1
EXHIBIT 99.A-1
Form 8-K
AGREEMENT AND PLAN OF ACQUISITION
THIS AGREEMENT AND PLAN OF ACQUISITION (this "Agreement") dated
effective as of March 5, 1999, is made and entered into by and between
TouchStone Software Corporation, a Delaware corporation ("TouchStone"), on the
one hand, and each of the individuals and/or entities whose names appear on the
signature page hereof, each of whom (individually, a "Seller", and collectively,
the "Sellers") is the owner of shares of the capital stock of Unicore Software,
Inc., a Massachusetts corporation (the "Company"), relating to the sale by the
Sellers and the purchase by TouchStone of all of the issued and outstanding
shares of the capital stock of the Company (the "Shares").
WHEREAS, there currently are 100 Shares issued and outstanding, all of
which are owned beneficially and of record by the Sellers, with the number of
Shares owned by each Seller set forth opposite their respective names on the
signature page hereof.
WHEREAS, TouchStone desires to purchase the Shares from the Sellers,
and the Sellers desire to sell the Shares to TouchStone, on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Purchase and Sale of Shares. Subject to the terms and conditions
hereof, at the Closing to be held in accordance with the provisions of Section 3
hereof, TouchStone agrees to purchase the Shares from the Sellers, and each of
the Sellers agrees, severally and not jointly, to sell the Shares to TouchStone.
It is the intention of the parties that the purchase of the Shares be
accomplished through the merger (the "Merger") of the Company with and into a
newly-to-be-formed and wholly-owned subsidiary of TouchStone, which will be the
surviving corporation in the Merger (the "Surviving Corporation"), such that the
acquisition will qualify as a "reorganization" within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended, with the Sellers to recognize
taxable income at the Closing only on the amount of cash received by each
pursuant to subsection 2(a) below (assuming that the balance of the
consideration to be received by the Sellers consists of shares of TouchStone
Common Stock as contemplated in subsection 2(b)(i) below).
2. Purchase Price. As a consequence of the Merger, and as the aggregate
purchase price to be paid by TouchStone to the Sellers as a group for the Shares
(the "Purchase Price"), Sellers shall receive and be entitled to receive from
TouchStone a total of $4,555,000, at the following times and in the manner
indicated below:
(a) Upon execution hereof, TouchStone shall place on deposit in
the Attorney-Client Trust Account of Xxxxxx, Xxxxxxxx & Branch, Professional
Association, counsel to Sellers, the sum of $250,000, as a deposit against the
cash portion of the Purchase Price payable as provided in this subsection 2(a)
(the "Deposit"). At Closing, the Deposit shall be released to Sellers (without
interest
2
or deduction of any kind) and, in addition, Sellers shall receive from
TouchStone, in cash, by wire transfer or certified or cashier's check or checks,
the sum of $955,000, with the amount of the cash to be received by each Seller
at Closing set forth opposite their respective names on the signature page
hereof;
(b) Prior to the close of business on the date on which the Annual
Meeting of the stockholders of TouchStone is held as provided in Section 8.5
below, the Sellers shall be entitled to receive from TouchStone the balance of
$3,350,000, as follows:
(i) By issuance and delivery of an aggregate of 3,350,000
shares of the authorized but previously unissued Common Stock of TouchStone (the
"TouchStone Common Stock"), provided that the stockholders of TouchStone have
approved the issuance and delivery of the TouchStone Common Stock at the Annual
Meeting; or
(ii) By payment in cash, by wire transfer or certified or
cashier's check or checks, in the event that the stockholders of TouchStone do
not approve the issuance and delivery of the TouchStone Common Stock at the
Annual Meeting.
(c) The respective number of shares of TouchStone Common Stock, or
the additional amount of cash, to be delivered and paid to each Seller pursuant
to subsections 2(b(i) and (ii) )is set forth opposite their respective names on
the signature page hereof. In the event that, subsequent to the execution hereof
but prior to the date on which TouchStone Common Stock is issued to the Sellers,
the outstanding shares of TouchStone's Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or public offering, or any other
change in TouchStone's capitalization shall have occurred (a "Recapitalization",
as the case may be), then an appropriate and proportionate adjustment shall be
made to the number of shares of TouchStone Common Stock to be received by the
Sellers such that the Sellers shall receive the equivalent equity interest in
TouchStone that the Sellers would have received had the shares of TouchStone
Common Stock issuable to them hereunder actually been issued immediately prior
to such Recapitalization.
3. Closing. The Closing shall take place at the offices of TouchStone
in Huntington Beach, California, at 5:00 p.m., local time, on March 5, 1999 (the
"Closing Date"), or at such other time, date and place as may be mutually agreed
upon in writing by the parties hereto. If the Closing fails to occur by March 5
At the close of business on the date of the Annual Meeting, upon written notice
from the Company and Xxxxxx X. Xxxxxx, on behalf of the Sellers, that the
balance of the Purchase Price is to be paid, 1999, or by such later date to
which the Closing may be extended as provided hereinabove, for any reason other
than as provided in Sections 6.7 and 6.8 below, this Agreement shall
automatically terminate, the full amount of the Deposit shall promptly be
released and returned to TouchStone (on the next business day, without interest
or deduction of any kind), all parties shall pay their own expenses incurred in
connection herewith, and neither TouchStone nor any of the Sellers shall have
any further obligations hereunder; provided, however, that no such termination
shall constitute a waiver by either TouchStone or any of the Sellers who is not
in default of any of its respective representations, warranties or covenants
herein, of any rights or remedies it might have at law if the other is in
default of any of its respective representations, warranties or covenants under
this Agreement.
2
3
At the Closing, TouchStone shall pay the cash portion of the Purchase
Price as provided in Section 2(a) above, and the parties shall execute and
deliver and cause to be filed in all applicable jurisdictions the Agreement of
Merger set forth as Exhibit A attached hereto, with such changes thereto as the
parties executing and delivering the same shall approve, such approval to be
conclusively evidenced by the execution and delivery thereof. At the Closing, as
a consequence of the Merger, TouchStone shall acquire good and valid title in
and to the Shares, free and clear of all liens, and the Sellers, as a group,
shall become entitled to receive the aggregate Purchase Price specified in
Section 2 above. At the Closing, there shall also be delivered to Sellers and
TouchStone the certificates and other contracts, documents and instruments to be
delivered under Sections 7.3 and 7.4 hereof.
4. Representations and Warranties of Sellers. Sellers hereby jointly
and severally represent and warrant to, and covenant with, TouchStone as follows
(it being acknowledged that TouchStone is entering into this Agreement in
material reliance upon each of the following representations and warranties, and
that the truth and accuracy in all material respects of each of which
constitutes a condition precedent to TouchStone's obligations hereunder):
4.1 Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, and is duly qualified and in good standing to do
business as a foreign corporation in each jurisdiction where the failure to be
so qualified would have a materially adverse effect upon the Company. The
Company has all requisite corporate power and authority to conduct its business
as now being conducted and to own and lease the properties which it now owns and
leases. The Articles of Organization of the Company, as amended to date,
certified by the Secretary of State of the Commonwealth of Massachusetts, and
the bylaws of the Company, as amended to date, certified by the Clerk of the
Company, which have previously been provided to TouchStone by or on behalf of
Sellers, are true and complete copies thereof as currently in effect.
4.2 Authorizations. This Agreement, and each and every other
agreement, document and instrument to be executed by Sellers, or any of them, in
connection herewith, has been effectively authorized by all necessary action on
the part of each of the Sellers, has been duly and validly executed and
delivered by each of the Sellers and constitutes a legal, valid and binding
obligation of each Seller, enforceable against each Seller in accordance with
its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization
and other laws of general application relating to or affecting creditors' rights
and to general equity principles.
4.3 Capitalization of the Company. The authorized capital stock of
the Company consists of 200,000 shares of Common Stock, without par value. As of
the date hereof, 100 shares of such Common Stock are issued and outstanding, all
of which are owned, beneficially and of record, by the Sellers. Except as may be
disclosed in the Disclosure Letter delivered by Sellers to TouchStone
contemporaneously with this Agreement ("Sellers' Disclosure Letter"), all of
such shares are free and clear of (i) any lien, charge, mortgage, pledge,
conditional sale agreement, or other encumbrance
3
4
of any kind or nature whatsoever, and (ii) any claim as to ownership thereof or
any rights, powers or interest therein by any third party, whether legal or
beneficial, and whether based on contract, proxy or other document or otherwise.
