Exhibit 10.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June
14, 2004, by and among Studio Systems, Inc., a Delaware corporation ("SSI"),
Hollywood Media Corp., a Florida corporation ("XXXX"), SSI Acquisition Sub,
Inc., a Delaware corporation and a wholly owned indirect subsidiary of XXXX
("Acquisition Sub"), and SSI Investments LLC, a Delaware limited liability
company, as agent (the "Shareholder Agent") for the shareholders of SSI (the
"SSI Shareholders").
WHEREAS, SSI and Acquisition Sub intend to consummate the Merger (as
such term is defined in Section 1.1), as a result of which Acquisition Sub will
be merged with and into SSI, a portion of the outstanding stock of SSI (the "SSI
Stock") will be converted into the right to receive cash and SSI will be wholly
owned, directly or indirectly by XXXX, all on the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, the Board of Directors of SSI has (i) determined that the
Merger is fair to and in the best interests of the SSI Shareholders and SSI's
creditors; (ii) approved the Merger and the other transactions contemplated by
this Agreement upon the terms and subject to the conditions set forth herein;
and (iii) determined to recommend that the SSI Shareholders adopt and approve
this Agreement and approve the merger;
WHEREAS, SSI is indebted to CMP Information Limited ("CMPi") in the
aggregate principal amount of $1,519,000, (inclusive of accrued interest
thereon), pursuant to a promissory note and related documents entered into in
September 2001 (the "CMPI Indebtedness");
WHEREAS, CMPi has agreed to forgive all amounts due under the CMPi
Indebtedness, effective upon consummation of the Merger, in consideration for a
cash payment to CMPi on the Closing Date of $769,000 and the issuance of shares
of XXXX'x common stock valued at $250,000 (the "XXXX Shares");
WHEREAS, CMPi has also agreed to enter into a non-competition agreement
with the "Surviving Corporation" (as defined in Section 1.1), effective upon
consummation of the Merger, pursuant to which the Surviving Corporation will
make aggregate payments to CMPi of $510,000, which payment obligation is to be
secured by an unconditional irrevocable standby letter of credit to be issued by
the Miami, Florida office of City National Bank (the "Bank");
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, SSI, XXXX, Acquisition Sub and the
Shareholder Agent, on behalf of the SSI Shareholders, hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1. The Merger. At the Effective Time (as defined below) and
upon the terms and subject to the conditions of this Agreement and in accordance
with the General Corporation Law of the State of Delaware (the "Delaware GCL"),
1
Acquisition Sub shall be merged with and into SSI (the "Merger"). Following the
Merger, SSI shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Acquisition Sub shall
cease. XXXX, as the indirect owner of 100% of the issued and outstanding shares
of capital stock of Acquisition Sub, hereby approves the Merger and this
Agreement and will cause Acquisition Sub to approve the Merger and this
Agreement.
Section 1.2. Effective Time. Subject to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined below), the parties
hereto shall cause the Merger to be consummated by filing with the Secretary of
State of the State of Delaware a duly executed Certificate of Merger
substantially in the form of Exhibit A (the "Certificate of Merger"). The Merger
shall become effective at such time as a properly executed copy of the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware in accordance with Section 251 of the Delaware GCL or such later time
as XXXX, SSI and Acquisition Sub may agree upon and as set forth in the
Certificate of Merger (the time the Merger becomes effective being referred to
herein as the "Effective Time").
Section 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place on the second business day after satisfaction of the
last to be satisfied of the conditions set forth in Article 6 (other than those
conditions that, by their terms, are to be satisfied at the Closing) (the
"Closing Date"), at the offices of Xxxx & Xxxxx Professional Corporation, 0000
Xxxxxxx Xxxx Xxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, unless another time, date or
place is agreed to by the parties hereto.
Section 1.4. Effect of the Merger. The Merger shall have the effect set
forth in this Agreement and the applicable provisions of the Delaware GCL.
Without limiting the generality of the foregoing, but subject to the terms of
this Agreement, at the Effective Time, all the properties, rights, privileges,
powers and franchises of SSI and Acquisition Sub shall vest in the Surviving
Corporation, and all debts, liabilities and obligations of SSI and Acquisition
Sub shall become the debts, liabilities and obligations of the Surviving
Corporation.
Section 1.5. Certificate of Incorporation and Bylaws; Directors and
Officers. The Certificate of Incorporation and Bylaws of Acquisition Sub, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation immediately after the
Effective Time and shall thereafter continue to be its Certificate of
Incorporation and Bylaws until amended as provided therein and under applicable
law. The directors of Acquisition Sub holding office immediately prior to the
Effective Time shall be the directors of the Surviving Corporation immediately
after the Effective Time. The officers of Acquisition Sub holding office
immediately prior to the Effective Time shall be the officers (holding the same
offices as they held with Acquisition Sub) of the Surviving Corporation
immediately after the Effective Time.
Section 1.6. Conversion of Shares; Exchange of Certificates.
(a) Conversion of Shares; Merger Consideration. Subject to
Sections 1.6(b), 1.6(c), 1.6(d), 1.6(e) and 1.7, at the Effective Time, the
following events shall occur by virtue of the Merger and without any action on
the part of Acquisition Sub, SSI or the holder of any of the following
securities:
2
(i) Each share of common stock, par value $0.001 per share,
of SSI (the "SSI Common Stock") issued and outstanding immediately prior to the
Effective Time shall, without any action on the part of the holders thereof,
automatically be canceled and extinguished;
(ii) Each share of Series A Preferred Stock, par value
$0.001 per share, of SSI (the "Series A Preferred Stock") issued and outstanding
immediately prior to the Effective Time shall, without any action on the part of
the holders thereof, automatically be canceled and extinguished;
(iii) Each share of Series B Preferred Stock, par value
$0.001 per share, of SSI (the "Series B Preferred Stock") issued and outstanding
immediately prior to the Effective Time shall, without any action on the part of
the holders thereof, automatically be canceled and extinguished;
(iv) Each share of Series C Preferred Stock, par value
$0.001 per share, of SSI (the "Series C Preferred Stock") issued and outstanding
immediately prior to the Effective Time shall, without any action on the part of
the holders thereof, automatically be canceled and extinguished and be converted
into and become a right to receive a pro-rata portion of $827,136 (subject to
reduction pursuant to Sections 1.6(b), 1.6(c),1.6(d) and 1.6(e) below) in cash
without interest (the "Series C Preferred Stock Consideration");
(v) Each share of Series D Preferred Stock, par value
$0.001 per share, of SSI (the "Series D Preferred Stock") issued and outstanding
immediately prior to the Effective Time shall, without any action on the part of
the holders thereof, automatically be canceled and extinguished and be converted
into and become a right to receive a pro-rata portion of $2,403,864 in cash
(subject to reduction pursuant to Sections 1.6(b), 1.6(c), 1.6(d) and 1.6(e)
below) without interest (the "Series D Preferred Stock Consideration" and,
together with the Series C Preferred Stock Consideration, the "Merger
Consideration"); and
(vi) Each share of Acquisition Sub common stock, par value
$0.01 per share, issued and outstanding immediately prior to the Effective Time
shall automatically be converted into and become one validly issued, fully paid
and non-assessable share of Common Stock, par value $0.01 per share, of the
Surviving Corporation.
(b) Indemnity Escrow. $750,000 of the Merger Consideration in
cash otherwise payable to the holders of Series C Preferred Stock and Series D
Preferred Stock, pursuant to Sections 1.6(a)(iv) and (v), will be deposited into
an escrow account as security for the indemnification obligations of the SSI
Shareholders pursuant to Article 8 (the "Indemnity Escrow"). The amount of cash
held in the Indemnity Escrow on behalf of each holder of Series C Preferred
Stock will be equal to $192,000 multiplied by the quotient obtained by dividing
(i) the number of shares of Series C Preferred Stock held by such stockholder by
(ii) the total number of shares of Series C Preferred Stock issued and
outstanding; and the amount of cash held in the Indemnity Escrow on behalf of
each holder of Series D Preferred Stock will be equal to $558,000 multiplied by
the quotient obtained by dividing (i) the number of shares of Series D Preferred
Stock held by such stockholder by (ii) the total number of shares of Series D
Preferred Stock issued and outstanding.
3
(c) Accounts Receivable Escrow. In addition to the Indemnity
Escrow, that portion of the Merger Consideration in cash equal to the Accounts
Receivable Reserve (as defined below) otherwise payable to the holders of Series
C Preferred Stock and Series D Preferred Stock, pursuant to Sections 1.6(a)(iv)
and (v), will be deposited into a separate escrow account with the Escrow Agent
(the "Accounts Receivable Escrow"). The amount of cash held in the Accounts
Receivable Escrow on behalf of each holder of Series C Preferred Stock will be
equal to 25.6% of the Accounts Receivable Reserve divided by the number of
shares of Series C Preferred Stock held by such stockholder; the amount of cash
held in the Accounts Receivable Escrow on behalf of each holder of Series D
Preferred Stock will be equal to 74.4% of the Accounts Receivable Reserve
divided by the number of shares of Series D Preferred Stock held by such
stockholder. Any such escrow shall be separate from the Indemnity Escrow and
shall be utilized solely as provided for in this Section 1.6(c). The Accounts
Receivable Escrow will provide that within 10 business days following the 75th
day following the Closing, an amount equal to the Accounts Receivable Reserve,
less the amount collected by SSI with respect to the Scheduled Receivables (as
defined in Section 5.15 below), shall be distributed to XXXX, and the balance of
the Accounts Receivable Reserve shall be distributed to the Shareholder Agent.
To the extent applicable, the Accounts Receivable Escrow shall be subject to
such other terms as are in the Indemnity Escrow Agreement. The "Accounts
Receivable Reserve" shall be an amount equal to (i) the amount of the Scheduled
Receivables, minus (ii) the amount of the reserve attributable to the Scheduled
Receivables in accordance with Schedule 1.6(d)-1, minus (iii) the amount, if
any, by which the Estimated Closing Working Capital (as defined in Section
1.6(d) below), after deduction of the amount of the Scheduled Receivables,
exceeds $150,000.00.
(d) Working Capital and Closing Cash Balance Adjustments.
(i) If the Final Closing Cash Balance (as defined below) is
less than $250,000.00, the Merger Consideration shall be reduced by the amount
by which the Final Closing Cash Balance is less than $250,000.00 (the "Cash
Makeup"). If the Final Closing Working Capital (as defined below) plus the
amount of the Cash Makeup, if any, is less than $150,000.00, the Merger
Consideration shall be further reduced by the amount by which the Final Closing
Working Capital plus the amount of the Cash Makeup is less than $150,000.00 (the
"Working Capital Makeup"). For the avoidance of doubt, in no event shall the
amount of the Final Closing Working Capital or Final Closing Cash Balance result
in an increase in the Merger Consideration.
(ii) At least five business days prior to the Closing Date,
SSI shall deliver to XXXX its good faith written estimate of (a) the Final
Closing Working Capital and the Final Closing Cash Balance (the "Estimated
Closing Working Capital" and "Estimated Closing Cash Balance," respectively),
and (b) the resulting Cash Makeup and Working Capital Makeup, if any. Without
limiting the generality of the foregoing, in SSI's estimate of the Final Closing
Working Capital, SSI shall include within Current Liabilities (as defined below)
(1) a total of $41,000 in respect of amounts which are due in connection with
EDD audits arising from SSI's or its Subsidiaries' operations prior to Closing
(or such other amount which has been reasonably determined by SSI after good
faith consultation with an independent certified public accountant) (the "EDD
Accrual"), and (2) an amount in respect of the Los Angeles City Business Tax
4
audit referred to in Item 2.7 which has been reasonably determined by SSI after
good faith consultation with an independent certified public accountant (the
"Business Tax Accrual"). SSI shall make available to XXXX such work papers and
other books and records reasonably required by XXXX in order to confirm the
Estimated Closing Working Capital and Estimated Closing Cash Balance, and the
resulting Cash Makeup and Working Capital Makeup, if any, and shall make
available to XXXX the appropriate personnel involved in the preparation of such
estimates. In the event that after reviewing the foregoing information, XXXX in
good faith does not agree with SSI's calculation of either the Cash Makeup or
the Working Capital Makeup, then XXXX shall be permitted to place in a separate
escrow (the "Working Capital Escrow") with the escrow agent under the Indemnity
Escrow Agreement described in Section 5.7 below that portion of the Merger
Consideration as equals the amount by which the total of the Cash Makeup and the
Working Capital Makeup (as calculated by SSI) is less than the total of the Cash
Makeup and the Working Capital Makeup (as calculated by XXXX). Notwithstanding
the foregoing, no escrow of funds shall be permitted if such difference is less
than $50,000, provided that the Merger Consideration payable hereunder shall
remain subject to adjustment in accordance with this Section 1.6(d). Any such
escrow shall be separate from the Indemnity Escrow and shall be utilized solely
as provided for in this Section 1.6(d). In the event that a Working Capital
Escrow is required pursuant to the terms hereof, XXXX and the Shareholder Agent
agree to enter into an escrow agreement with the Escrow Agent, which agreement
shall, to the extent applicable, have the same terms as the Indemnity Escrow
Agreement. For purposes of determining the amount of the Merger Consideration
paid to the Shareholder Agent at the Closing, the adjustment, if any, to the
Merger Consideration to be made after the Closing pursuant to Section 1.6(d)(v)
shall be estimated, using the Cash Makeup and Working Capital Makeup, if any,
resulting from the Estimated Closing Working Capital and Estimated Closing Cash
Balance in place of the Final Closing Working Capital and Final Closing Cash
balance, respectively.
