx Xxxxxxx, Xxxxx, Xxxxxxx 00000
Attention: Xxxxx Xxxxxxxx
Fax no.: (000) 000-0000
with a copy to: Xxxxx & Xxxxxx L.L.P.,
One Arizona Center, 000 X. Xxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Fax no.: (000) 000-0000
12.4 JURISDICTION; SERVICE OF PROCESS
Any Proceeding arising out of or relating to this Agreement or any
transaction contemplated hereby shall be brought exclusively in the courts of
the State of Arizona, County of Maricopa, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Arizona,
and each of the parties irrevocably submits to the exclusive jurisdiction of
each such court in any such Proceeding, waives any objection it may now or
hereafter have to personal jurisdiction, venue or to convenience of forum,
agrees that all claims in respect of the Proceeding shall be heard and
determined only in any such court and agrees not to bring any Proceeding arising
out of or relating to this Agreement or any contemplated transaction in any
other court.
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12.5 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements, whether written or
oral, between the parties with respect to its subject matter (including any
letter of intent and any confidentiality agreement between IIS and K2 Digital)
and constitutes (along with the Disclosure Letter, Schedules and other documents
delivered pursuant to this Agreement) a complete and exclusive statement of the
terms of the agreement between the parties with respect to its subject matter.
This Agreement may not be amended, supplemented, or otherwise modified except by
a written agreement executed by the party to be charged with the amendment.
12.6 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
No party may assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of the other
parties, except that IIS may assign any of its rights and delegate any of its
obligations under this Agreement to any subsidiary, successor or acquiror of
IIS. Subject to the preceding sentence, this Agreement will apply to, be binding
in all respects upon and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy or claim under or with respect to this
Agreement or any provision of this Agreement, except such rights as shall inure
to a successor or permitted assignee pursuant to this Section 13.7.
12.7 GOVERNING LAW
This Agreement will be governed by and construed under the laws of the
State of Arizona without regard to conflicts-of-laws principles that would
require the application of any other law.
12.8 EXECUTION OF AGREEMENT
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
The exchange of copies of this Agreement and of signature pages by facsimile
transmission shall constitute effective execution and delivery of this Agreement
as to the parties and may be used in lieu of the original Agreement for all
purposes. Signatures of the parties transmitted by facsimile shall be deemed to
be their original signatures for all purposes.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INTEGRATED INFORMATION SYSTEMS, INC.,
A DELAWARE CORPORATION
By:
----------------------------------
Its:
---------------------------------
K2 DIGITAL, INC., A DELAWARE CORPORATION
By:
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Its:
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