The delivery of a certificate or certificates at the Closing representing the
Shares in the manner provided in Section 2 above will transfer to TouchStone
good and valid title to the Shares, free of any liens, encumbrances and claims
of third parties. As of the date hereof, except as expressly set forth
hereinabove, there are no warrants, options, calls, commitments or other rights
to subscribe for or to purchase from the Company any capital stock of the
Company or any securities convertible into or exchangeable for any shares of
capital stock of the Company, or any other securities or agreements pursuant to
which the Company is or may become obligated to issue any shares of its capital
stock, nor is there outstanding any commitment, obligation or agreement on the
part of the Company to repurchase, redeem or otherwise acquire any of the
outstanding shares of its capital stock.
4.4 No Conflicts. Except as set forth in Sellers' Disclosure
Letter, neither the execution and delivery of this Agreement, nor the
consummation by Sellers of any of the transactions contemplated hereby, or
compliance with any of the provisions hereof, will (i) conflict with or result
in a breach of, violation of, or default under, any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license, lease,
credit agreement or other agreement, document, instrument or obligation to which
any Seller or the Company is a party or by which any of their respective assets
or properties may be bound, which breach, violation or default reasonably could
be expected to have a material adverse effect on the Company, or (ii) violate
any judgment, order, injunction, decree, statute, rule or regulation applicable
to any Seller or the Company, or any of the assets or properties of either of
them. Except as set forth in Sellers' Disclosure Letter, no authorization,
consent or approval of any public body or authority is necessary for the
consummation by Sellers of the transactions contemplated by this Agreement.
4.5 Financial Statements. Attached hereto as Exhibit B are the
unaudited financial statements of the Company and its predecessor operations for
each of the two years ended December 31, 1997 and 1998, consisting of balance
sheets as of such dates and the related income statements for each of the years
then ended. The Company's balance sheet as of December 31, 1998 is herein
referred to as the Balance Sheet, and such financial statements are herein
sometimes collectively referred to as the "Financial Statements." The Financial
Statements (i) are derived from the books and records of the Company, which
books and records have been consistently maintained in a manner which reflects,
and such books and records do fairly and accurately reflect in all material
respects, the assets and liabilities of the Company, and (ii) fairly and
accurately present in all material respects the financial condition of the
Company on the respective dates of such statements and the results of its
operations for the periods indicated, except as may be disclosed in the
footnotes set forth therein or in Sellers' Disclosure Letter.
4.6 Absence of Undisclosed Liabilities. Except as and to the
extent reflected or reserved against in the Balance Sheet or set forth in
Sellers' Disclosure Letter, the Company has no liability or obligation (whether
accrued, to become due, contingent or otherwise) which individually or in the
aggregate reasonably could be expected to have a materially adverse effect on
the business, assets, condition (financial or otherwise) or prospects of the
Company.
4
5
4.7 Absence of Certain Developments. Except as set forth in
Sellers' Disclosure Letter, since the date of the Balance Sheet there has been
(i) no declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock of the Company or redemption,
purchase or other acquisition of any capital stock of the Company, or any
split-up or other recapitalization relative to any capital stock of the Company
or any action authorizing or obligating the Company to do any of the foregoing;
(ii) no loss, destruction or damage to any material property or asset of the
Company, whether or not insured; (iii) no acquisition or disposition of assets
(or any contract or arrangement therefor), or any other transaction by the
Company otherwise than for fair value and in the ordinary course of business;
(iv) no discharge or satisfaction by the Company of any material lien or
encumbrance or payment of any material obligation or liability (absolute or
contingent) other than current liabilities shown on the Balance Sheet, or
current liabilities incurred since the date thereof in the ordinary course of
business, (v) no sale, assignment or transfer by the Company of any of its
tangible or intangible assets except in the ordinary course of business,
cancellation by the Company of any debts, claims or obligations, or mortgage,
pledge, subjection of any assets to any lien, charge, security interest or other
encumbrance, or waiver by the Company of any rights of value which, in any such
case, is material to the business of the Company; (vi) no payment by the Company
of any bonus to or change in the compensation of any director, officer or
employee, whether directly or by means of any bonus, pension plan, contract or
commitment; (vii) no write-off or material reduction in the carrying value of
any asset which is material to the business of the Company; (viii) no
disposition or lapse of rights as to any intangible property which is material
to the business of the Company; (ix) except for ordinary travel advances, no
loans or extensions of credit to shareholders, officers, directors or employees
of the Company, (x) no agreement to do any of the things described in this
Section 4.7, and (xi) no materially adverse change in the condition (financial
or otherwise) of the Company or in its assets, liabilities, properties, business
or prospects.
4.8 Real Property. Sellers' Disclosure Letter contains a complete
and accurate description of each parcel of real property owned by or leased to
and occupied by the Company. The buildings and all fixtures and improvements
located on such real property are in good operating condition in all material
respects, ordinary wear and tear excepted. The Company is not in violation of
any material zoning, building or safety ordinance, regulation or requirement or
other law or regulation applicable to the operation of leased properties, and
the Company has not received any notice of violation with which it has not
complied. The Company has valid leasehold interests in all such real property,
free and clear of all liens, mortgages, encumbrances, easements, leases,
restrictions and claims of any kind on such leasehold interests whatsoever,
except for (i) those matters shown on Sellers' Disclosure Letter; (ii) liens for
taxes and tax assessments not yet due and payable; and (iii) mechanics' or
similar liens for materials or services furnished or to be furnished after the
date hereof. All leases of real property to which the Company is a party and
which are material to the business of the Company are fully effective in
accordance with their respective terms and afford the Company peaceful and
undisturbed possession of the subject matter of the lease, and there exists no
default on the part of the Company or termination thereof, except as may be set
forth in Sellers' Disclosure Letter.
4.9 Tangible Personal Property. Sellers' Disclosure Letter sets
forth a complete list of all items of tangible personal property owned or leased
and used by the Company in the current conduct of its business, where the
original cost was in excess of $1,000. Except as set forth on Sellers'
Disclosure Letter, the Company has, and at the Closing will have, good and
marketable title to, or
5
6
in the case of leased equipment a valid leasehold interest in, and is in
possession of, all such items of personal property owned or leased by it, free
and clear of all material title defects, mortgages, pledges, security interests,
conditional sales agreements, liens, restrictions or encumbrances whatsoever.
Included in Sellers' Disclosure Letter is a list of all outstanding equipment
leases and maintenance agreements to which the Company is a party as lessee and
which individually provide for future lease payments in excess of $500 per
month, with the identities of the other parties to all such leases and
agreements shown thereon. All leases of tangible personal property to which the
Company is a party and which are material to the business of the Company are
fully effective in accordance with their respective terms, and there exists no
default on the part of the Company or termination thereof, except as may be set
forth on Sellers' Disclosure Letter. Each item of capital equipment reflected in
the Balance Sheet which is used in the current conduct of the Company's business
is, and on the date of the Closing will be, in good operating and usable
condition and repair, ordinary wear and tear excepted, and is and will be
suitable for use in the ordinary course of the Company's business and fit for
its intended purposes, except as may be set forth on Sellers' Disclosure Letter.
4.10 Taxes. Except as set forth in Sellers' Disclosure Letter, the
Company has duly filed any and all federal, state, county and local tax returns
required to have been filed by it in those jurisdictions where the nature or
conduct of its business requires such filing and where the failure to so file
would be materially adverse to the Company. Copies of any and all such tax
returns have been made available for inspection by TouchStone prior to the
execution hereof. All federal, state, county and local taxes, including but not
limited to those taxes due with respect to the Company's properties, income,
gross receipts, excise, occupation, franchise, permit, licenses, sales, payroll,
and inventory due and payable as of the date of the Closing by the Company have
been paid. Except as set forth in Seller's Disclosure Letter, the amounts
reflected in the Balance Sheet as liabilities or reserves for taxes which are
due but not yet payable is sufficient for the payment of all accrued and unpaid
taxes of the types referred to hereinabove. No consent to the application of
Section 341(f)(2) of the Internal Revenue Code of 1986, as amended, has been
filed with respect to the Company.
4.11 Accounts Receivable. The accounts receivable reflected in the
Balance Sheet constituted all accounts receivable of the Company as of the date
thereof, other than accounts receivable fully written off as uncollectible as of
such date. All such accounts receivable arose from valid sales, were recorded in
the ordinary course of business and, to the knowledge of Sellers, are not
subject to any set-off or counter claim, except as set forth in Sellers'
Disclosure Letter. Such accounts receivable have been collected in full since
the date of the Balance Sheet or, to the knowledge of Sellers, are collectible
at their full respective amounts (net of allowance for doubtful accounts
established in accordance with consistently applied prior practice). Based upon
the prior experience of the Company, the "allowance for doubtful accounts" shown
on the Balance Sheet is sufficient to cover all doubtful accounts.