(iii) Within 60 days after the Closing Date, XXXX shall
prepare and deliver to SSI a statement of the Closing Working Capital and
Closing Cash Balance acquired by XXXX from SSI, and any resulting cash Makeup
and Working Capital Makeup, which statement shall be prepared as provided in
this Section 1.6(d)(ii) (the "Closing Statement"). The Closing Statement shall
be prepared from the Company's books and records on an accrual basis as of the
Closing Date in accordance with GAAP. The Closing Statement shall set forth only
the amounts of the following as of the Closing Date:
(1) as current assets (collectively, the "Current
Assets"): (A) the total amount of SSI's and its Subsidiaries' cash and cash
equivalents (the "Closing Cash Balance"), (B) the book value of SSI's and its
Subsidiaries' accounts receivable, net of an allowance for doubtful accounts
using the methodology set forth in Schedule 1.6(d)-1; (C) the book value of
SSI's and its Subsidiaries' prepaid expenses, and (D) all other current assets
as defined by GAAP;
(2) as current liabilities (collectively, the
"Current Liabilities"): (A) the total amount of SSI's and its Subsidiaries'
accounts payable (excluding accounts payable being disputed by SSI in good
faith), (B) the total amount of SSI's and its Subsidiaries' deferred revenue,
(C) the total amount of all other accrued expenses (including, but not limited
to, occupancy, utilities and such other operating expenses, salaries, vacations,
employee benefits, 401(k), interest, taxes, insurance, capital lease
obligations, and legal expenses) of SSI and its Subsidiaries, and (D) all other
current liabilities as defined by GAAP, provided that (x) amounts set forth on
Schedule 1.6(d)-2 shall not be taken into account in calculating Current
5
liabilities, and (y) the EDD Accrual and Business Tax Accrual shall be included
within Current Liabilities;
(3) a calculation showing the subtraction of the
Current Liabilities from the Current Assets (such difference being the "Closing
Working Capital"); and
(4) any Cash Makeup or Working Capital Makeup
resulting from the foregoing calculation.
(iv) The Shareholder Agent shall notify XXXX in writing
(the "Dispute Notice") within 60 days after receiving the Closing Statement if
the Shareholder Agent disagrees with XXXX'x calculation of the Closing Working
Capital, the Closing Cash Balance, or any resulting Cash Makeup or Working
Capital Makeup, each as set forth in the Closing Statement, which notice shall
set forth in reasonable detail the basis for such disagreement, the dollar
amounts involved and the Shareholder Agent's calculation of the Closing Working
Capital, the Closing Cash Balance, or any resulting Cash Makeup or Working
Capital Makeup. XXXX will give the Shareholder Agent and its representatives
reasonable access during the normal business hours of XXXX to the personnel,
books and records of SSI to assist the Shareholder Agent in the preparation of
the Dispute Notice. If no Dispute Notice is received by XXXX within such 60-day
period, XXXX'x calculation of Closing Working Capital, the Closing Cash Balance,
or any resulting Cash Makeup or Working Capital Makeup, each as set forth in the
Closing Statement shall be final and binding upon the parties hereto.
(v) Upon receipt by XXXX of the Dispute Notice, XXXX and
the Shareholder Agent shall negotiate in good faith to resolve any disagreement
with respect to Closing Working Capital, the Closing Cash Balance, or any
resulting Cash Makeup or Working Capital Makeup, set forth in the Dispute
Notice. To the extent XXXX and the Shareholder Agent are unable to agree with
respect to Closing Working Capital, the Closing Cash Balance, or any resulting
Cash Makeup or Working Capital Makeup, within 30 days after receipt by XXXX of
the Dispute Notice, XXXX and the Shareholder Agent shall promptly select a
mutually acceptable nationally or regionally recognized accounting firm with no
material relationship to XXXX or the SSI Shareholders and submit their dispute
to such accounting firm for a binding resolution of all matters which remain in
dispute. The accounting firm so selected shall be instructed by the parties to
use its best efforts to notify the parties of its determination concerning the
matter(s) submitted to it for resolution within 45 days after its appointment.
The determination of the accounting firm shall be final and binding on the
parties, and judgment may be entered upon the determination of the accounting
firm in any court having jurisdiction over the party against which such
determination is to be enforced. In the event the parties can not agree on the
selection of an accounting firm within 15 days after the end of such 30 day
period, either party may submit the dispute to binding arbitration with the
American Arbitration Association. Closing Working Capital and the Closing Cash
Balance and any resulting Cash Makeup or Working Capital Makeup, as agreed upon
by XXXX and the Shareholder Agent, as deemed agreed upon pursuant to the last
sentence of Section 1.6(d)(iii), or as determined by such accounting firm or
arbitration, in accordance herewith, shall be termed the "Final Closing Working
Capital" and the "Final Closing Cash Balance", and the "Final Cash Makeup" and
the "Final Working Capital Makeup", respectively. The fees and expenses of such
accounting firm or arbitrator (the "Working Capital Dispute Expenses") shall be
borne equally by the parties, except that (i) XXXX shall bear 100% of the
6
Working Capital Dispute Expenses in the event that the final determination of
the aggregate amount of the Cash Makeup and the Working Capital Makeup is within
5% of the determination of the Cash Makeup and Working Capital Makeup made by
SSI prior to the Closing, and (ii) SSI shall bear 100% of the Working Capital
Dispute Expenses in the event that the final determination of the aggregate
amount of the Cash Makeup and the Working Capital Makeup is not within 10% of
the determination made by SSI prior to the Closing.
(vi) If the actual Merger Consideration, as determined
pursuant to this Section 1.6(d), exceeds the Merger Consideration paid at the
Closing, XXXX shall pay to the Shareholder Agent the amount by which the actual
Merger Consideration exceeds the Merger Consideration paid at the Closing,
provided that in no event shall there be an increase in the Merger Consideration
as a result of the application of this Section 1.6(d). If the actual Merger
Consideration, as determined pursuant to Section 1.6(d), is less than the Merger
Consideration paid at the Closing, the Shareholder Agent shall pay to XXXX the
amount by which the actual Merger Consideration is less than the Merger
Consideration paid at the Closing. Any payment to be made pursuant to this
Section 1.6(d)(vi) shall be made by wire transfer of immediately available funds
to a bank account designated by XXXX or the Shareholder Agent, to the other
party within two business days after the Final Closing Working Capital and the
Final Closing Cash Balance and any resulting Cash Makeup or Working Capital
Makeup become final and binding on the parties hereto, provided that any such
payment made to XXXX or the Shareholder Agent shall be paid first out of the
funds, if any, in the Working Capital Escrow.
(vii) During the 75-day period immediately following the
Closing Date, XXXX shall use, and shall cause the Surviving Corporation to use,
commercially reasonable efforts in good faith to collect the Scheduled
Receivables, using at least the same degree of care and diligence as XXXX
exercises with respect to collecting its own accounts receivable; provided that
in no event shall XXXX be required to threaten, commence or prosecute any action
or other proceeding to collect any such account receivable unless mutually
agreed to by XXXX and the Shareholder Agent.
(viii) If SSI disputes the validity of any accounts
payable, such accounts payable are excluded from the determination of Current
Liabilities pursuant to Section 1.6(d)(iii)(2) above, and it is determined or
agreed that all or any part of such payable was rightfully payable by SSI or any
of its Subsidiaries, SSI and the Shareholder Agent shall reimburse to XXXX the
amount which is or was rightfully payable by SSI or any of its Subsidiaries
within 30 days after such determination or agreement. Notwithstanding the
foregoing, nothing herein shall prohibit or restrict XXXX or the Surviving
Corporation from paying any disputed accounts payable at any time in their
respective sole and absolute discretion.
(ix) For all purposes under this Section 1.6(c), all
references to "GAAP," "generally accepted accounting principles" or similar
terms, shall mean United States generally accepted accounting principles. Except
as otherwise expressly provided herein, all calculations made pursuant to this
Section 1.6(c) shall be made in accordance with GAAP.
(e) Additional Payments at Closing. An amount equal to 25.6% of
the Payments (as defined in Section 5.9 below) shall be withheld by the
7
Shareholder Agent from the Series C Preferred Stock Consideration to be
distributed to each holder of shares of Series C Preferred Stock in an amount
equal to such Series C Preferred Stockholder's pro rata interest in the shares
of Series C Preferred Stock; and an amount equal to 74.4% of the Payments shall
be withheld by the Shareholder Agent from the Series D Preferred Stock
Consideration to be distributed to each holder of shares of Series D Preferred
Stock in an amount equal to such Series D Preferred Stockholder's pro rata
interest in the shares of Series D Preferred Stock. The Payments shall be
applied by the Shareholder Agent in accordance with Section 5.9 hereof. The
Shareholder Agent may also withhold such additional amounts from the Merger
Consideration as provided for in the Shareholder Agent Agreement (as defined
below). The terms of this Section 1.6(e) shall not affect the Merger
Consideration payable by XXXX to the Shareholder Agent.
(f) Exchange of Certificates. Upon the surrender and exchange
of a stock certificate representing shares of SSI Stock, each SSI Shareholder
shall be entitled to receive the respective Merger Consideration to which such
Person is entitled pursuant to this Article 1, and the certificate(s)
theretofore representing shares of SSI Stock shall forthwith be canceled. At the
Closing, SSI shall deliver to XXXX whatever stock certificates evidencing shares
of SSI Stock that SSI may have been able to obtain prior to the Closing, each in
form suitable for transfer, endorsed in blank or with executed blank stock
transfer powers ("Endorsed SSI Stock Certificates"), and XXXX shall deliver to
the Shareholder Agent immediately available funds in an amount equal to
$3,231,000.00, less (i) the amounts to be deposited in the Indemnity Escrow
Account ($750,000), less (ii) the amounts to be deposited in the Accounts
Receivable Escrow, less (iii) the amount of any reduction in the Merger
Consideration pursuant to Section 1.6(d), and less (iv) that portion of the
Merger Consideration attributable to the Dissenting Shareholders (as defined
below). Promptly following the Closing, the Shareholder Agent shall deliver bank
cashier's checks made payable to each SSI Shareholder who is entitled to receive
Merger Consideration at the Closing and whose Endorsed SSI Stock Certificate was
delivered to SSI on or prior to the Closing, such checks to be in such cash
amounts as such SSI Shareholders may be entitled to based upon the number of
shares of SSI Stock evidenced by their Endorsed SSI Stock Certificates delivered
to SSI at or prior to the Closing. Until surrendered and exchanged as provided
above, each certificate theretofore representing shares of SSI Stock shall
represent solely the right to receive the Merger Consideration, and the SSI
Shareholder thereof shall have no right to receive the Merger Consideration to
which such Shareholder otherwise would be entitled; provided that at and after
the Closing customary procedures allowing for payment against lost or destroyed
SSI stock certificates against receipt of customary and appropriate
certifications and indemnities shall be honored by the Shareholder Agent.
(g) Calculation. Unless specified otherwise herein, each
calculation called for by this Agreement shall be carried out to five (5)
decimal places.
(h) No Further Registration. From and after the Effective Time,
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of SSI Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates representing shares of SSI Stock are presented to the Shareholder
Agent, the Surviving Corporation or XXXX, they shall be canceled and exchanged
for that portion of the Merger Consideration otherwise payable with respect to
such shares of SSI Stock pursuant to Section 1.6(a) above, subject to applicable
law in the case of Dissenting Shares (as defined in Section 1.7).
8
(i) Appointment of the Shareholder Agent. Each SSI
Shareholder who has not executed and delivered the Shareholder Agent Agreement
(the "Shareholder Agent Agreement") of even date herewith by and among SSI, the
Shareholder Agent and the other parties thereto, but accepts any Merger
Consideration in exchange for his, her or its shares of SSI Stock shall be
deemed to have irrevocably appointed the Shareholder Agent as his, her or its
attorney-in-fact and agent to act for such SSI Shareholder within the scope of
the authority granted to the Shareholder Agent by the terms of the Shareholder
Agent Agreement. The Shareholder Agent Agreement is attached hereto as
Exhibit F.