4.12 Inventories. The Company has, and on the Closing Date will
continue to have, good and marketable title to all of its inventories of raw
materials, work-in-process and finished goods, including models and samples,
free and clear of all security interests, liens, claims and encumbrances, except
as set forth in Sellers' Disclosure Letter. All such inventories consist of
items that are usable and salable in the ordinary course of business of the
Company for an amount at least equal to the
6
7
book value thereto, plus the costs of disposition thereof, and represent
quantities not in excess of one year's requirements for its business as
currently conducted.
4.13 Contracts and Commitments. The Company has no contract,
agreement, obligation or commitment, written or oral, expressed or implied,
which involves a commitment or liability in excess of $1,000 or for a term of
more than 6 months (other than obligations which are included in accounts
payable), and no union contracts, employee or consulting contracts, financing
agreements, debtor or creditor arrangements, licenses, franchise, manufacturing,
distributorship or dealership agreements, leases, or bonus, health or stock
option plans, except as described in Sellers' Disclosure Letter. True and
complete copies of all such contracts and other agreements listed on Sellers'
Disclosure Letter have been made available to TouchStone prior to the execution
hereof. As of the date hereof, to the knowledge of Sellers there exists no
circumstances which would affect the validity or enforceability of any of such
contracts and other agreements in accordance with their respective terms. The
Company has performed and complied in all material respects with all obligations
required to be performed by it to date under, and is not in default (without
giving effect to any required notice or grace period) under, or in breach of,
the terms, conditions or provisions of any of such contracts and other
agreements. Except as set forth in Sellers' Disclosure Letter, the validity and
enforceability of any contract or other agreement described herein has not been
and shall not in any manner be affected by the execution and delivery of this
Agreement without any further action, which effect reasonably could be expected
to have a material adverse effect on the Company. To Seller's knowledge, the
Company has no contract, agreement, obligation or commitment which requires or
will require future expenditures (including internal costs and overhead) in
excess of reasonably anticipated receipts, nor which is likely to be materially
adverse to the Company's business, assets, condition (financial and otherwise)
or prospects.
4.14 Patents, Trade Secrets and Customer Lists. The Company does
not have any patents, applications for patents, trademarks, applications for
trademarks, trade names, licenses or service marks relating to the business of
the Company, except as set forth in Sellers' Disclosure Letter, nor does any
present or former shareholder, officer, director or employee of the Company own
any patent rights relating to any products manufactured, rented or sold by the
Company. Except as disclosed in Sellers' Disclosure Letter, to the best of
Sellers' knowledge, the Company has the unrestricted right to use, free and
clear of any claims or rights of others, all trade secrets, customer lists, and
manufacturing and secret processes reasonably necessary to the manufacture and
marketing of all products made or proposed to be made by the Company and, to the
best of Sellers' knowledge, the continued use thereof by the Company following
the Closing will not conflict with, infringe upon, or otherwise violate any
rights of others. The Company has not used and is not making use of any
confidential information or trade secrets of any present or past employee of the
Company.
4.15 No Pending Litigation or Proceedings. Except as set forth in
Sellers' Disclosure Letter, there are no actions, suits or proceedings pending
or, to the knowledge of Sellers, threatened against or affecting the Company
(including actions, suits or proceedings where liabilities may be adequately
covered by insurance) at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, court, board, bureau,
agency or instrumentality, domestic or foreign, or, to the knowledge of Sellers,
affecting any of the shareholders, officers or directors of the Company in
connection with the business, operations or affairs of the Company, in each case
which reasonably could be expected to result in any material adverse change in
the business,
7
8
properties or assets, or in the condition (financial or otherwise) or prospects
of the Company, or which question or challenge the sale of the Shares by Sellers
to TouchStone. Except as disclosed in Sellers' Disclosure Letter, the Company
has not been subjected to, or to the best of Sellers' knowledge threatened with,
any action, suit, proceedings or claim (including actions, suits, proceedings or
claims where its liabilities may be adequately covered by insurance) for
personal injuries allegedly attributable to products sold or services performed
by the Company asserting a particular defect or hazardous property in any of the
Company's products, services or business practices or methods, nor has the
Company been a party to or, to the best of Sellers' knowledge threatened with,
proceedings brought by or before any federal or state agency; and Sellers have
no knowledge of any defect or hazardous property, claimed or actual, in any such
product, service or business practice or method. The Company is not subject to
any voluntary or involuntary proceeding under the United States Bankruptcy Code
and has not made an assignment for the benefit of creditors.
4.16 Insurance. The Company maintains insurance with reputable
insurance companies on such of its equipment, tools, machinery, inventory and
properties as it deems necessary, and maintains products and personal liability
insurance, and such other insurance against hazards, risks and liability to
persons and property as it deems necessary. A true and complete listing and
general description of each of the Company's insurance policies as currently in
force is set forth in Sellers' Disclosure Letter. All such insurance policies
currently are, and through the Closing shall be, in full force and effect.
4.17 Arrangements with Personnel. Except as set forth in Sellers'
Disclosure Letter, no stockholder, director, officer or employee is presently a
party to any transaction with the Company, including without limitation any
contract, loan or other agreement or arrangement providing for the furnishing of
services by, the rental of real or personal property from or to, or otherwise
requiring loans or payments to, any such stockholder, director, officer or
employee, or to any member of the family of any of the foregoing, or to any
corporation, partnership, trust or other entity in which any stockholder,
director, officer or employee or any member of the family of any of them has a
substantial interest or is an officer, director, trustee, partner or employee.
There is set forth in Sellers' Disclosure Letter a list showing (i) the name,
title, date and amount of last compensation increase, and aggregate
compensation, including amounts paid or accrued pursuant to any bonus, pension,
profit sharing, commission, deferred compensation or other plans or arrangements
in effect as of the date of this Agreement, of each officer, employee, agent or
contractor of the Company whose salary and other compensation, in the aggregate,
received from the Company or accrued is at an annual rate (or aggregated for the
most recently completed fiscal year) in excess of $25,000 as well as any
employment agreements relating to any such persons; (ii) all powers of attorney
from the Company to any person or entity; (iii) the name of each person or
entity authorized to borrow money or incur or guarantee indebtedness on behalf
of the Company; and (iv) all bank and savings accounts, and other accounts at
similar financial institutions, of the Company.
4.18 Labor Relations. Except as set forth in Sellers' Disclosure
Letter, the Company has no obligations under any collective bargaining agreement
or other contract with a labor union, under any employment contract or
consulting agreement, or under any executive's compensation plan, agreement or
arrangement nor, to Seller's knowledge, is any union, labor organization or
group of employees of the Company presently seeking the right to enter into
collective bargaining with the Company on behalf of any of its employees. The
Company has made available to TouchStone a copy
8
9
of all written personnel policies, including without limitation vacation,
severance, bonus, pension, profit sharing and commissions policies, applicable
to any of the Company's employees.
4.19 Absence of Questionable Payments. Neither the Company nor, to
the knowledge of Sellers, any shareholder, director, officer, agent, employee,
consultant or other person associated with or acting on behalf of any of them,
has (i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (b)
made any direct or indirect unlawful payments to governmental officials or
others from corporate funds, engaged in any payments or activity which would be
deemed a violation of the Foreign Corrupt Practices Act or rules or regulations
promulgated thereunder, or (c) established or maintained any unlawful or
unrecorded accounts.
4.20 Compliance with Laws. Except as set forth in Sellers'
Disclosure Letter, the Company holds all licenses, franchises, permits and
authorizations necessary for the lawful conduct of its business as presently
conducted, has complied with all applicable statutes, laws, ordinances, rules
and regulations of all governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over it, with respect to any part of the
conduct of its business and corporate affairs, where the failure to so hold or
comply reasonably could be expected to have a material adverse affect upon the
Company's condition (financial or otherwise), business, assets, properties or
prospects.