Section 1.7. Appraisal Rights. Shares of SSI Stock that have not been
voted for approval of this Agreement and with respect to which a demand for
payment and appraisal have been properly made in accordance with Section 262 of
the Delaware GCL ("Dissenting Shares"), will not be converted into the right to
receive that portion of the Merger Consideration otherwise payable with respect
to such shares of SSI Stock after the Effective Time but will be converted into
the right to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to the laws of the State of Delaware.
If a holder of Dissenting Shares (a "Dissenting Shareholder") withdraws such
holder's demand for such payment and appraisal or becomes ineligible for such
payment and appraisal under Section 262 of the Delaware GCL, then, as of the
Effective Time or the occurrence of such event of withdrawal or ineligibility,
whichever last occurs, such holder's Dissenting Shares will cease to be
Dissenting Shares and will be converted into the right to receive, and will be
exchangeable for, that portion of the Merger Consideration, if any, into which
such Dissenting Shares would have been converted pursuant to Section 1.6. SSI
will give XXXX and Acquisition Sub prompt notice of any demand received by SSI
from a holder of Dissenting Shares for appraisal of shares of SSI Stock. The
Shareholder Agent shall not voluntarily make any payment with respect to, settle
or offer to settle or otherwise negotiate, any such demand, without XXXX'x
consent. Each Dissenting Shareholder who, pursuant to Section 262 of the
Delaware GCL, becomes entitled to payment of the value of the Dissenting Shares
will receive payment therefor, without interest thereon (but only after the
value therefor has been agreed upon or finally determined pursuant to such
provisions and only to the extent permitted by applicable law).
Section 1.8. Stock Options and Warrants. At the Effective Time, each
outstanding option or warrant to purchase any shares of capital stock of SSI ,
including those listed in Item 2.3(b) of the Disclosure Letter (the "SSI Stock
Options") issued pursuant to the 1997 and 1999 Stock Option Plans of SSI (the
"SSI Plans") or otherwise, whether vested or unvested, whether then exercisable
or not, shall cease to represent a right to acquire shares of SSI Stock and
shall automatically be cancelled and terminated. Neither XXXX nor the Surviving
Corporation shall assume any SSI Stock Options after the Merger. XXXX hereby
agrees and acknowledges that SSI may accelerate, in whole or in part, the
vesting periods of some or all of the SSI Stock Options prior to the Closing
Date, that some or all of the SSI Stock Options may be exercised prior to the
Closing Date, and that additional shares of SSI Common Stock may be issued
between the date of this Agreement and the Closing Date as a result of such
stock option exercises, provided, however, that none of the foregoing shall
result in an increase in the Merger Consideration.
9
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SSI
SSI hereby represents and warrants to each of XXXX and Acquisition Sub,
subject to the exceptions set forth in the Disclosure Schedules delivered by SSI
to XXXX that:
Section 2.1. Organization and Good Standing. SSI and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, has the requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now conducted, and is qualified to do business, and is
in good standing, as a foreign corporation in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect (as defined below) on SSI. The officers and directors of SSI as of the
date hereof are set forth on Item 2.1 of the Disclosure Schedule.
Section 2.2. Power, Authorization and Validity.
(a) Power and Capacity. SSI has the right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement and all agreements to which SSI is or will be a party that are
required to be executed pursuant to this Agreement (the "SSI Ancillary
Agreements"). The execution, delivery and performance of this Agreement and the
SSI Ancillary Agreements have been duly and validly approved and authorized by
SSI's Board of Directors as required by Delaware law and SSI's Amended and
Restated Certificate of Incorporation and Bylaws. Correct and complete copies of
SSI's Amended and Restated Certificate of Incorporation and Bylaws, as amended
to date, and copies of all charter documents, as amended to date, of all of
SSI's Subsidiaries, have been delivered to XXXX.
(b) No Filings. No filing, authorization or approval,
governmental or otherwise, is necessary to enable SSI to enter into, and to
perform its obligations under, this Agreement and the SSI Ancillary Agreements,
except for (a) the filing of the Certificate of Merger with the Secretary of
State of Delaware and the filing of appropriate documents with the relevant
authorities of other states or foreign jurisdictions in which SSI or its
subsidiaries are qualified to do business, if any; (b) the approval of the SSI
Shareholders of the transactions contemplated hereby (provided that pursuant to
the Voting Agreement of even date hereof, certain SSI Shareholders have agreed
to vote their shares of SSI Stock in favor of the transactions contemplated
hereby); and (c) consents required under contracts disclosed in Item 2.5 as
exceptions to the representation made in the last sentence of Section 2.5 below.
(c) Binding Obligation. Subject to approval of this Agreement
and the Merger by the SSI Shareholders, this Agreement and the SSI Ancillary
Agreements are, or when executed by SSI will be, valid and binding obligations
of SSI and the Shareholder Agent enforceable against SSI and the Shareholder
Agent in accordance with their respective terms, except as to the effect, if
any, of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; provided, however, that the
10
Certificate of Merger will not be effective until filed with the Delaware
Secretary of State.
Section 2.3. Capitalization of SSI.
(a) Authorized and Outstanding Capital Stock. The authorized
capital stock of SSI consists of 241,588,408 shares of Common Stock, of which
18,890,521 shares are issued and outstanding (without giving effect to the
exercise of any SSI Options (as defined below) which may be exercised after the
date hereof), and 173,315,053 shares of Preferred Stock, of which (i) 5,220,000
shares have been designated as Series A Preferred Stock, 4,591,155 shares of
which are issued and outstanding, (ii) 4,718,182 shares have been designated as
Series B Preferred Stock, 3,871,213 shares of which are issued and outstanding,
(iii) 39,025,758 shares have been designated as Series C Preferred Stock,
38,836,364 shares of which are issued and outstanding, and (iv) 116,575,275
shares have been designated as Series D Preferred Stock, 99,290,540 shares of
which are issued and outstanding. All issued and outstanding shares of SSI Stock
have been duly authorized and were validly issued, are fully paid and
non-assessable, are not subject to any right of rescission, are not subject to
preemptive rights by statute, the Amended and Restated Certificate of
Incorporation or Bylaws of SSI, or any agreement or document to which SSI is a
party or by which it is bound and have been offered, issued, sold and delivered
by SSI in compliance with all requirements of applicable federal and state
securities laws. To the knowledge of SSI, each SSI Shareholder owns its shares
of SSI Stock free and clear of all Security Interests, other than the
restrictions imposed by federal and state securities laws and other than the
restrictions on transfer contained in the agreements described in Item 2.3 of
the Disclosure Schedule (the "Stockholder Agreements"). To the knowledge of SSI,
the Stockholder Agreements represent all agreements among any of the SSI
Shareholders and/or SSI regarding the ownership of SSI's capital stock.
(b) Options/Rights. An aggregate of 29,000,000 shares of SSI
Common Stock are reserved and authorized for issuance pursuant to the SSI Plans,
of which options to purchase a total of 102,500 shares of SSI Common Stock are
outstanding. Except as set forth in Item 2.3(b), there are no other stock
appreciation rights, options, warrants, calls, rights, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to purchase
or otherwise acquire any of SSI's authorized but unissued capital stock or any
securities or debt convertible into or exchangeable for shares of SSI Stock or
obligating SSI to grant, extend or enter into such option, warrant, call,
commitment, conversion privileges or preemptive or other right or agreement
("Stock Acquisition Rights"). The terms of the SSI Plans provide that all
outstanding options granted under the SSI Plans will terminate upon a merger of
SSI if the successor corporation does not assume the SSI Stock Options. All
Stock Acquisition Rights shall be terminated prior to the Closing. In addition,
the SSI Plans shall be terminated at or prior to the Closing. XXXX acknowledges
that some or all of the vested SSI Stock Options may be exercised after the date
of this Agreement and prior to the Closing Date; provided, however, that the
exercise of any such SSI Options shall not result in an increase in the Merger
Consideration.
Section 2.4. Subsidiaries. Except for the Subsidiaries of SSI listed in
Disclosure Letter, Item 2.4, each of which is wholly owned (beneficially and of
record) by SSI, SSI does not have, and does not have the right to acquire, any
Subsidiaries or any interest, direct or indirect, in any corporation,
partnership, joint venture, limited liability company or other business entity.
11
Section 2.5. No Violation of Existing Agreements; Third Party Consents
and Approvals. Neither the execution and delivery of this Agreement nor any SSI
Ancillary Agreement, nor the consummation of the transactions contemplated
hereby or thereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, impairment or violation of, (a)
any provision of the Amended and Restated Certificate of Incorporation or Bylaws
of SSI or the charter documents of any Subsidiary, as currently in effect, (b)
any instrument or contract to which SSI or any Subsidiary is a party or by which
SSI or any Subsidiary is bound, or (c) any material federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable to
SSI or any Subsidiary or their respective assets or properties. Except as listed
in Disclosure Schedules, Item 2.5, the consummation of the Merger and the other
transactions contemplated by this Agreement and the SSI Ancillary Agreements,
and the transfer to the Surviving Corporation of all rights, licenses,
franchises, leases and agreements of SSI and each Subsidiary, (i) will not
require the consent of any governmental or non-governmental third party or (ii)
will not result in the creation of a Security Interest on any of the assets or
property of SSI or any of its Subsidiaries.
Section 2.6. Litigation. Except as listed in Disclosure Schedules, Item
2.6, there is no action, suit, proceeding, claim or investigation pending or, to
SSI's knowledge, threatened, against SSI or any Subsidiary before any court,
arbitrator or administrative agency.
Section 2.7. Taxes.
(a) Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) "Tax" or "Taxes" means all taxes, charges, fees,
levies, penalties, additions or other assessments imposed by any federal, state,
foreign or local taxing authority, including, but not limited to, income,
excise, property, sales, transfer, franchise, payroll, withholding, value added,
social security or other taxes, or payments made in lieu of taxes, including any
interest, penalties or additions attributable thereto.
(ii) "Tax Returns" means all reports, estimates,
declarations of estimated tax, information statements and returns with respect
to any Tax, and any schedules attached to or amendments of (including refund
claims with respect to) any of the foregoing.
(b) Except as set forth on Item 2.7 of the Disclosure
Schedules: (i) all Tax Returns required to be filed by or on behalf of SSI or
its Subsidiaries have been duly filed on a timely basis, taking into account all
extensions of time to file such Tax Returns; (ii) such Tax Returns are true,
complete and correct in all material respects; (iii) all Taxes due and payable
by SSI or its Subsidiaries prior to the Closing Date either have been paid or
will be timely paid prior to the Closing Date; (iv) XXXX has been supplied with
true and complete copies of each Tax Return of SSI and its Subsidiaries for each
such entity's last two taxable years, including each franchise or excise Tax
Return based on income filed for the last two taxable years; (v) neither SSI nor
any of its Subsidiaries (A) has ever been audited or received written notice of
initiation thereof by any governmental taxing authority regarding Taxes, (B) has
12
ever extended any applicable statute of limitations regarding Taxes for which
the statute of limitations for assessment of Taxes remains open, (C) is liable,
contractually or otherwise, for the Taxes of any other person or entity (other
than withholding Taxes arising in the ordinary course of business), (D) is a
"consenting corporation" under Section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code"), (E) has agreed to or is required to make any
adjustment under Code Sections 142 or 481(a) or 263A, (F) has ever made any
payments, is obligated to make any payments, or is a party to any agreement or
arrangement that under certain circumstances could obligate it to make any
payments that may not be deductible under Sections 162(m) or 280G of the Code,
(G) is a party to any allocation or sharing agreement with respect to Taxes, and
(H) has ever participated in the filing of any consolidated, combined or unitary
Tax Return.
(c) Except as set forth Item 2.7 of the Disclosure Schedules,
(i) no property used by SSI or any of its Subsidiaries is "tax-exempt use
property" within the meaning of Section 168(h) of the Code; and (ii) none of the
assets of SSI or any of its Subsidiaries secures any debt the interest on which
is tax-exempt under Section 103(a) of the Code.
(d) Except as set forth on Item 2.7 of the DisclosureSchedules,
neither SSI nor any of its Subsidiaries is a party to any joint venture,
partnership or other arrangement or contract that is reasonably likely to be
treated as a partnership for federal income tax purposes.
(e) Except as set forth in Item 2.7 of the Disclosure Schedule,
neither SSI nor any of its Subsidiaries (i) is treated as the owner of a trust
or any part of a trust under Section 671 of the Code; (ii) owns an interest in a
passive foreign investment company within the meaning of Section 1297 of the
Code or a qualified electing fund within the meaning of Section 1295 of the
Code; or (iii) owns or has signature authority over any foreign bank account for
which a report is required to be filed on Department of Treasury Form TD F
90-22.1.
(f) None of the Subsidiaries of SSI is or has been (i) a
controlled foreign corporation within the meaning of Section 957 of the Code;
(ii) a foreign personal holding company within the meaning of Section 552 of the
Code; (iii) an export trade corporation within the meaning of Section 971 of the
Code; (iv) a domestic international sales corporation within the meaning of
Section 993 of the Code; or (v) a foreign sales corporation within the meaning
of Subpart C of Part III of Chapter 1 N of the Code.
For purposes of this Agreement, the term "Material Adverse Effect" when
used in connection with an entity means any change, event, circumstance or
effect that is materially adverse to the business, assets (including intangible
assets), capitalization, financial condition, operations or results of
operations of such entity taken as a whole with its Subsidiaries, except to the
extent that any such change, event, circumstance or effect is caused by or
results from (i) changes in general economic or political conditions, (ii)
changes affecting the industry generally in which such entity operates, or (iii)
an act of war or terrorist attack.
Section 2.8. SSI Financial Statements. SSI has delivered to XXXX as
Disclosure Schedules, Item 2.8, SSI's unaudited (i) balance sheet as of December
31, 2003 and income statement for the year then ended, and (ii) balance sheet as
of March 31, 2004 and income statement for the three-month period then ended
(the "Interim Financials") (collectively the "Financial Statements"). (The
unaudited balance sheet as of March 31, 2004 is herein referred to as the
"Balance Sheet"). The Financial Statements fairly present in all material
13
respects the financial condition and results of operation of SSI and its
Subsidiaries for the periods then ended. The Interim Financials have been
prepared in accordance with United States generally accepted accounting
principles, except for the absence of footnotes and for normal year-end
adjustments. SSI has no debt, liability or obligation of any kind, whether
absolute, accrued, contingent or otherwise, and whether due or to become due,
that is not reflected or reserved against in the Balance Sheet, except for those
that may have been incurred after the date of the Balance Sheet in the ordinary
course of its business or are not material in amount, and except for the
Payments. All accounts receivable that are reflected in the Financial Statements
or in SSI's or any of its Subsidiaries' books and records at the Closing Date
represent or will represent valid obligations arising from sales actually made
or services actually performed by SSI in the ordinary course of its business
and, to SSI's knowledge, are collectible in the ordinary course of business,
subject to the reserves reflected in the Financial Statements. Any reserves
reflected in the Financial Statements have been calculated consistent with past
practices. To the knowledge of SSI and except as set forth in Item 2.8 of the
Disclosure Letter, there is no current contest, claim, or right of set-off
relating to the amount or validity of any such accounts receivable.
Section 2.9. Title to Assets. Except as would not have a Material
Adverse Effect on SSI or as set forth on Item 2.9 to the Disclosure Letter, SSI
has good and marketable title to, or a valid leasehold interest in, all of its
assets, free and clear of all Security Interests (other than for taxes not yet
due and payable). Except as would not have a Material Adverse Effect on SSI, all
tangible personal property owned or used by SSI or its Subsidiaries is in good
condition and repair, normal wear and tear excepted, and all leases of real or
personal property to which SSI or any Subsidiary is a party are fully effective
and afford SSI or the Subsidiary peaceful and undisturbed possession of the
subject matter of the lease. Attached as Item 2.9 of the Disclosure Letter is a
true and complete (a) list of each item of tangible personal property that is
used in or pertains to the business and operations of SSI or its Subsidiaries
(whether owned, leased, licensed or otherwise) having a depreciated book value
on the date hereof in excess of $1,000.00, and (b) list of the owner and each
agreement relating to the use of any such item of tangible personal property not
owned by SSI or its Subsidiaries.
Section 2.10. Contracts and Commitments. Prior to the Closing, SSI
shall have delivered or made available to XXXX or its counsel all contracts and
agreements to which SSI or any of its Subsidiaries is a party, other than
agreements that will expire in accordance with their terms as of or prior to the
Closing without any penalty or premium and without any continuing obligation or
liability thereunder on the part of SSI, any of its Subsidiaries, XXXX or the
Surviving Corporation (collectively, the "Contracts") (it being agreed and
acknowledged by XXXX that portions of copies of certain Contracts so delivered
or made available have been redacted). Item 2.10 of the Disclosure Schedules
sets forth a true and correct list of all Material Contracts to which SSI or any
of its Subsidiaries are a party, or by which SSI or any of its Subsidiaries are
bound. Except as set forth on Item 2.10 of the Disclosure Schedules, in each
case, each of the Material Contracts (i) is valid, binding and in full force and
effect against SSI or its Subsidiary, as applicable, and, to the knowledge of
SSI, the other party or parties thereto, and (ii) to the knowledge of SSI, is
not voidable by the other party or parties thereto for any reason. In each case,
no event has occurred which, through notice or the passage of time or otherwise
would result in a default under the terms of any of the Material Contracts by
SSI or its Subsidiary or, to the knowledge of SSI, any other party. Neither SSI
nor any of its Subsidiaries has received written notice that any party to any of
the Material Contracts intends to cancel, terminate or modify any such Material
Contract or that any party which has an option or extension right running in
favor of such party under the terms of any such Material Contract has notified
14
SSI in writing of its election not to exercise such option or extension right.
On May 5, 2004, SSI delivered to XXXX (a) the Schedule of Certain Material
Contracts attached hereto as Item 2.10A of the Disclosure Schedule (the
"Redacted Contract Schedule"), and (b) true and correct copies of each contract
referred to on the Redacted Contract Schedule, except that provisions of the
contracts which identify the name of the contracting party and the type of
license have been redacted. No later than ten days after the date hereof, SSI
shall deliver to XXXX true and correct copies of the non-redacted versions of
such contracts and all other customer contracts.
Section 2.11. Intellectual Property. Item 2.11 of the Disclosure Letter
contains a true and complete list of all Intellectual Property Rights (as
defined below), other than trade secrets and know how, owned by SSI or any of
its Subsidiaries, in which SSI or any of its Subsidiaries has any rights, or
otherwise used by SSI or any of its Subsidiaries in the conduct of their
respective businesses (collectively, the "SSI IP Rights"). Except as set forth
in Item 2.11 of the Disclosure Letter, SSI and its Subsidiaries own, or have the
right to use, sell or license all Intellectual Property Rights necessary or
required for the conduct of their respective businesses as presently conducted.
Except as set forth in Item 2.11 of the Disclosure Letter, neither SSI nor any
of its Subsidiaries is a party to any license, agreement or arrangement, whether
as licensor, licensee or otherwise, with respect to the SSI IP Rights. The
execution, delivery and performance of this Agreement and the SSI Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby will not constitute a material breach of any instrument or agreement
governing any SSI IP Right (the "SSI IP Rights Agreements"), will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any SSI IP Right or materially impair the right of SSI or any Subsidiaries to
use, sell or license any SSI IP Right or portion thereof (except where such
breach, forfeiture or termination would not have a Material Adverse Effect on
SSI). SSI or its Subsidiaries holds all applicable and appropriate software
licenses for all software used or that resides on any computers owned, licensed
or otherwise used by SSI or its Subsidiaries. There are no royalties, honoraria,
fees or other payments payable by SSI or any of its Subsidiaries to any person
by reason of the ownership, use, license, sale or disposition of the SSI IP
Rights (other than as set forth in the SSI IP Rights Agreements listed in Item
2.11). Except as set forth in Item 2.11 of the Disclosure Letter, to the
knowledge of SSI, neither the manufacture, marketing, license, sale or intended
use of any product currently licensed or sold by SSI or any of its Subsidiaries
violates any license or agreement between SSI or any of its Subsidiaries and any
third party or materially infringes any Intellectual Property Right of any third
party; and there is no pending or, to the knowledge of SSI, threatened claim or
litigation contesting the validity, ownership or right to use, sell, license or
dispose of any SSI IP Right, nor has SSI received any notice asserting that any
SSI IP Right or the proposed use, sale, license or disposition thereof conflicts
or will conflict with the rights of any other party. SSI has taken reasonable
and practicable steps designed to safeguard and maintain the secrecy and
confidentiality of, and its proprietary rights in, all material SSI IP Rights.
To the knowledge of SSI, (i) no person or entity is violating or infringing any
of the SSI IP Rights, and (ii) no employee, agent or representative of SSI or
any of its Subsidiaries has used, appropriated or disclosed, directly or
indirectly, any trade secrets or other proprietary or confidential information
of SSI, any of its Subsidiaries or any third party. As used herein, the term
"Intellectual Property Rights" shall mean all worldwide intellectual property
rights, including, without limitation, patents, patent applications, patent
rights, trademarks, trademark applications, trade names, service marks, service
xxxx applications, copyright, copyright applications, franchises, licenses,
15
inventories, know-how, trade secrets, customer lists, proprietary processes and
formulae, source and object code, algorithms, architecture, structure, display
screens, layouts, inventions, development tools, domain names, and all
documentation and media constituting, describing or relating to the above,
including, without limitation, manuals, memoranda and records.
Section 2.12. Compliance with Laws. Except as set forth in Item 2.12 of
the Disclosure Letter, SSI and each of its Subsidiaries has complied, or prior
to the Closing Date will have complied, and is or will be at the Closing Date in
full compliance, in all material respects, with all applicable laws, ordinances,
regulations, and rules, and all orders, writs, injunctions, awards, judgments,
and decrees applicable to it or to the assets, properties, and business thereof
(the violation of which would have a Material Adverse Effect on SSI). Each of
SSI and its Subsidiaries has received all material permits, licenses and
approvals from, and has made all material filings with, third parties, including
government agencies and authorities, that are necessary in connection with its
present business (collectively, the "Permits").
Section 2.13. Employees, ERISA and Other Compliance. In each case,
except with respect to the Payments:
(a) Except as set forth in Item 2.13(a) of the Disclosure
Letter, neither SSI nor any of its Subsidiaries has any employment contracts or
consulting agreements currently in effect that are not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
(b) Neither SSI nor any of its Subsidiaries (i) is subject to a
union organizing effort, (ii) is subject to any collective bargaining agreement
with respect to any of its employees, (iii) is subject to any other contract,
written or oral, with any trade or labor union, employees' association or
similar organization, or (iv) has any current labor disputes. Since the
commencement of operations of SSI there has not been any strike, work stoppage,
or other occurrence, event or similar labor disturbance in connection with SSI's
or its Subsidiaries' operations, and, to the knowledge of SSI, no strike, work
stoppage, or other such occurrence, event, condition, or disturbance is
threatened.
(c) Item 2.13(c) of the Disclosure Letter identifies (i) each
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), of SSI and its Subsidiaries,
or with respect to which any of SSI or its Subsidiaries may have liability, and
(ii) all other written or oral plans or agreements involving direct or indirect
compensation or benefits (including any employment agreements entered into
between SSI or any Subsidiary and any employee of SSI or any Subsidiary, but
excluding workers' compensation, unemployment compensation and other
government-mandated programs) currently maintained, contributed to or entered
into by SSI or any Subsidiary under which SSI or any Subsidiary or any ERISA
Affiliate (as defined below) thereof has any present or future obligation or
liability (collectively, the "SSI Employee Plans"). Item 2.13(c) of the
Disclosure Letter also lists each employee of SSI and its Subsidiaries, and
their respective titles, salaries and benefits. For purposes of this Section
2.13(c), "ERISA Affiliate" shall mean any entity which is a member of (A) a
16
"controlled group of corporations," as defined in Section 414(b) of the Internal
Revenue Code of 1986 (the "Code"), (B) a group of entities under "common
control," as defined in Section 414(c) of the Code, or (C) an "affiliated
service group," as defined in Section 414(m) of the Code, or treasury
regulations promulgated under Section 414(o) of the Code, any of which includes
SSI or any Subsidiary. Copies of all SSI Employee Plans (and, if applicable,
related trust agreements, summary plan descriptions, insurance contracts,
investment management contracts, administrative service agreements, and
actuarial reports and certifications) and all amendments thereto and written
interpretations thereof (including summary plan descriptions) have been
delivered to XXXX or its counsel, together with the most recent annual reports
(Form 5500, including all Schedules thereto) prepared in connection with any
such SSI Employee Plan. All SSI Employee Plans which individually or
collectively would constitute an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (collectively, the "SSI Pension Plans"), are identified as
such in Item 2.13(c) of the Disclosure Letter. All contributions due from SSI or
any Subsidiary with respect to any of the SSI Employee Plans have been made as
required under ERISA. Accruals for contributions not yet due are properly
reflected in the Financial Statements . Except as would not have a Material
Adverse Effect on SSI, each SSI Employee Plan has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including, without limitation, ERISA and the
Code, which are applicable to such SSI Employee Plans. All amounts deducted from
the compensation otherwise due any employee pursuant to an SSI Plan providing
401(k) benefits have been "timely paid," within the meaning of applicable
Treasury and Department of Labor Regulations, to the corresponding trust. There
is no unfunded liability with respect to any SSI Pension Plan. With respect to
each SSI Employee Plan, (i) no breach of fiduciary duty by any employee or
contractor of SSI, any Subsidiary of SSI, or any ERISA Affiliate has occurred;
(ii) there is no material dispute with any participant or person claiming to be
a participant; (iii) there is no material dispute or any audit or investigation
by any governmental authority which has been noticed, commenced or threatened in
writing; (iv) all deductions claimed for contributions made or accrued meet the
requirements for deductibility under the Code; (v) SSI and its Subsidiaries have
expressly reserved the right to amend, modify or terminate such plan, or any
portion of it, at any time without liability (except to the extent liability
arises by reason of the requirements of applicable law); and (vi) there is no
requirement that SSI or its Subsidiaries continue to employ any person.