4.21 Environmental Matters. Neither the Company nor, to the
knowledge of Sellers, any previous owner, tenant, occupant, user or operator of
any of the real property owned, leased or otherwise occupied by the Company,
used, generated, manufactured, installed, released, discharged, stored or
disposed of any "Hazardous Materials," as defined below, on, under, in or about
the site of such real property, except as set forth in Sellers' Disclosure
Letter. To the knowledge of Sellers, all such real property complies with all
applicable Federal, state and local laws, ordinances and regulations pertaining
to air and water quality, Hazardous Materials, waste, disposal or other
environmental matters, including the Clean Water Act, the Clean Air Act, the
Federal Water Pollution Control Act, the Solid Waste Disposal Act, the Resource
Conservation Recovery Act, the Comprehensive Environmental Response,
Compensation, and Liability Act, and the rules, regulations and ordinances of
the State of Massachusetts and any and all administrative agencies thereof, the
city and county in which such real property is located, the Environmental
Protection Agency and all other applicable Federal, state, regional and local
agencies and bureaus, except where the failure to comply with such laws,
ordinances and regulations could reasonably not be expected to have a material
adverse effect on the Company. The term "Hazardous Materials" shall mean any
substance, material or waste which is regulated by any local government
authority, the Commonwealth of Massachusetts, or the United States Government,
including, without limitations, any mater or substance which is (a) defined as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or "restricted hazardous waste" under any provision of
California law, (b) petroleum, (c) asbestos, (d) designated as a "hazardous
substance" pursuant to section 311 of the Clean Water Act or listed pursuant to
Section 307 of the Clean Water Act, (e) defined as a "hazardous waste" pursuant
to Section 1004 of the Resource Conservation and Recovery Act.
4.22 Relationships with Customers and Suppliers. No present
customer or substantial supplier to the Company has indicated to the Company or
the Sellers an intention to terminate or
9
10
materially and adversely alter its existing business relationship therewith, and
none of the Sellers has any knowledge that any of the present customers of or
substantial suppliers to the Company intends to do so.
4.23 Brokerage. Except as set forth in Sellers' Disclosure
Schedule, neither any of the Sellers nor the Company has any obligation to any
person or entity for brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this Agreement,
and Sellers shall jointly and severally indemnify and hold TouchStone harmless
against any liability or expenses arising out of such a claim asserted against
either TouchStone or the Company by any party.
4.24 Disclosure. Neither this Agreement, Sellers' Disclosure
Schedule, nor any certificate, exhibit, or other written document attached
hereto or furnished to TouchStone by or on behalf of the Sellers or the Company
in connection with the transactions contemplated by this Agreement contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary to be stated in order to make the statements contained
herein or therein not misleading. Neither Sellers nor the Company has any
knowledge of any fact which has not been disclosed in writing to TouchStone
which may reasonably be expected to materially and adversely affect the
business, properties, operations, and/or prospects of the Company or the ability
of Sellers to perform all of the obligations to be performed by Sellers under
this Agreement and/or any other agreement between TouchStone and Sellers and/or
the Company to be entered into pursuant to any provision of this Agreement.
4.25 Investment Representation. Each Seller has the knowledge and
experience in business and financial matters to meaningfully evaluate the merits
and risks of the purchase and acquisition of the TouchStone Common Stock in
exchange and consideration for the Shares owned by such Seller as contemplated
hereby. Each Seller acknowledges that the shares of TouchStone Common Stock to
be issued to such Seller in the transactions contemplated hereby will be issued
by TouchStone without registration or qualification or other filings being made
under the Federal Securities Act of 1933, as amended, or the securities or "blue
sky" laws of any state, in reliance upon specific exemptions therefrom, and in
furtherance thereof each Seller represents that the shares of TouchStone Common
Stock to be received by such Seller will be taken for such Seller's own account
for investment, with no present intention of a distribution or disposition
thereof to others. Each Seller agrees that the certificate(s) representing the
shares of the TouchStone Common Stock issued to such Seller shall be subject to
a stop-transfer order and shall bear a restrictive legend, in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
ARE "RESTRICTED SECURITIES," AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY, IS NOT REQUIRED TO BE REGISTERED UNDER THE
ACT."
10
11
5. REPRESENTATIONS AND WARRANTIES OF TOUCHSTONE
TouchStone represents and warrants to Sellers as follows (it being
acknowledged and agreed that Sellers are entering into this Agreement in
material reliance upon each of the following representations and warranties, and
that the truth and accuracy in all material respects of each of which
constitutes a condition precedent to the obligations of Sellers hereunder):
5.1 Organization and Corporate Power. TouchStone is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full power, corporate or otherwise, legal capacity and
authority to perform the obligations to be performed by TouchStone under this
Agreement, and to execute, deliver and perform all attendant documents and
instruments and to consummate the transactions herein contemplated, including
all attendant acts.
5.2 Authorizations. The execution and delivery of this Agreement
and all attendant documents, and the consummation by TouchStone of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary action, corporate and otherwise, and no other
proceedings are necessary to authorize this Agreement and all attendant
documents and the transactions contemplated thereby and hereby. This Agreement
constitutes the legal, valid and binding act of TouchStone and is enforceable
with respect to TouchStone in accordance with its terms, except as enforcement
hereof may be limited by bankruptcy, insolvency, reorganization, priority, or
other laws relating to or affecting generally the enforcement of creditors
rights or by laws affecting generally the availability of equitable remedies.
5.3 No Conflicts. Neither the execution and delivery by TouchStone
nor the consummation by TouchStone of the transactions contemplated by this
Agreement and all attendant documents, nor compliance by TouchStone with any of
the provisions thereof or hereof, will (i) conflict with or result in a breach
or violation of, or default under, any of the terms, conditions or provisions of
any material note, bond, mortgage, indenture, license, agreement or other
instrument or obligation (including, without limitation, its Certificate of
Incorporation and bylaws) to which TouchStone is a party or by which it is
bound, which breach, violation or default reasonably could be expected to have a
material adverse effect on TouchStone, or (ii) violate any judgment, order,
injunction, decree, statute, rule or regulation applicable to TouchStone or any
of its properties or assets.
5.4 Consents. No governmental consents, approvals or
authorizations, and no consents or approvals by any third party, are required to
be obtained by TouchStone, and no registration or declarations are required to
be filed by TouchStone, in connection with the execution and delivery of this
Agreement and all attendant documents or the consummation of the transactions
contemplated hereby and thereby.
5.5 No Pending Material Litigation or Proceedings. Except as
disclosed in the SEC Documents referred to in Section 5.7 below or as may be set
forth in Disclosure Letter delivered by TouchStone to Sellers contemporaneously
with this Agreement (the "TouchStone Disclosure Letter"), there are no actions,
suits or proceedings pending or, to TouchStone's knowledge, threatened, against
or affecting TouchStone (including actions, suits or proceedings where
liabilities may be adequately covered by insurance) at law or in equity or
before or by any federal, state,
11
12
municipal or other governmental department, commission, court, board, bureau,
agency or instrumentality, domestic or foreign, which reasonably could be
expected to result in any material adverse change in the business, properties or
assets, or in the condition (financial or otherwise) or prospects of TouchStone,
or which might prevent the purchase of the Shares by TouchStone from Sellers
pursuant to this Agreement or the performance by TouchStone of any of the
obligations to be performed by TouchStone hereunder.
5.6 Capitalization. The authorized capital stock of TouchStone
consists of 20,000,000 shares of TouchStone Common Stock and 3,000,000 shares of
preferred stock, $.001 par value. As of the date hereof, there are 7,963,060
shares of TouchStone Common Stock outstanding, and no shares of preferred stock
have been issued or are outstanding. In addition, there are currently
outstanding options and warrants to purchase from TouchStone an aggregate of
1,798.808 shares of TouchStone Common Stock. Except as expressly set forth
herein above, there are no warrants, options, calls, commitments or other rights
to subscribe for or to purchase from TouchStone any capital stock of TouchStone
or any securities convertible into or exchangeable for any shares of capital
stock of TouchStone, or any other securities or agreements pursuant to which
TouchStone is or may become obligated to issue any shares of its capital stock,
nor is there outstanding any commitment, obligation or agreement on the part of
TouchStone to repurchase, redeem or otherwise acquire any of the outstanding
shares of its capital stock. The TouchStone Common Stock is registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and traded in The Nasdaq National Market under the symbol "TSSW." The
shares of TouchStone Common Stock issued and outstanding as of the date hereof
have been, and all of the Shares of TouchStone Common Stock to be issued and
delivered to Sellers, if any, when issued will be, duly authorized and validly
issued, and are and will be fully paid and non-assessable, under the laws of the
State of Delaware.
5.7 Reports Under the Exchange Act. Since January 1, 1996,
TouchStone has filed with the Securities and Exchange Commission (the "SEC") on
a timely basis all reports and other information which TouchStone has been
required to file under the Exchange Act. TouchStone has made available to each
Seller accurate and complete copies of each report, proxy statement, information
statement or schedule, together with all amendments thereto, that were required
to be filed by TouchStone with the SEC under the Exchange Act since January 1,
1996 (the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the applicable requirements of the
Exchange Act, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were or are made, not misleading. Except as disclosed in the
TouchStone Disclosure Schedule, there has been no material adverse change in the
business, properties or assets, or in the condition (financial or otherwise) or
prospects of TouchStone since September 30, 1998.