(d) No SSI Pension Plan constitutes, or has since the enactment
of ERISA constituted, a "multiemployer plan," as defined in Section 3(37) of
ERISA, and neither SSI nor any of its Subsidiaries has any withdrawal liability
under Title IV of ERISA. No SSI Pension Plans are subject to Title IV of ERISA.
No "prohibited transaction," as defined in Section 406 of ERISA or Section 4975
of the Code, has occurred with respect to any SSI Employee Plan which is covered
by Title I of ERISA which would result in a material liability to SSI and its
Subsidiaries taken as a whole, excluding transactions effected pursuant to a
statutory or administrative exemption. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any SSI Employee
Plan has or will make SSI or any officer or director of SSI subject to any
material liability under Title I of ERISA or liable for any material tax or
penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code or Section 502
of ERISA.
(e) Any SSI Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "SSI 401(a) Plan") is so qualified and has
been so qualified during the period from its adoption to date, and the trust
17
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. Copies of the determination letters with respect to each such plan have
been delivered to XXXX or its counsel.
(f) Item 2.13(f) of the Disclosure Letter lists each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which (A) is not a SSI Employee Plan, (B) is
entered into, maintained or contributed to, as the case may be, by SSI or any
Subsidiary and (C) covers any employee or former employee of SSI or any
Subsidiary. Such contracts, plans and arrangements as are described in this
Section 2.13(f) are herein referred to collectively as the "SSI Benefit
Arrangements." SSI has heretofore delivered to XXXX true and complete copies of
its and its Subsidiaries' employee manuals, handbooks, policies and benefits.
All such policies are in full force and effect, have not been amended or
modified in any respect, and have been followed in all material respects by SSI
or its Subsidiaries. With respect to each SSI Benefit Arrangement which provides
welfare benefits of the type described in Section 3(1) of ERISA: (i) no such SSI
Benefit Arrangement provides medical or death benefits with respect to current
or former employees or directors of the Company beyond their termination of
employment, other than coverage mandated by applicable law; (ii) no such SSI
Benefit Arrangement is or is provided through a "multiple employer welfare
arrangement" within the meaning of Section 3(40) of ERISA; and (iii) no such SSI
Benefit Arrangement has reserves, assets, surpluses, or prepaid premiums not
properly accounted for on the Financial Statements.
(g) Except as set forth on Item 2.13(g) of the Disclosure
Letter, neither SSI nor any Subsidiary is a party to any (a) agreement with any
executive officer or other key employee thereof (i) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving SSI in the nature of any of the transactions
contemplated by this Agreement, (ii) providing any term of employment or
compensation guarantee, or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, or (b) agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated after the Effective
Time, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement, or which will
result in any payment (including, without limitation, severance or "golden
parachute" payments).
(h) SSI's reported revenue for the period from January 1, 2004
through June 8, 2004 was less than $1,400,000 and, as such, as of June 8, 2004,
Xxx Xxxxxx was not entitled to receive the commission that is based on the
reported revenue of SSI for the period from January 1, 2004 through June 30,
2004 and which is described in Item 2.13(c) of the Disclosure Schedule. SSI
makes no representation as to whether any such commissions will become payable
as a result of revenue that is reported subsequent to June 8, 2004.
18
Section 2.14. Corporate Documents. SSI has made available to XXXX for
examination all documents and information listed in the Disclosure Letter or
other exhibits called for by this Agreement (it being understood that certain
provisions of the foregoing documents and information have been redacted).
Section 2.15. No Brokers. Neither SSI nor any of its Subsidiaries is
obligated for the payment of fees or expenses of any investment banker, broker
or finder in connection with the origin, negotiation or execution of this
Agreement or the Certificate of Merger or in connection with any transaction
contemplated hereby or thereby.
Section 2.16. Books and Records. The books, records and accounts of SSI
and its Subsidiaries (a) are in all material respects true, complete and
correct, (b) have been maintained in accordance with good business practices on
a basis consistent with prior years, and (c) are stated in reasonable detail and
accurately and fairly reflect the transactions and dispositions of the assets of
SSI.
Section 2.17. Real Property.
(a) Neither SSI nor any of its Subsidiaries own any interest in
any real property.
(b) Item 2.17 of the Disclosure Letter lists all real property
leased or subleased to, or otherwise occupied by, SSI or any of its
Subsidiaries. SSI has delivered to XXXX correct and complete copies of the
leases and subleases listed in Item 2.17 of the Disclosure Letter (collectively,
the "Leases"). With respect to each such Lease, in each case except as would not
have a Material Adverse Effect on SSI, the Lease (i) is legal, valid, binding,
enforceable and in full force and effect against SSI or its Subsidiary, as
applicable, and, to the knowledge of SSI, the other party or parties thereto,
and SSI or the SSI Subsidiary which is a party to such Lease enjoys and is
entitled to quiet possession thereunder and (ii) to the knowledge of SSI, is not
voidable by the other party or parties thereto for any reason; no event has
occurred which, through notice or the passage of time or otherwise could result
in a material default under the terms of any of the Leases by SSI or its
Subsidiary or, to the knowledge of SSI, any other party. No party to any Lease
has repudiated any provision thereof, and there are no disputes, oral
agreements, or forbearances in effect as to the Lease.
Section 2.18. No Material Adverse Change. Except as set forth on Item
2.18 of the Disclosure Letter, since March 31, 2004, there has not been any
material adverse change in the business, operations or assets of SSI or its
Subsidiaries. Without in any way limiting the generality of the foregoing, there
exists no actual or, to SSI's knowledge, threatened terminations, cancellations
or limitations of, or any material modification or change in, (i) the current
business relationship of SSI or any of its Subsidiaries with any customer or
group of customers whose business is material to the operation of SSI's or such
Subsidiary's business; or (ii) the current business relationship of SSI or any
of its Subsidiaries with any supplier that is material to the operation of SSI's
or such Subsidiary's business.
Section 2.19. Interest in Customers, Suppliers and Competitors. Neither
SSI nor any of its Subsidiaries, nor, to the actual knowledge of SSI, without
19
investigation or inquiry, any of SSI's or its Subsidiaries' officers, directors
or employees, or any family member or affiliate of any of the foregoing, has any
direct or indirect interest in any competitor, supplier or customer of SSI or
its Subsidiaries or their respective businesses or in any person or entity from
whom SSI or any of its Subsidiaries leases any real or tangible or intangible
personal property, or in any other person or entity with whom SSI or any of its
Subsidiaries is doing business, except for the ownership of up to 5% of the
stock of a publicly traded entity and except in each case for transactions
entered into on an arms'-length basis.
Section 2.20. Insurance Policies. The assets, properties and operations
of SSI and its Subsidiaries are insured under various policies of general
liability and other forms of insurance, all of which are described on Item 2.20
of the Disclosure Letter, which discloses for each policy the risks insured
against, coverage limits, deductible amounts, and the effective date and
expiration date of such policy. Except in connection with SSI's recently
completed arbitration involving Xxxxxxxx Xxxxxx, there are no outstanding claims
under any of such insurance policies.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER AGENT
The Shareholder Agent hereby represents and warrants to XXXX and
Acquisition Sub as follows:
Section 3.1. Organization.
(a) The Shareholder Agent is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) As of the Closing, the Shareholder Agent will be duly
qualified or licensed and in good standing to do business in the State of New
York and such other states as necessary in order for it to carry out the
transactions contemplated hereby.
Section 3.2. Power, Authorization and Validity.
(a) Power and Capacity. The Shareholder Agent has the right,
power, legal capacity and authority to enter into and perform its obligations
under this Agreement and all agreements to which it is or will be a party that
are required to be executed pursuant to this Agreement (the "Shareholder Agent
Ancillary Agreements"). The execution, delivery and performance of this
Agreement and the Shareholder Agent Ancillary Agreements have been duly and
validly approved and authorized by the Shareholder Agent and its sole member.
(b) No Filings. No filing, authorization or approval,
governmental or otherwise, is necessary to enable the Shareholder Agent to enter
into, and to perform its obligations under, this Agreement and the Shareholder
Agent Ancillary Agreements.
20
Section 3.3. Binding Obligation. This Agreement and the Shareholder
Agent Ancillary Agreements are, or when executed by the Shareholder Agent will
be, valid and binding obligations of the Shareholder Agent, enforceable against
it in accordance with their respective terms, except as to the effect, if any,
of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies.
Section 3.4. No Assets. The Shareholder Agent has no material assets,
liabilities or operations and was formed solely to enter into the transactions
contemplated hereby
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
XXXX AND ACQUISITION SUB
XXXX and Acquisition Sub hereby represent and warrant to SSI as
follows:
Section 4.1. Organization.
(a) XXXX and Acquisition Sub are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted.
(b) Each of XXXX and Acquisition Sub is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on XXXX.
Section 4.2. Power, Authorization and Validity.
(a) Power and Capacity. XXXX and Acquisition Sub each have the
right, power, legal capacity and authority to enter into and perform its
obligations under this Agreement and all agreements to which XXXX and/or
Acquisition Sub is or will be a party that are required to be executed pursuant
to this Agreement (the "XXXX Ancillary Agreements"). The execution, delivery and
performance of this Agreement and the XXXX Ancillary Agreements have been duly
and validly approved and authorized by the Board of Directors of XXXX and
Acquisition Sub as required by applicable law, and the Certificate of
Incorporation and Bylaws of each of XXXX and Acquisition Sub. The execution,
delivery and performance of this Agreement and the XXXX Ancillary Agreements by
XXXX do not require the consent of XXXX'x stockholders.
(b) No Filings. No filing, authorization or approval,
governmental or otherwise, is necessary to enable XXXX or Acquisition Sub to
21
enter into, and to perform its obligations under, this Agreement and the XXXX
Ancillary Agreements, except for the filing of the Certificate of Merger with
the Secretary of State of Delaware.
(c) Binding Obligation. This Agreement and the XXXX Ancillary
Agreements are, or when executed by XXXX and Acquisition Sub will be, valid and
binding obligations of XXXX and Acquisition Sub, enforceable against them in
accordance with their respective terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally, and (b) rules of law governing specific performance, injunctive
relief and other equitable remedies; provided, however, that the Certificate of
the Merger will not be effective until filed with the Delaware Secretary of
State.
Section 4.3. No Violation of Existing Agreements; Third Party Consents
and Approvals. Neither the execution and delivery of this Agreement nor any XXXX
Ancillary Agreement, nor the consummation of the transactions contemplated
hereby or thereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, impairment or violation of (a)
any provision of the Certificate of Incorporation or Bylaws of XXXX or the
charter documents of any Subsidiary of XXXX, as currently in effect, (b) in any
material respect, any material instrument or contract to which XXXX or any
Subsidiary of XXXX is a party or by which XXXX or any Subsidiary is bound, or
(c) in any material respect, any material federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to XXXX or
any Subsidiary or their respective assets or properties. The consummation of the
Merger will not require the consent of any third party that has not been
obtained or will not be obtained prior to the Effective Time.
Section 4.4. Brokers. No broker, finder or investment banker is
entitled to any finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of XXXX or Acquisition Sub.
Section 4.5. No Prior Activities of Acquisition Sub. Except for
obligations incurred in connection with its incorporation or organization, or
the negotiation, execution and consummation of this Agreement and the
transactions contemplated hereby, Acquisition Sub has neither incurred any
obligation or liability nor engaged in any business or activity of any type or
kind whatsoever or entered into any agreement or arrangement with any Person.
Section 4.6. No Financing Condition. XXXX'x obligations hereunder are
not in any way conditioned upon its ability to obtain any debt or equity
financing for the Merger.
Section 4.7. SSI Disclaimer. Except for the representations and
warranties expressly made by SSI hereunder or under any of the other documents,
instruments or agreements entered into in connection with or pursuant to this
Agreement, neither SSI nor any of its Subsidiaries has made any representations
or warranties concerning SSI or any of its Subsidiaries, or any of their
respective assets, liabilities, financial condition, business or operations, or
any other matter.
22
ARTICLE 5
COVENANTS
Section 5.1. Conduct of Business of SSI. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time, SSI
will, and will cause each of its Subsidiaries to, conduct its operations in the
ordinary course of business consistent with past practices, and consistent with
such operation, SSI and its Subsidiaries shall use their respective commercially
reasonable efforts to preserve intact the goodwill of such business, the present
organization of such entity and the relationships of such entity with persons
having relationships with it. Without limiting the generality of the foregoing,
prior to the Effective Time, neither SSI nor any Subsidiary of SSI shall,
without the prior consent of XXXX:
(a) amend its Amended and Restated Certificate of Incorporation
or Bylaws (or in the case of any Subsidiary, amend its charter documents);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities or equity equivalents (including
any stock options or stock appreciation rights) or convertible or exchangeable
securities, except for the issuance of shares of SSI Common Stock upon the
exercise of any SSI Stock Option or upon the conversion of any Preferred Stock
into SSI Common Stock in accordance with the terms of the Preferred Stock as of
the date hereof;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect of
its capital stock or otherwise make any payments to any shareholders in their
capacities as such, or redeem or otherwise acquire any of its outstanding
securities (other than the cancellation of SSI Stock Options following
termination of employment with or provision of services to SSI or any
Subsidiary);
(d) except for the Merger, adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring or other
reorganization of SSI or any Subsidiary, or otherwise alter SSI's or any
Subsidiary's corporate structure;
(e) except for equipment leases entered into in the ordinary
course of business and which would require not more than $100,000 in total
rental payments under the terms of all such leases, (i) incur, assume or forgive
any debt or issue any debt securities; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person; (iii) make any loans,
advances or capital contributions to or investments in any other Person (other
than loans, advances or capital contributions or investments by SSI to or in any
wholly owned Subsidiary, by any wholly owned Subsidiary in SSI or by any wholly
owned Subsidiary in any other wholly owned Subsidiary); (iv) pledge or otherwise
encumber shares of capital stock of SSI or any Subsidiary; or (v) mortgage,
pledge or otherwise subject to any Security Interest, any of their assets or
properties, tangible or intangible, or create or suffer to exist any Security
Interest thereupon;
23
(f) enter into, adopt, amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment, health, life,
or disability insurance, dependent care, severance or other employee benefit
plan, agreement, trust, fund or other arrangement for the benefit or welfare of
any director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer, employee or consultant
or pay any benefit not required by any plan and arrangement as in effect on the
date hereof and disclosed in the Disclosure Letter (including the granting of
stock appreciation rights or performance units);
(g) except for equipment leases entered into in the ordinary
course of business and permitted by Section 5.1(e) above, (i) acquire, sell,
lease, license or dispose of any assets or property in any single transaction or
series of related transactions, other than non-exclusive licenses or sales of
its products or services in the ordinary course of business consistent with past
practices, or (ii) acquire, sell, lease, license, transfer or otherwise dispose
of any Intellectual Property Rights, in each case other than non-exclusive
licenses or sales of its products or services in the ordinary course of business
consistent with past practices;
(h) make any payments to CMPi in respect of any indebtedness or
other obligations to CMPi;
(i) except as may be required as a result of a change in
applicable law or in generally accepted accounting principles, change any of the
accounting principles, practices or methods used by it;
(j) revalue in any material respect any of its assets or
properties, including writing down the value of inventory or writing off notes
or accounts receivable, other than in the ordinary course of business; or
institute or threaten to institute any action against any third party in
connection with any account receivable or act in any manner not commercially
reasonable with respect to the collection thereof.
(k) (i) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, limited liability company, partnership or
other business organization or division thereof or any equity interest therein;
(ii) enter into any contract that would fall within the definition of "Material
Contract" (other than agreements for the non-exclusive license or sale of its
products or services in the ordinary course of business); (iii) notwithstanding
the provisions of Section 5.6 below, amend, modify or waive any material right
under any Material Contract or terminate any Material Contract; or (iv)
authorize any new capital expenditure or expenditures that are individually or
in the aggregate in excess of $10,000;
(l) fail to file any Tax Returns when due (taking into account
valid extensions of time to file), or fail to cause such Tax Returns when filed
to be true, correct and complete in all material respects;
(m) take or agree in writing or otherwise to take any of the
actions described in any of Sections 5.1(a) through 5.1(l).
24
Section 5.2. Approval of Shareholders. SSI shall use commercially
reasonable efforts to take all actions necessary in accordance with the Delaware
GCL and its Amended and Restated Certificate of Incorporation and Bylaws to duly
call, give notice of, convene and hold a meeting of the SSI Shareholders or
solicit the written consent of the SSI Shareholders as promptly as practicable
to consider and vote upon the adoption and approval of this Agreement and the
transactions contemplated hereby. SSI shall promptly solicit the votes or the
written consents of the SSI Shareholders approving this Agreement and the
Merger. The directors of SSI shall recommend approval of this Agreement by the
SSI Shareholders. SSI shall comply with the applicable requirements of the
Delaware GCL and the rules and regulations promulgated thereunder in connection
with the solicitation of votes to approve this Agreement and the Merger from its
shareholders. XXXX shall have the right to review and approve all written
solicitation materials, which approval shall not be unreasonably withheld or
delayed.
Section 5.3. Certain Filings; Reasonable Efforts; Access. Subject to
the terms and conditions herein provided, each of the parties hereto agrees to
use all commercially reasonable efforts to take or cause to be taken all action
and to do or cause to be done all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
on the earliest practicable date the transactions contemplated by this
Agreement, including executing any additional instruments necessary to
consummate the transactions contemplated hereby and taking all commercially
reasonable steps necessary or desirable to obtain all necessary consents and
approvals of third parties and to otherwise satisfy all conditions precedent to
the Closing. Prior to the Effective Time, SSI and its Subsidiaries agree to
provide reasonable cooperation with respect to all due diligence investigations
conducted by or on behalf of XXXX, and shall provide XXXX and its authorized
representatives with reasonable access (a) to all locations at which SSI or its
Subsidiaries conduct their business, (b) to all books, records, agreements,
documents and other materials and information reasonably related to the
transactions contemplated by this Agreement, and (c) to all agents, attorneys,
employees, and accountants of SSI or its Subsidiaries; provided, however, that
(i) such investigations shall be conducted in a manner that does not materially
interfere with normal operations of SSI or its Subsidiaries; and (ii) SSI's CEO
shall be notified in advance of any contact with any employees and shall be
afforded the opportunity to participate in any discussions or meetings involving
such employees. In addition, SSI and its Subsidiaries shall furnish to XXXX such
financial information, operating data and other information concerning their
businesses as XXXX may reasonably request from time to time.
Section 5.4. Confidentiality; Public Announcements. Each of the parties
hereto will hold, and will cause its agents, representatives, consultants and
advisers to hold, in confidence all documents and information furnished to it by
or on behalf of another party to this Agreement in connection with the
transactions contemplated by this Agreement pursuant to the terms of that
certain Nondisclosure Agreement, dated June 16, 2003, between SSI and XXXX. At
all times prior to the Closing, XXXX and SSI will consult with one another
before issuing any press release, otherwise making any public statements, or
filing any report with the Securities and Exchange Commission on Form 8-K with
respect to the transactions contemplated by this Agreement, including the
Merger, and shall not issue any such press release or make any such public
statement prior to such consultation except as may be required by applicable
law.
25
Section 5.5. Notification of Certain Matters. SSI shall give prompt
notice to XXXX and Acquisition Sub, and XXXX and Acquisition Sub shall give
prompt notice to SSI, of (i) the occurrence or nonoccurrence of any event, other
than any event contemplated or permitted by this Agreement, the occurrence or
nonoccurrence of which has caused any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time, and (ii) any failure of SSI, XXXX or Acquisition Sub, as the
case may be, to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.5
shall not cure such breach or non-compliance or limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 5.6. Additions to and Modification of Disclosure Letter. From
time to time prior to the Closing, SSI shall promptly provide to XXXX and
Acquisition Sub proposed supplements or revisions to Items on the Disclosure
Schedule attached hereto with respect to any matter arising after the date
hereof which, if existing or occurring on the date hereof, would have been
required to have been disclosed as an exception to any representation or
warranty of SSI contained in this Agreement in order to avoid making such
representation and warranty inaccurate or misleading in any material respect
("Post-Signing Matters"). XXXX shall have the right to approve or disapprove any
such proposed supplement or revisions relating to Post-Signing Matters provided
that, unless XXXX delivers to SSI written notice of its disapproval within five
(5) business days after receipt of such proposed supplement or revision, XXXX
shall be deemed to have approved such supplement or revision. If XXXX
disapproves such proposed supplement or revision in a timely manner, XXXX'x sole
remedy shall be to terminate this Agreement within ten (10) business days after
SSI receives written notice of XXXX'x disapproval. If this Agreement is
terminated pursuant to this Section 5.6, the provisions of Section 7.2 shall
apply. Notwithstanding the foregoing, any proposed supplement or revision shall
not be subject to or governed by this Section 5.6 to the extent such proposed
supplement or revision relates to matters other than Post-Signing Matters or to
the extent such proposed supplement or revision arises from acts or omissions of
SSI in bad faith for the purpose of avoiding SSI's obligations under this
Agreement.
Section 5.7. Indemnity Escrow Agreement. Effective on and as of the
Effective Time, XXXX, the Shareholder Agent and the other parties called for
therein shall execute and deliver the Indemnity Escrow Agreement in the form
attached hereto as Exhibit B, and there shall be delivered to, and directly
deposited with, the Indemnity Escrow Agent, for the account and future potential
benefit of the holders of Series C Preferred Stock and Series D Preferred Stock,
the cash called for by the Indemnity Escrow Agreement; provided, however, that
such cash shall be held and disbursed by the Indemnity Escrow Agent pursuant to
the terms and conditions of the Indemnity Escrow Agreement.
Section 5.8. D&O Insurance and Indemnification. Prior to the Closing,
SSI shall obtain, and pay all premiums required for, an appropriate endorsement
to the existing SSI Management Liability Insurance Policy with Admiral Insurance
Company (the "D & O Policy) so that such policy shall provide coverage for a
period of not less than 36 months from the Closing in an aggregate amount not
less than the coverage by the D&O Policy as it currently exists for all covered
claims made after the Closing for occurrences prior to or at the Closing, with a
deductible amount not to exceed the current deductible under the D&O Policy.
26
XXXX agrees, on behalf of the Surviving Corporation, as follows with respect to
the foregoing: (a) it will not agree to any changes to the D & O Policy without
the prior approval of the Shareholder Agent (except that it may extend the
policy without such approval); and (b) so long as the D & O Policy is in effect,
it will promptly provide the Shareholder Agent with copies of any notices or
other correspondence it receives with respect thereto.
Section 5.9. Employee Matters. The Closing shall not affect any
individual's status as an employee of SSI or of any SSI Subsidiary, except that
all of the SSI Stock Options shall be terminated prior to the Closing in
accordance with Section 1.8. In any terminations, layoffs or other actions
pertaining to any employee of SSI or any SSI Subsidiary after the Closing, XXXX
shall (at its sole cost and expense), and shall cause SSI and each SSI
Subsidiary to, comply with all employment contracts, employee manuals, and
applicable federal, state and local laws, including, without limitation, those
requiring notice or prohibiting discrimination or the Worker Adjustment and
Retraining Notification Act of 1988. Furthermore, to the extent that the SSI
Board of Directors authorizes payments to any of SSI's officers or employees by
reason of the Merger (the "Payments"), such Payments shall be payable to such
officers and employees solely out of the Merger Consideration withheld by the
Shareholder Agent as provided in Section 1.6(e) hereof.
Section 5.10. Repayment of SSI Note. At the Effective Time, XXXX shall
(i) wire transfer funds in the amount of $769,000 to CMPi and (ii) deliver stock
certificates representing the XXXX Shares in the name of CMPi or its designee,
each pursuant to the Note Repayment Agreement (as defined in Section 5.11
below).