5.8 Disclosure. Neither this Agreement, the TouchStone Disclosure
Schedule, nor any certificate, exhibit, or other written document attached
hereto or furnished to Sellers by or on behalf of TouchStone in connection with
the transactions contemplated by this Agreement contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary to be stated in order to make the statements contained herein or
therein not misleading. TouchStone
12
13
has no knowledge of any fact which has not been disclosed in writing to Sellers
which may reasonably be expected to materially and adversely affect the
business, properties, operations and/or prospects of TouchStone or the ability
of TouchStone to perform all of the obligations to be performed by TouchStone
under this Agreement and/or any other agreement between TouchStone and any of
the Sellers to be entered into pursuant to any provision of this Agreement.
5.9 Brokerage. TouchStone has no obligation to any person or
entity for brokerage commissions, finder's fees or similar compensation in
connection with the transactions contemplated by this Agreement, and shall
indemnify and hold the Sellers harmless against any liability or expenses
arising out of such a claim asserted against any of the Sellers by any party.
5.10 Purchase for Investment. TouchStone, through its current
officers and directors, has the knowledge and experience in business and
financial matters to meaningfully evaluate the merits and risks of the issuance
of TouchStone Common Stock in exchange and consideration for the Shares as
contemplated hereby. TouchStone understands and acknowledges that the Shares
were originally issued to the Sellers, and will be sold and transferred to
TouchStone, without registration or qualification under the Securities Act of
1933, as amended, or any applicable state securities or "blue sky" law, in
reliance upon specific exemptions therefrom, and in furtherance thereof
TouchStone represents that the Shares will be taken and received by TouchStone
for its own account for investment, with no present intention of a distribution
or disposition thereof to others.
6. COVENANTS OF THE PARTIES PRIOR TO THE CLOSING
Sellers and TouchStone hereby covenant to and agree with the other that
between the date hereof and the Closing:
6.1 Access to Properties and Records.
(a) Each party shall give, or cause to be given, to the other
and its authorized representatives full access, during reasonable business
hours, in such a manner as not unduly to disrupt normal business activities, to
any and all of such party's premises, properties, contracts, books, records and
affairs (including in the case of Sellers, the Company's premises, properties,
contracts, books, records and affairs), and will furnish or cause to be
furnished any and all data and information pertaining to its business that the
other party may from time to time reasonably require.
(b) Unless and until the transactions contemplated by this
Agreement have been consummated, each party and its representatives shall hold
in confidence all information so obtained, will not use such information except
in connection with this Agreement, and if the transactions contemplated hereby
are not consummated will return all documents hereinabove referred to and
obtained therefrom, and all copies thereof and notes relating thereto. Such
obligation of confidentiality shall not extend to any information which as shown
to have been previously (i) known to the party (except for information which was
delivered to the party by the other in confidence prior to the execution of this
Agreement), (ii) generally known to others engaged in the trade or business of
the other party, (iii) part of public knowledge or literature, or (iv) lawfully
received by the party
13
14
from a third party not under a duty of confidentiality. Without limiting the
generality of the foregoing, it is understood and agreed that certain
information disclosed by each party to the other, or their respective
representatives, may constitute "material inside information" that has not
previously been disclosed to the public generally. Each party acknowledges that
it and its representatives are aware of the restrictions on the use of such
information imposed by federal and state securities laws, agrees to comply and
cause its representatives to comply with such restrictions, and agrees to
indemnify and hold the other party and each of its directors, officers and
employees free and harmless from any and all liability, cost or expense that any
of them may incur or suffer by reason of any breach by the indemnifying party or
any of its authorized representatives of any of such restrictions. From and
after the date hereof and until the Closing or termination hereof, neither
party, nor any of their respective officers, directors, principal shareholders
or other representatives, shall purchase or sell, directly or indirectly, in the
public marketplace or otherwise, any securities of the other party.
6.2 Corporate Existence, Rights and Franchises. TouchStone, on the
one hand, and Sellers, on the other hand, shall take all necessary actions to
maintain, or cause to be maintained, in full force and effect, the corporate
existence, rights, franchises and good standing of TouchStone and the Company,
as the case may be. No change shall be made in the charter documents of either
TouchStone or the Company.
6.3 Insurance. Sellers shall take all necessary actions to cause
the Company to maintain in force until the Closing all of its existing insurance
policies, subject only to variations in amounts required by the ordinary
operation of the Company's business.
6.4 Conduct of Business in the Ordinary Course. Neither
TouchStone, on the one hand, nor Sellers, on the other hand, shall permit to be
done any act which would result in the breach of any of the covenants of such
party contained herein or which would cause the representations and warranties
of such party contained herein to become untrue or inaccurate in any material
respect as of any date subsequent to the date hereof. Without limiting the
generality of the foregoing, except as may be contemplated by this Agreement,
TouchStone, on the one hand, and Sellers, on the other hand, shall take all
necessary actions to cause TouchStone or the Company, as the case may be, to (i)
operate its business diligently in the ordinary course of business as an ongoing
concern, and will use reasonable efforts to preserve in all material respects
its organization and operations at current levels, retain the services of its
current employees, and preserve its relationships with its suppliers and
customers and others having business relationships with it; (ii) maintain in
good operating condition, ordinary wear and tear excepted, all of its assets and
properties which are in such condition as of the date hereof; (iii) maintain its
books, accounts and records in the usual, regular and ordinary manner, on a
basis consistent with past practice in recent periods; (iv) refrain from
entering into any contract, agreement, sales order, lease, capital expenditure
or other commitment of a value in excess of $1,000 (other than purchases of raw
materials and sales of inventory in the ordinary course of business), or from
modifying, amending, canceling or terminating any of such contracts, agreements,
leases or other commitments presently in force, except as expressly contemplated
by this Agreement, without the prior approval of the other (which approval shall
not be unreasonably withheld and which may
14
15
be verbal to be followed by written confirmation); (v) refrain from paying any
bonus to any employee, officer or director, and from declaring or paying any
dividend, or making any other distribution in respect of, or from redeeming, any
capital stock; (except that the Company may make an appropriate "S" dividend to
the Sellers in any amount equal to their tax liability for taxable income
generated by the Company through the date of the Closing); and (vi) refrain from
issuing any capital stock or other securities convertible into capital stock.
6.5 Consents. Each of the parties shall use its reasonable efforts
to obtain any and all necessary permits, approvals, qualifications, consents or
authorizations from third parties and governmental authorities which are
required to be obtained prior to the Closing, and shall use its reasonable
efforts to make or complete all filings, proceedings and waiting periods
required to be made or completed prior to the Closing.
6.6 No Equitable Conversion. Prior to the Closing, neither the
execution of this Agreement nor the performance of any provision contained
herein shall cause either TouchStone, on the one hand, or the Company or any of
the Sellers, on the other hand, to be or become liable for or in respect of the
operations or business of the other, for the cost of any labor or materials
furnished to or purchased by the other, for compliance with any laws,
requirements or regulations of, or taxes, assessments or other charges now or
hereafter due to, any governmental authority, or for any other charges or
expenses whatsoever pertaining to the conduct of the business or the ownership,
title, possession, use or occupancy of the property of the other, and each
hereby agrees to indemnify and hold the other harmless from any such liability.
6.7 Standstill Agreements. Prior to the Closing, neither party
shall initiate, directly or indirectly, any possible business combination, sale
of assets or stock, or other transaction which is inconsistent with the
transactions contemplated thereby. Notwithstanding the foregoing, TouchStone may
respond to third party inquiries if, in the reasonable opinion of TouchStone's
Board of Directors, such response is required in furtherance of the fiduciary
duties imposed upon the directors of TouchStone under applicable law, in which
event TouchStone shall pay or reimburse Sellers for the payment of, up to
$115,000 of expenses reasonably incurred by Sellers in connection with the
transactions contemplated hereby. In the event that the Closing contemplated
hereby does not occur for any reason whatsoever, then for a period of two (2)
full years from the date of such termination, neither party shall, directly or
indirectly, except as may expressly be permitted in writing by the other party:
(i) acquire or agree, offer, seek or propose to acquire, or cause to be
acquired, ownership of any of the assets or businesses or voting securities of
the other party, or any other rights or options to acquire any such ownership
(including from a third party); (ii) seek or propose to influence or control the
management or policies of the other party; or (iii) enter into any discussions,
negotiations, arrangements or understandings with any third party with respect
to any of the foregoing.