Section 5.11. Delivery of Note Repayment Agreement, Non-Competition
Agreement and Letter of Credit. At the Effective Time, XXXX and SSI shall
execute and deliver to each other and to CMPi (i) a Note Repayment Agreement in
the form attached hereto as Exhibit C-1 (the "CMPi Note Repayment Agreement"),
and (ii) a Non-Competition Agreement in the form attached hereto as Exhibit C-2
(the "CMPi Non-Competition Agreement"). The obligations of XXXX under the CMPi
Non-Competition Agreement shall be secured by an unconditioned irrevocable
standby letter of credit issued by the Bank with CMPi as the beneficiary
thereof, in the form attached hereto as Exhibit D (the "Letter of Credit").
Section 5.12. Acquisition Proposals. Unless and until this Agreement
shall have been terminated by either party pursuant to Section 7.1 hereof,
neither SSI nor any of its officers, directors, employees or representatives
shall, directly or indirectly, solicit, initiate or encourage the submissions of
proposals or offers from any other Person relating to any merger, share exchange
or similar transaction or sale of any significant amount of assets, cooperate
with any Person in connection with any such transaction, or participate in any
discussions or negotiations regarding any such transaction.
Section 5.13. Shareholder Agent. SSI agrees that XXXX may rely on any
actions taken by the Shareholder Agent on behalf of the SSI Shareholders in
accordance with the terms of the Shareholder Agent Agreement as having been
taken by the SSI Shareholders a party thereto.
Section 5.14. Inventory of FF&E. Within three days after the date
hereof, SSI shall provide XXXX with a true and correct list of all furniture,
27
fixtures and equipment owned by SSI or any of its Subsidiaries and which has a
depreciated book value of $1,000.00 or more as of such date.
Section 5.15. Accounts Receivable. At the Closing, SSI shall provide
XXXX with a schedule (the A/R Schedule") of all accounts receivable (the
"Scheduled Receivables") that, as of the Closing Date, are more than 90 days
past due. SSI covenants that the Scheduled Receivables will be collected in
full, without any set-off (but net of the reserve established for such accounts
receivable pursuant to this Agreement ), within 75 days after the Closing, and
will indemnity XXXX pursuant to Section 8.2 to the extent such accounts
receivables are not so collected . Any payments received by SSI and/or the
Surviving Corporation from any of the customers set forth on the A/R Schedule
shall first be applied to amounts reflected on the A/R Schedule.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger and
the other transactions contemplated hereby are subject to the satisfaction or
waiver at or prior to the Effective Time of each of the following conditions:
(a) this Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the SSI
Shareholders, and the SSI Shareholders shall have taken all other corporate
actions necessary to authorize the execution, delivery and performance of this
Agreement, the consummation of the Merger and the transactions contemplated
hereby and thereby; and
(b) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or enforced
by any United States federal or state court or United States federal or state
governmental entity that prohibits, restrains, enjoins or restricts the
consummation of the Merger.
Section 6.2. Conditions to the Obligations of SSI. The obligations of
SSI to effect the Merger and the other transactions contemplated hereby are
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions (any one or more of which may be waived by SSI in writing):
(a) the representations and warranties of XXXX and Acquisition
Sub contained in this Agreement shall be true and correct on and as of the
Closing Date with the same effect as if made on and as of the Closing Date
(except to the extent such representations specifically relate to an earlier
date, in which case such representations and warranties shall be true and
correct as of such earlier date) unless the failure of such representations and
warranties to be so true and correct would not have a Material Adverse Effect on
XXXX or materially interfere with the transactions contemplated hereby, and, at
the Closing, XXXX and Acquisition Sub shall have delivered to SSI a certificate
to that effect, executed on behalf of XXXX by one or more executive officers of
each of XXXX and Acquisition Sub;
28
(b) each of the covenants and obligations of XXXX and
Acquisition Sub to be performed on or before the Closing Date pursuant to this
Agreement shall have been duly performed in all material respects on or before
the Closing Date and, at the Closing, XXXX and Acquisition Sub shall have
delivered to SSI a certificate to that effect, executed on behalf of XXXX by one
or more executive officers of each of XXXX and Acquisition Sub;
(c) XXXX shall have delivered to CMPi:
(i) the CMPi Note Repayment Agreement and the CMPi
Non-Competition Agreement, in substantially the forms attached hereto as Exhibit
C-1 and Exhibit C-2, respectively, executed by XXXX effective as of the Closing
Date;
(ii) the Letter of Credit, in the form attached hereto as
Exhibit D, executed by XXXX and the Bank effective as of the Closing Date; and
(iii) immediately available funds in the amount of $769,000
and certificates representing the XXXX Shares, as payment in full on the SSI
Note.
(d) XXXX and the other parties called for therein (other than
SSI and the Shareholder Agent) shall have executed and delivered the Indemnity
Escrow Agreement, effective as of the Closing Date; and a deposit of $750,000 as
called for therein shall have been delivered to the Escrow Agent.
Section 6.3. Conditions to the Obligations of XXXX and Acquisition Sub.
The respective obligations of XXXX and Acquisition Sub to effect the Merger and
the other transactions contemplated hereby are subject to the satisfaction or
waiver at or prior to the Closing Date of each of the following conditions (any
one or more of which may be waived by XXXX in writing, except that the condition
specified in subsection (i) may not be waived without the consent of SSI):
(a) the representations and warranties of SSI contained in this
Agreement shall be true and correct on and as of the Closing Date with the same
effect as if made on and as of the Closing Date (except to the extent such
representations specifically relate to an earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date), unless the failure of such representations and warranties to be so true
and correct would not have a Material Adverse Effect on SSI, and, at the
Closing, SSI shall have delivered to XXXX and Acquisition Sub a certificate to
that effect, executed on behalf of SSI by its CEO;
(b) each of the covenants and obligations of SSI to be
performed on or before the Closing Date pursuant to this Agreement shall have
been duly performed in all material respects on or before the Closing Date and,
at the Closing, SSI shall have delivered to XXXX and Acquisition Sub a
certificate to that effect, executed on behalf of SSI by its CEO;
(c) there shall not have occurred a Material Adverse Effect
with respect to SSI;
(d) SSI shall have obtained the consents set forth in Item 2.5
of the Disclosure Letter;
29
(e) XXXX shall have received the CMPi Note Repayment Agreement
and the CMPi Non-Competition Agreement, in substantially the forms attached
hereto as Exhibit C-1 and Exhibit C-2, respectively, executed by CMPi and SSI
effective as of the Closing Date;
(f) XXXX shall have received for cancellation the SSI Note from
CMPi;
(g) XXXX shall have received the resignations, effective as of
the Closing, of each director and officer of SSI and each of its Subsidiaries
whom XXXX shall have specified in writing no later than 3 days prior to the
Closing;
(h) SSI, the Shareholder Agent and the other parties called for
therein (other than XXXX) shall have executed and delivered the Indemnity Escrow
Agreement, each effective as of the Closing Date;
(i) XXXX shall have received satisfactory evidence that SSI has
given to holders of its Common Stock, Preferred Stock and SSI Stock Options 20
days' notice of the Merger as is required by the terms of SSI's Amended and
Restated Certificate of Incorporation and Bylaws, or the SSI Plans,
respectively, and the longest of the notice periods required by the Amended and
Restated Certificate of Incorporations, Bylaws, or SSI Plans shall have expired,
or in lieu thereof with respect to any such required notice, XXXX shall have
received satisfactory evidence that such notice has been waived in writing;
(j) XXXX shall have received an opinion from Xxxx & Xxxxx
Professional Corporation to the effect that this Agreement and the Merger have
been duly authorized by all requisite corporate action of the directors and
shareholders of SSI;
(k) XXXX shall have received satisfactory evidence that each of
the Stockholder Agreements have been terminated, and that SSI has no further
obligations under any such agreements; and
(l) XXXX shall have received an estoppel certificate from
Wilshire Courtyard L.L.C. in substantially the form of Exhibit E attached
hereto;
(m) XXXX shall have received from SSI the Estimated Closing
Working Capital and the Estimated Closing Cash Balance; and the total of the
Cash Makeup and the Working Capital Makeup (as calculated in good faith by
XXXX), does not exceed the total of the Cash Makeup and the Working Capital
Makeup (as calculated in good faith by SSI), by more than $500,000;
(n) XXXX shall have received a schedule showing the deferred
revenue attributable to each of the customers of SSI and its Subsidiaries as of
a date not more than five days prior to the Closing Date; and
(o) XXXX shall have received satisfactory evidence that both
the Shareholder Agent Agreement and the Voting Agreement of even date herewith
by and among SSI, the Shareholder Agent and certain of the SSI Shareholders
remain in full force and effect against all parties thereto, and shall not have
been modified or amended in any material respect.
30
ARTICLE 7
TERMINATION
Section 7.1. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Closing whether before or after
approval and adoption of this Agreement by the SSI Shareholders:
(a) by mutual written consent of XXXX, Acquisition Sub and SSI;
(b) by XXXX and Acquisition Sub or SSI if any court of
competent jurisdiction in the United States or other United States federal or
state governmental entity shall have issued a final order, decree or ruling, or
taken any other final action, restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action is or shall have
become non-appealable;
(c) by SSI or XXXX after September 30, 2004 if the Merger has
not been consummated on or before such date due to no fault of the terminating
party (such date the "Final Date");
(d) by SSI if (i) there shall have been a material breach of
any representation or warranty of XXXX or Acquisition Sub set forth in this
Agreement or if any such representation or warranty of XXXX or Acquisition Sub
shall have become untrue such that the condition set forth in Section 6.2(a)
would be incapable of being satisfied by the Final Date, provided that SSI has
not breached any of its representations and warranties or obligations hereunder
in any material respect; or (ii) there shall have been a material breach by XXXX
or Acquisition Sub of any of its covenants or agreements hereunder and XXXX or
Acquisition Sub, as the case may be, has not cured such breach within fifteen
(15) business days after notice by SSI thereof, provided that SSI has not
breached any of its representations and warranties or obligations hereunder in
any material respect; or
(e) by XXXX and Acquisition Sub if (i) there shall have been a
material breach of any representation or warranty on the part of SSI set forth
in this Agreement or if any such representation or warranty of SSI shall have
become untrue such that the condition set forth in Section 6.3(a) would be
incapable of being satisfied by the Final Date, provided that neither XXXX nor
Acquisition Sub has breached any of its representations and warranties or
obligations hereunder in any material respect; or (ii) there shall have been a
material breach by SSI or the Shareholder Agent of any of its or his covenants
or agreements hereunder, and SSI or the Shareholder Agent, as the case may be,
has not cured such breach within fifteen (15) business days after notice by XXXX
or Acquisition Sub thereof, provided that neither XXXX nor Acquisition Sub has
breached any of its representations and warranties or obligations hereunder in
any material respect.
Section 7.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or any of its affiliates, directors, officers and shareholders;
provided, however, that Section 7.3 shall survive any such termination. Nothing
31
contained in this Section 7.2 shall relieve any party from liability for any
breach of this Agreement prior to such termination.
Section 7.3. Fees and Expenses. Except as specifically provided herein,
each party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby. SSI agrees that all transaction fees and
expenses it incurs in connection with the negotiation and execution of this
Agreement and the transactions contemplated hereby shall be satisfied by SSI
prior to the Closing.
ARTICLE 8
REMEDIES FOR AGREEMENT BREACHES
Section 8.1. Time Limitation. Each party's right to make any claim or
bring any legal action against any other party based upon the other party's
breach of its representations, warranties and agreements herein shall forever
expire if written notice of such claim or legal action (along with a reasonably
detailed written notice of the alleged facts underlying such claim or action) is
not delivered to the other party (or the Shareholder Agent, as applicable) on or
before the three hundred sixty-fifth (365th) day following the Closing Date.
Section 8.2. Post-Closing Indemnification Provisions for Benefit of
XXXX. In the event (i) that SSI or the Shareholder Agent has breached any of its
respective representations, warranties or agreements contained herein or in any
document, instrument or agreement entered into pursuant to or in connection with
this Agreement, and (ii) XXXX makes a written claim for indemnification pursuant
to this Section 8.2 before the expiration of the time period set forth in
Section 8.1 above, then the SSI Shareholders shall indemnify, defend and hold
harmless XXXX, the Surviving Corporation, their respective Subsidiaries, and
their respective officers, directors, employees, agents and representatives
(collectively, the "XXXX Indemnitees") from and against the entirety of any
Adverse Consequences (as defined below) which such XXXX Indemnitees may suffer
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, or caused by the breach by SSI. Notwithstanding any
other provision of this Agreement, (i) the SSI Shareholders shall not be liable
to the XXXX Indemnitees for the breach of any representation or warranty
hereunder until such time as the aggregate Adverse Consequences of all such
breaches exceeds Fifty Thousand Dollars ($50,000) (the "Deductible"), in which
event the SSI Shareholders shall only be responsible for such Adverse
Consequences in excess of Fifty Thousand Dollars ($50,000); and (ii) the total
liability of the SSI Shareholders to the XXXX Indemnitees under this Agreement
shall not exceed the deposit under the Indemnity Escrow Agreement, which shall
consist of Seven Hundred Fifty Thousand Dollars ($750,000) in cash (the "Cap").