6.8 Valuation Opinion. TouchStone may, but shall not be obligated
to, obtain on or before March 5, 1999, at its sole cost and expense, a
third-party opinion as to value of the Company. Should such opinion not be
reasonably acceptable to TouchStone, TouchStone shall be entitled to terminate
this Agreement and the transactions contemplated hereby, in which event
TouchStone shall pay or reimburse Sellers for the payment of, up to $115,000 of
expenses reasonably incurred by Sellers in connection with the transactions
contemplated hereby.
15
16
7. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
The respective obligations of the parties hereto to consummate the
transactions contemplated hereby shall be subject to the fulfillment or written
waiver, at or prior to the Closing, of the following conditions:
7.1 Regulatory Approvals. There shall have been obtained any and
all permits, approvals and qualifications of, and there shall have been made or
completed all filings, proceedings and waiting periods, required by any
governmental body, agency or regulatory authority which, in the reasonable
opinion of counsel to TouchStone and counsel to Sellers, are required for the
consummation of the transactions contemplated hereby.
7.2 No Action or Proceeding. No claim, action, suit, investigation
or other proceeding shall be pending or threatened before any court or
governmental agency which presents a substantial risk of the restraint or
prohibition of the transactions contemplated by this Agreement or the obtaining
of material damages or other relief in connection therewith.
7.3 Obligations of TouchStone. The obligation of TouchStone
hereunder to consummate the transactions contemplated by this Agreement are
expressly subject to the satisfaction of each of the further conditions set
forth below, any or all of which may be waived by TouchStone in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by TouchStone of any other condition or of any of its
rights or remedies, at law or in equity, if any of the Sellers shall be in
default or breach of any of any of the representations, warranties or covenants
of Sellers under this Agreement:
(a) Sellers shall have performed the agreements and covenants
required to be performed by Sellers under this Agreement prior to the Closing in
all material respects, there shall have been no material adverse change in the
condition (financial or otherwise), assets, liabilities, earnings, business or
prospects of the Company since the date hereof, and the representations and
warranties of Sellers contained herein shall, except as contemplated or
permitted by this Agreement or as qualified in a writing dated as of the date of
the Closing delivered by the Company to TouchStone with the approval of
TouchStone indicated thereon (which writing is to be attached hereto as Exhibit
C, be true in all material respects on and as of the Closing Date as if made on
and as of such date, and TouchStone shall have received certificates, dated as
of the Closing Date, signed by each Seller, reasonably satisfactory to
TouchStone and its counsel, to such effect; and
(b) If TouchStone shall have obtained a third-party opinion as
to value of the Company as contemplated by Section 6.8 above, such opinion shall
be reasonably acceptable to TouchStone.
7.4 Obligations of Sellers. The obligation of Sellers hereunder to
consummate the transactions contemplated by this Agreement are expressly subject
to the satisfaction of each of the further conditions set forth below, any or
all of which may be waived, in whole or in part, by Sellers, without prior
notice; provided, however, that no such waiver of a condition shall constitute a
waiver by Sellers of any other condition or of any of their rights or remedies,
at law or in equity, if
16
17
TouchStone shall be in default or breach of any of its representations,
warranties or covenants under this Agreement:
(a) TouchStone shall have performed the agreements and
covenants required to be performed by TouchStone under this Agreement prior to
the Closing in all material respects, and the representations and warranties of
TouchStone contained herein shall, except as contemplated or permitted by this
Agreement or as qualified in a writing dated as of the date of the Closing
delivered by TouchStone to Sellers with the approval of Sellers indicated
thereon (which writing is to be attached hereto as Exhibit D), be true in all
material respects on and as of the date of Closing as if made on and as of such
date, and TouchStone shall have provided Sellers with a certificate, dated as of
the date of Closing, signed by the Corporate Secretary of TouchStone, reasonably
satisfactory to Sellers and their counsel, to such effect.
(b) TouchStone shall have provided Sellers with certified
copies of resolutions (certified as of the Closing Date as being in full force
and effect by the Corporate Secretary of TouchStone) duly adopted by the Board
of Directors of TouchStone authorizing the making and performance by TouchStone
of this Agreement.
(c) TouchStone shall have entered into mutually acceptable
agreements with Xxxxxx Xxxxxx and Xxxxx Xxxx, effective as of the Closing Date,
setting forth the terms and conditions upon which Messrs. Narath and Raza will
be employed by the Company following the Closing Date.
(d) TouchStone shall have entered into a mutually acceptable
agreement with each of the Sellers pertaining to the rights of the Sellers to
request that TouchStone register the Shares for subsequent transfer by Sellers
under the Securities Act of 1933, as amended.
(e) Xxxxxxxx Savings Bank (the "Bank") shall have consented to
the change in ownership of the Company, released the Shares from the pledge
thereof made by Sellers to and for the benefit of the Bank, and canceled the
personal guarantees of Xxxxxx Xxxxxx and his wife and Xxxxx Xxxx of any and all
indebtedness of the Company to the Bank, all in form and substance reasonably
satisfactory to Sellers.
8. ADDITIONAL AGREEMENTS OF THE PARTIES
8.1 Taxes and Expenses.
(a) Except as otherwise provided in Section 6.7 above or in
subsections 8.1(b) and (c) immediately below, each of Sellers, on the one hand,
and TouchStone, on the other hand, shall pay all of their own respective taxes,
attorneys' fees and other costs and expenses payable in connection with or as a
result of the transactions contemplated hereby and the performance and
compliance with all agreements and conditions contained in this Agreement
respectively to be performed or observed by each of them.
(b) Sellers shall pay any and all income taxes which become
due on account of the sale and transfer of the Shares to TouchStone, and
TouchStone shall pay all sales and use taxes, if any, which become due on
account of the sale of the Shares to TouchStone, each party reserving the right
17
18
to contest any assessment of taxes as a consequence of the sale and transfer of
the Shares to TouchStone.
(c) The Company shall pay or reimburse Sellers for the payment
of up to $115,000 of the legal fees, costs of obtaining an audit, by an
independent certified public accounting firm reasonably acceptable to
TouchStone, of the financial statements of the Company as of December 31, 1998
and for the two years then ended, and other out-of-pocket costs and expenses
incurred by or on behalf of Sellers in connection with the execution, delivery
and/or closing of the transactions contemplated by this Agreement.
8.2 Expiration of Representations and Warranties.
(a) The representations and warranties of the parties
contained herein and in any other document or instrument delivered by or on
behalf of any of the parties pursuant hereto, as such may be qualified in
Exhibits C and/or D hereto, as the case may be, shall survive the Closing and
any investigations made by or on behalf of the other party made prior to the
Closing, and shall remain in full force and effect for a period of one (1) full
year from the date of the Closing (the "Indemnity Period"), and thereupon
expire.
(b) Nothing contained in Section 8.2(a) shall in any way
affect any obligations of any party under this Agreement that are to be
performed, in whole or in part, after the Closing, nor shall it prevent or
preclude either party from pursuing any and all available remedies at law or in
equity for actual fraud in the event that, prior to the Closing, either had
actual knowledge of any material breach of any of their respective
representations and warranties herein but failed to disclose to or actively
concealed such knowledge from the other party prior to the Closing. After
expiration of the Indemnity Period, each party's sole recourse shall be for
claims of actual fraud.
8.3 Indemnification.
(a) Sellers hereby jointly and severally agree to indemnify
and hold TouchStone and the Company, and each officer, director, shareholder,
agent and employee of TouchStone, harmless with respect to any and all claims,
losses, damages, obligations, liabilities and expenses, including without
limitation reasonable legal and other costs and expenses of investigating and
defending any actions or threatened actions, which any of them may incur or
suffer following the Closing in respect or by reason of (i) any liabilities or
obligations of the Company existing as of the Closing of the type referred to in
Section 4.6 above that were not disclosed to TouchStone prior to the Closing,
and (ii) any breach of any of the representations and warranties of Sellers
contained herein.
(b) TouchStone hereby agrees to indemnify and hold each of the
Sellers harmless with respect to any and all claims, losses, damages,
obligations, liabilities and expenses, including without limitation reasonable
legal and other costs and expenses of investigating and defending any actions or
threatened actions, which any of them may incur or suffer following the Closing
by reason of (i) the status of Xxxxxx Xxxxxx, who currently is a member of
TouchStone's Board of Directors and serves as its President and Chief Executive
Officer, as an "interested party" to the transactions contemplated hereby, and
(ii) any breach of any of the representations and warranties of TouchStone
contained herein.
18
19
(c) Whenever any claim shall arise for indemnification
hereunder, the party seeking indemnification shall give written notice to the
other of its claim for indemnification prior to the expiration of the Indemnity
Period, which notice shall set forth the amount involved in the claim for
indemnification and contain a reasonably thorough description of the facts
constituting the basis of such claim. Resolution of such claim for
indemnification shall be determined in accordance with the procedures specified
in Section 8.4 below.
(d) If a third party claim is asserted which would likely
result in a claim for indemnification hereunder, each party shall, with
reasonable promptness, provide the other with notice of any such claim, make
available to the other all information within the knowledge or control of the
party seeking indemnification which reasonably might be deemed relevant and
material to the defense of any such claim, and otherwise cooperate with the
other in the defense of the claim. Neither party shall settle or compromise any
such claim without the prior written consent of the other unless (i) suit shall
have been instituted against the party seeking indemnification and the other
party shall have failed, after reasonable notice of institution of the suit, to
take control of such suit as provided below, or (ii) the settlement or
compromise by the indemnifying party involves only the payment of money damages
and does not impose an injunction or other equitable relief on the indemnified
party. If the party from whom indemnification is sought admits in writing that
it will be liable to the other with respect to the full amount and as to all
material elements of a third party claim alleging damages, up to the maximum
amount for which such party may be liable under this Section 8.3, should the
third party prevail in such suit, then the party from whom indemnification is
being sought shall have the right to assume full control of the defense of such
claim, and the other party shall be entitled to participate in the defense of
such claim only with the consent of the party from whom indemnification is being
sought, which consent shall not unreasonably be withheld or delayed. As to any
third party claim alleging damages in excess of the maximum amount for which a
party may be liable under this Section 8.3, the party seeking indemnification
shall have and retain the right to control the defense of such claim, and the
other party shall be entitled to participate in the defense of such claim only
with the consent of the party seeking indemnification, which consent shall not
unreasonably be withheld or delayed.
(e) Except as otherwise expressly provided below in this
subsection 8.3(e), (i) Sellers shall have no obligation to indemnify TouchStone
and the Company under the provisions of Section 8.3(a) above unless and until
the aggregate amount as to which TouchStone and the Company seek indemnification
exceeds $200,000, and then only to the extent of such excess, (ii) the maximum
liability of either Seller in respect of each and any claim for indemnification
hereunder shall be equal to such Seller's proportionate shares of such claim
(based upon each Seller's current ownership of the Company's capital stock), and
(iii) in no event shall the maximum aggregate liability of either Seller as a
consequence of any one or more breach or breaches of one or more of the
representations and warranties of Sellers contained herein exceed the following
respective aggregate amounts:
Xxxxxx X. Xxxxxx $ 2,400,000
Xxxxx Xxxx $ 600,000
In the case of actual fraud, TouchStone may, in addition to the foregoing right
of indemnification, pursue any and all legal and equitable remedies it may have
against any and all of the Sellers.
19
20
(f) In the event that Sellers, or either of them, become
obligated to indemnify TouchStone and/or the Company pursuant to the provisions
of this Section 8.3, the amount of such obligation may be satisfied, in whole or
in part, at the sole option of the Seller or Sellers in question, by the
delivery and surrender for cancellation of Shares, with the $1.00 of such
indemnification obligation to be deemed satisfied for each Share so delivered
and surrendered for cancellation.
(g) TouchStone shall have the right to offset and deduct from
any amounts remaining to be paid by TouchStone to any of the Sellers hereunder,
or otherwise, the amount of an claim for indemnification if and when, and only
if and when, the amount of such claim (subject to Section 8.3(e) hereof) has
been agreed upon by the parties in writing or determined by mediation or
litigation as provided in Section 8.4 below.
8.4 Dispute Resolution. Any dispute arising out of or relating to
this Agreement shall be resolved in accordance with the following procedures:
(a) The parties shall first attempt in good faith to resolve
any claim or controversy arising out of or relating to the execution,
interpretation and performance of this Agreement (including the validity, scope
and enforceability of these dispute resolution provisions) promptly by
negotiations between executives who have authority to settle the controversy.
Any party may give the other party written notice of any dispute not resolved in
the ordinary course of business (the "Notice"), which shall set forth a
statement of such party's position and a summary of the arguments supporting
that position, together with the name and title of the executive who will
represent the such party at the negotiations to be held as provided herein
below, identifying any other person who will accompany the named executive.
Within thirty (30) days from the receipt of such Notice, the receiving party
shall submit to the other a written response setting forth a statement of the
responding party's position and a summary of the arguments supporting that
position, together with the name and title of the executive who will represent
the responding party and any other person who will accompany the named
executive. Within thirty (30) days after receipt of the responsive notice,
executives of both parties shall meet at a mutually acceptable time and place,
and thereafter as often as they deem necessary, and shall use their respective
best efforts to attempt in good faith to agree upon a mutually acceptable
resolution of the dispute, in which case the parties shall promptly prepare and
sign a memorandum setting forth such agreement. All reasonable requests for
information made by one party to the other will be honored. All negotiations
pursuant hereto shall be confidential and shall be treated as compromise and
settlement negotiations for purposes of applicable rules of evidence.
(b) Any dispute which has not been resolved by the non-binding
procedure specified in Section 8.4(a) above within ninety (90) days of receipt
of the Notice, unless otherwise agreed by the parties, shall be submitted to
binding arbitration in accordance with the American Arbitration Rules in effect
on the date of this Agreement, by a single arbitrator and judgment upon the
award rendered by the arbitrator shall be entered by any court having
jurisdiction thereof. Each of the parties shall have the right to utilize the
discovery procedures authorized by the California Code of Civil Procedure. The
place of arbitration shall be Orange County, California. The arbitrator is not
empowered to award damages in excess of compensatory damages, and each party
hereby irrevocably waives any right to recover such damages, except for the
recovery of certain fees and costs if and to the extent provided for in Section
8.1 hereof.
20
21
(c) The prevailing party in any mediation or arbitration under
Section 8.4(b) hereof shall be entitled to recover the amount of any and all
fees and costs (including reasonable attorney's fees) incurred by the prevailing
party if and to the extent that the amount awarded to such party in such
mediation/arbitration (excluding the recovery of fees and costs) exceeds the
last written offer in settlement given by the other party thereto.
(d) Notwithstanding anything to the contrary herein above, the
parties agree that a breach of Sections 6.1 and/or 6.7 hereof would cause
substantial harm to the non-breaching party for which damages would not be a
fully adequate remedy and, therefore, that the non-breaching party shall have
the right to obtain injunctive relief.
8.5 Annual Meeting of TouchStone Stockholders.
(a) At the Annual Meeting of the stockholders of TouchStone to
be held as soon as practicable following the Closing, and in all events on or
before July 31, 1999, the stockholders of TouchStone will be asked, among other
things, to approve the issuance of an aggregate of 3,350,000 shares of
TouchStone Common Stock to the Sellers pursuant to the provisions of subsection
2(b)(i) above.
(b) It is understood and agreed that TouchStone shall prepare
the proxy statement and any other materials to be furnished to the stockholders
of TouchStone in connection with the Annual Meeting (the "Proxy Statement"), and
that Sellers shall furnish, and cause the Company to furnish, to TouchStone for
inclusion in the Proxy Statement, all such information relating to the Company
and each of the Sellers as TouchStone or its counsel reasonably requests,
including without limitation audited financial statements of the Company and its
predecessor operations for each of the two years in the two year period ended
December 31, 1998. As promptly thereafter as is practicable, TouchStone shall
file the Proxy Statement with the SEC and shall use all reasonable efforts to
respond to any comments of the SEC staff and to obtain clearance from the SEC to
mail the Proxy Statement as promptly as practicable. TouchStone agrees to
provide to Sellers the opportunity to review and comment on each form of the
Proxy Statement within a reasonable time before filing, and each responsive
correspondence to be sent to the SEC, and agrees not to file any such documents
without Sellers' consent. TouchStone shall (i) include in each form of the Proxy
Statement information relating to Sellers and the Company only as authorized by
Sellers, and (ii) promptly provide to Sellers copies of all correspondence
received from the SEC with respect to each form of the Proxy Statement and
copies of all responsive correspondence to the SEC. TouchStone agrees to notify
Sellers of any stop orders or threatened stop orders with respect to the Proxy
Statement. The Proxy Statement may be filed with the SEC as confidential
preliminary proxy material under Regulation 14A of the Exchange Act.
(c) TouchStone shall not furnish to the stockholders of
TouchStone any proxy materials relating to the transaction contemplated hereby
except the Proxy Statement. TouchStone shall mail to the stockholders of
TouchStone (i) the Proxy Statement, as promptly as practicable after clearance
thereof by the SEC (the date of such mailing hereinafter being referred to as
the "Mailing
21
22
Date"), (ii) any supplemental or amended Proxy Statement, as promptly as
practicable after receipt thereof, and (iii) such other supplementary proxy
materials as may be necessary, in light of the circumstances arising after the
mailing of the Proxy Statement, to make the Proxy Statement, as theretofore
supplemented or amended, complete and correct. The Proxy Statement and all
amendments and supplements thereto shall comply with applicable law and shall be
in form and substance satisfactory to TouchStone and Sellers.
(d) TouchStone and Sellers each shall advise the other if, at
any time before the Mailing Date of the Proxy Statement or the date of the
Annual Meeting, the Proxy Statement contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading. In such event,
TouchStone or Sellers, as the case may be, shall provide the other with the
information needed to correct such misstatement or omission.
(e) In the event that the Annual Meeting has not been held by
July 31, 1999, for any reason whatsoever, Sellers shall have the right, but not
the obligation, to jointly request that the balance of the Purchase Price
payable as provided in subsection 2(b) above be paid within two (2) business
days of the receipt of such request by TouchStone. In such event, TouchStone
shall have the right to pay the balance of the Purchase Price payable as
provided in subsection 2(b) above either in shares of TouchStone Common Stock as
provided in subsection 2(b)(i) or in cash as provided in subsection 2(b)(ii), it
being understood and acknowledged by Sellers that the continued listing of the
TouchStone Common Stock on The Nasdaq National Market may be jeopardized in the
event that TouchStone elects to pay the balance of the Purchase Price through
the delivery of shares of TouchStone Common Stock as provided in subsection
2(b)(i) above. As security for the obligation of TouchStone to pay the balance
of the Purchase Price to Sellers, TouchStone shall deposit $2,000,000 into an
interest-bearing escrow account to be established at Southern California Bank
(on such bank's standard terms and conditions) upon consummation of the Merger,
with the costs of such escrow to be borne and paid by TouchStone. In the event
that the balance of the Purchase Price is paid by TouchStone in shares of
TouchStone Common Stock, TouchStone shall be entitled to receive and retain, in
addition to the principal sum so deposited, any and all interest earned thereon.
In the event that the balance of the Purchase Price is paid by TouchStone
through the issuance and delivery of cash, Sellers shall be entitled to receive
and retain, in addition to the principal sum so deposited, any and all interest
earned thereon (subject, in all events, to the provisions of Section 8.3 above).
(f) In the event that (i) the Market price for a share of
TouchStone Common Stock has exceeded $1.00 at any time between the date hereof
and the date of the Annual Meeting, and (ii) the stockholders of TouchStone fail
to approve at the Annual Meeting the issuance and delivery of the TouchStone
Common Stock as payment of the balance of the Purchase Price, Sellers shall
nevertheless have the right, but not the obligation, to jointly request that the
balance of the Purchase Price be paid in Shares of TouchStone Common Stock
pursuant to subsection 2(b)(i) above, it being understood and acknowledged by
Sellers that the continued listing of the TouchStone Common Stock on The Nasdaq
National Market might thereby be jeopardized.
22
23
8.6 Certain Corporate Matters.
(a) The Surviving Corporation shall be a Delaware corporation.
Immediately prior to the Merger, TouchStone will contribute to the capital of
the Surviving Corporation all of the assets, subject to the liabilities, of
TouchStone's current personal computer diagnostic software business. Following
the Merger, the Surviving Corporation will conduct both the business and
activities formerly conducted by the Company and the diagnostic software
business formerly conducted directly by TouchStone, as a wholly-owned subsidiary
of TouchStone. As a consequence of the Merger, the corporate name of the
Surviving Corporation shall be changed to "Unicore Software, Inc."
(b) It is the understanding of the parties that the corporate
headquarters of the Surviving Corporation will be located in Massachusetts,
initially at the current corporate headquarters of the Company, until changed by
the Board of Directors of the Surviving Corporation. Following the Merger, there
will be (3) directors of the Surviving Corporation (until changed in accordance
with applicable law and the Certificates of Incorporation and bylaws of the
Surviving Corporation), who shall be: Xxxxxx X. Xxxxxx, Xxxxx Xxxxxx and Xxx
Xxxx. Xx. Xxxxxx shall serve as the President and Chief Executive Officer of the
Surviving Corporation, and Xxxxx Xxxx shall serve as a Vice President of the
Surviving Corporation.
(c) Following the Merger, until changed in accordance with
applicable law and the Certificate of Incorporation and bylaws of TouchStone,
the number of authorized members of the Board of Directors of TouchStone will
continue to be five (5), to include the five individuals to be elected at the
Annual Meeting (it being understood that it is the current intention of the
Board of Directors of TouchStone to nominate each of the four current members of
the TouchStone Board of Directors for re-election at the Annual Meeting, there
currently being a vacancy on the TouchStone Board of Directors), Messrs. Narath
and Raza will serve as the President and Chief Executive Officer and as a Vice
President, respectively of, TouchStone pursuant to the terms of their employment
agreements, and the corporate offices of TouchStone will remain in California.
9. MISCELLANEOUS
9.1 Other Documents. Each of the parties hereto shall execute and
deliver such other and further documents and instruments, and take such other
and further actions, as may be reasonably requested of them for the
implementation and consummation of this Agreement and the transactions herein
contemplated.
9.2 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, the heirs, personal representatives,
successors and assigns of Seller and of TouchStone, but shall not confer,
expressly or by implication, any rights or remedies upon any other party.
9.3 Governing Law. This Agreement is made and shall be governed in
all respects, including validity, interpretation and effect, by the laws of the
State of California.
23
24
9.4 Notices. All notices, requests or demands and other
communications hereunder must be in writing and shall be deemed to have been
duly made if personally delivered or two days after mailed, postage prepaid, to
the parties as follows:
(a) If to Sellers, in care of: Xxxxxx X. Xxxxxx
c/o Unicore Software, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
With a copy to: Xxxx X. Xxxxx, Esq.
Xxxxxx, Xxxxxxxx & Branch, P.A.
00 Xxxxx Xxxxxx
Xxxxxxx, XX 00000
(b) If to TouchStone, to: Xxx Xxxx
TouchStone Software Corporation
0000 Xxxx Xxxxxx
Xxxxxxxxxx Xxxxx, XX 00000
Any party hereto may change its address by written notice to the other party
given in accordance with this Section 9.4.
9.5 Entire Agreement. This Agreement, together with the exhibits
attached hereto, contains the entire agreement between the parties and supersede
all prior agreements, understandings and writings between the parties with
respect to the subject matter hereof and thereof, including without limitation
the Term Sheet dated January 7, 1999. Each party hereto acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting with authority on behalf of any party,
which are not embodied herein or in an exhibit hereto, and that no other
agreement, statement or promise may be relied upon or shall be valid or binding.
Neither this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally. This Agreement may be amended or any term hereof may be
changed, waived, discharged or terminated by an agreement in writing signed by
each of the Sellers and by TouchStone.
9.6 Headings. The captions and headings used herein are for
convenience only and shall not be construed as a part of this Agreement.
9.7 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which taken together shall
constitute but one and the same document.
24
25
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
TOUCHSTONE SOFTWARE CORPORATION
By:
---------------------------------
---------------------------------
Xxxxxx X. Xxxxxx, as the owner of 80 Shares
Xx. Xxxxxx is to receive $1,005,000 in
cash at Closing, pursuant to the
provisions of Section 2(a), and either
2,680,000 shares of TouchStone Common
Stock pursuant to the provisions of
Section 2(b)(i) or an additional
$2,680,000 in cash pursuant to Section
2(b)(ii)
---------------------------------
Xxxxx Xxxx, as the owner of 20 Shares
Xx. Xxxx is to receive $200,000 in cash
at Closing, pursuant to the provisions
of Section 2(a), and either 670,000
shares of TouchStone Common Stock
pursuant to the provisions of Section
2(b)(i) or an additional $670,000 in
cash pursuant to Section 2(b)(ii)
25
26
INDEX TO EXHIBITS
Name of Exhibit Exhibit No.
--------------- -----------
Agreement and Plan of Merger A
Financial Statements B
Sellers' Closing exceptions C
TouchStone's Closing exceptions D
26