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses, in each case net
of any insurance recoveries actually received by the XXXX Indemnitees.
Notwithstanding the foregoing, any limitation on liability of the SSI
Shareholders or the Shareholder Agent contained in this Section shall not apply
to any amounts payable out of the Accounts Receivable Escrow pursuant to Section
1.6(c) hereof or any amounts due or payable to XXXX pursuant to Section
1.6(d)(vi) hereof (whether payable out of the Working Capital Escrow or
32
otherwise), and none of such amounts shall be subject to the Deductible or the
Cap.
Section 8.3. Post-Closing Indemnification Provisions for Benefit of SSI
Shareholders. In the event that (i) XXXX has breached any of its
representations, warranties or agreements contained herein or in any document,
instrument or agreement entered into pursuant to or in connection with this
Agreement, and (ii) the Shareholder Agent, on behalf of the SSI Shareholders,
makes a written claim for indemnification against XXXX pursuant to this Section
8.3 before the expiration of the time period set forth in Section 8.1 above,
then XXXX shall indemnify, defend and hold harmless the Shareholder Agent and
the SSI Shareholders, and their respective officers, directors, employees,
agents and representatives (collectively, the "SSI Indemnitees") from and
against any Adverse Consequences, but not lost profits of SSI which the SSI
Indemnitees may suffer directly resulting from, arising out of, relating to or
caused by the breach. Notwithstanding any other provision of this Agreement, and
except with respect to claims relating to the payment by XXXX of the Merger
Consideration, XXXX shall not be liable to the SSI Indemnitees for the breach of
any representation or warranty hereunder until such time as the aggregate
Adverse Consequences of all such breaches exceeds Fifty Thousand Dollars
($50,000), in which event XXXX shall only be responsible for such Adverse
Consequences in excess of Fifty Thousand Dollars ($50,000).
Section 8.4. Matters Involving Third Parties.
(a) If any third party shall notify any party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other party (the "Indemnifying
Party") under this Article 8, then the Indemnified Party shall promptly notify
each Indemnifying Party, thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless the
Indemnifying Party is materially prejudiced thereby.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as the Indemnifying
Party notifies the Indemnified Party in writing, within fifteen (15) days after
the Indemnified Party has given notice of the Third Party Claim, that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences that the Indemnified Party may suffer
directly resulting from, arising out of, relating to or caused by the Third
Party Claim.
(c) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 8.4(b) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
33
Section 8.5. Exclusive Remedy. Notwithstanding any other provision of
this Agreement, from and after the Closing, and except as expressly provided to
the contrary in Section 9.9 hereof, the Indemnity Escrow shall be the sole and
exclusive remedy of the XXXX Indemnitees for any claims arising under this
Agreement, whether such claims arise pursuant to this Section 8 or otherwise
(except that any claims arising by reason of a breach of the covenants made in
Section 5.15 of this Agreement shall be governed by the provisions of the last
sentence of this Section and nothing herein shall affect XXXX'x right to payment
out of the Accounts Receivable Escrow or the Working Capital Escrow in
accordance with the terms thereof). Notwithstanding any other provision of this
Agreement, the aggregate liability of each holder of shares of Series C
Preferred Stock and Series D Preferred Stock pursuant to this Agreement shall be
limited to such shareholder's proportionate interest in the Indemnity Escrow,
except as specifically set forth in the last sentence of Section 8.2. The
holders of shares of SSI Common Stock, Series A Preferred Stock and Series B
Preferred Stock shall have no liability whatsoever to the XXXX Indemnitees for
any claims under this Agreement. Notwithstanding any other provision of this
Agreement, from and after the Closing, the Accounts Receivable Escrow shall be
the sole and exclusive remedy of the XXXX Indemnitees for any claims arising by
reason of a breach of the covenants made in Section 5.15 of this Agreement.
ARTICLE 9
MISCELLANEOUS
Section 9.1. Entire Agreement; Assignment. This Agreement (including
the Disclosure Letter and the Exhibits hereto) (a) constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all other prior agreements and understandings both written and
oral between the parties with respect to the subject matter hereof and (b) shall
not be assigned by operation of law or otherwise; provided, however, that
Acquisition Sub may assign any or all of its rights and obligations under this
Agreement to any direct or indirect wholly owned subsidiary of XXXX, but no such
assignment shall relieve Acquisition Sub of its obligations hereunder if such
assignee does not perform such obligations.
Section 9.2. Validity. If any provision of this Agreement or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
Section 9.3. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by reputable
overnight courier (e.g., Federal Express), by facsimile or by registered or
certified mail (postage prepaid, return receipt requested) to each other party
as follows:
34
(a) If to XXXX or Acquisition Sub: Hollywood Media Corp. 0000
Xxxxxx Xxxx, Xxxxx 000X Xxxx Xxxxx, XX 00000
Attn: CEO
Facsimile Number: (000) 000-0000
with copies to:
Hollywood Media Corp.
0000 Xxxxxx Xxxx, Xxxxx 000X
Xxxx Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx, Esq.
Facsimile Number: (000) 000-0000
Weissmann, Wolff, Bergman, Coleman, Grodin & Evall, LLP.
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxxxx, Esq.
Facsimile Number: (000)- 000-0000
(b) If to SSI:
Studio Systems, Inc.
0000 Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attn: President
Facsimile Number: (000) 000-0000
with a copy to:
Xxxxxxxx X. Xxxxxxx, Esq.
Xxxx & Xxxxx Professional Corporation
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Facsimile Number: (000) 000-0000
(c) If to the Shareholder Agent to:
SSI Investments, LLC
c/o United Business Media
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Facsimile Number: (000) 000-0000
35
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Notice given in person or by overnight delivery service as set forth above shall
be deemed delivered on the day of delivery; notice given by mail as set forth
above shall be deemed delivered on the fifth day following the date the same is
postmarked; notice given by facsimile shall be deemed delivered when received if
during normal business hours on a business day (or if not, the next business day
after delivery) provided that such facsimile is legible and that at the time
such facsimile is sent the sending party receives written confirmation of
receipt.
Section 9.4. Governing Law; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
principles of conflicts of law thereof except for specific provisions relating
to the Merger which will be governed by Delaware law.
(b) Each of the parties hereto consents to the jurisdiction of
any state or federal court located within New York County, and irrevocably
agrees that all actions or proceedings relating to this Agreement or the
transactions contemplated hereby shall be litigated in one of such courts, and
each of the parties waives any objection that it may have based on improper
venue or forum non conveniens to the conduct of any such action or proceeding in
any such court and waives personal service of any and all process upon it, and
consent to all such service of process made in the manner set forth in Section
9.3. Nothing contained in this Section 9.4(b) shall affect the right of any
party to serve legal process on any other party in any other manner permitted by
law.
(c) Each party acknowledges and agrees that any controversy
which may arise under this Agreement is likely to involve complicated and
difficult issues, and therefore each such party hereby irrevocably and
unconditionally waives any right such party may have to a trial by jury in
respect of any litigation directly or indirectly arising out of or relating to
this agreement or the transactions contemplated by this Agreement. Each party
certifies and acknowledges that (i) no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each
such party understands and has considered the implications of this waiver, (iii)
each such party makes this waiver voluntarily, and (iv) each such party has been
induced to enter into this agreement by, among other things, the waivers and
certifications in this Section 9.4(c).
Section 9.5. Descriptive Headings; Section References. The descriptive
headings herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. All references herein to Articles, Sections, subsections, paragraphs
and clauses are references to Articles, Sections, subsections, paragraphs and
clauses of this Agreement unless specified otherwise.
Section 9.6. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, nothing in this
36
Agreement is intended to or shall confer upon any other Person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 9.7. Certain Definitions. For the purposes of this Agreement
the term:
(a) "business day" means any day other than a day on which
banks in California or Florida are required or authorized by law to be closed;
(b) "include" or "including" means "include, without
limitation" or "including, without limitation," as the case may be, and the
language following "include" or "including" shall not be deemed to set forth an
exhaustive list;
(c) "knowledge" or "known" means, with respect to any matter in
question, the actual knowledge of such matter of Xxxx Xxxxxx and any other
executive officer or director of SSI or any director or executive officer of
XXXX, as the case may be, and, unless otherwise stated herein, after due
investigation and inquiry;
(d) "Material Contract" means the following with respect to SSI
or any of its Subsidiaries: (i) any agreement (or group of related agreements)
for the lease of personal property to or from any Person providing for lease
payments in excess of $20,000 per annum; (ii) any agreement (or group of related
agreements) for the purchase or sale of personal property, or for the furnishing
or receipt of services, the performance of which will involve consideration in
excess of $20,000 per annum; (iii) any agreement (or group of related
agreements) under which SSI or a Subsidiary of SSI has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized
lease obligation, in excess of $20,000; (iv) any collective bargaining
agreement, any agreement relating to the employment or engagement of any
individual on a full-time, part-time, consulting, or other basis or any
agreement providing severance benefits, and all SSI Employee Plans, SSI Pension
Plans and SSI Benefit Arrangements; (v) any agreement under which SSI or any SSI
Subsidiary is a guarantor or otherwise is liable for any liability or obligation
(including indebtedness) of any other Person ; (vi) any agreement to which SSI
or any of its Subsidiaries is a party or by which SSI or any of its Subsidiaries
is bound with a remaining term of in excess of 12 months (inclusive of any
renewal or option terms) which agreement can not be terminated by SSI without
liability on notice of 30 days or less; (vii) any other agreement (or group of
related agreements) the performance of which involves consideration in excess of
$20,000 per annum; (viii) any agreements which limit or restrain SSI or any of
its Subsidiaries from engaging or competing in the Business (as such term is
defined in the CMPi Agreement); and (ix) any agreements granting a right of
first refusal or first offer or negotiation with respect to any properties or
rights of SSI or any of its Subsidiaries.
(e) "Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other legal entity including any governmental entity; and
(f) "Security Interest" means any mortgage, pledge, lien,
encumbrance, charge or other security interest, other than (a) mechanic's,
37
materialmen's and similar liens for debts not yet due and payable, (b) liens for
taxes not yet due and payable, and (c) purchase-money liens and liens securing
rental payments under capital lease arrangements.
(g) "Subsidiary" or "Subsidiaries" of SSI, XXXX, the Surviving
Corporation or any other Person means any corporation, partnership, limited
liability company, association, trust, unincorporated association or other legal
entity of which SSI, XXXX, the Surviving Corporation or any such other Person,
as the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, more than fifty percent (50%) of the
capital stock the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
Section 9.8. Personal Liability. Except as expressly set forth herein,
this Agreement shall not create or be deemed to create or permit any personal
liability or obligation on the part of any officer, director, employee, agent,
shareholder or representative of any party hereto.
Section 9.9. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder, without the necessity of posting a
bond.
Section 9.10. Counterparts. This Agreement may be executed by facsimile
and in one or more counterparts, each of which shall be deemed to be an original
but all of which shall constitute one and the same agreement.
Section 9.11. Amendment. This Agreement may be amended by action taken
by SSI, XXXX and Acquisition Sub at any time before or after approval of the
Merger by the SSI Shareholders but after any such approval no amendment shall be
made that requires the approval of such shareholders under applicable law
without such approval. This Agreement may be amended only by an instrument in
writing signed on behalf of the parties hereto.
Section 9.12. Extension; Waiver. At any time prior to the Effective
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by another party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed by
such party. The failure of any party hereto to assert any of its rights
hereunder shall not constitute a waiver of such rights.
Section 9.13. Drafting Presumption. It is acknowledged that the parties
and their respective legal counsel have participated in an arms'-length
negotiation in the preparation of this Agreement. As a consequence, the parties
agree that no presumption shall be applied in any interpretation of this
Agreement that the terms hereof shall be more strictly construed against one
38
party by reason of any rule of construction that a document is to be construed
more strictly against the party who prepared the same, whether through such
party's legal counsel or otherwise.
Section 9.14. Recovery of Costs. In the event that any arbitration,
legal action, equitable suit or other proceeding is brought for the enforcement
of this Agreement, or because of an alleged dispute, breach, default,
misrepresentation, termination or invalidity in connection with any provision of
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and costs incurred in such proceeding, in addition to
any other relief to which such party may be entitled.
Section 9.15. Further Assurances. Each of the parties hereto agrees
that it will, forthwith upon any request by any other party, cooperate fully in
the preparation, execution, acknowledgment, delivery and recording of any
agreements, instruments, memoranda or documents which are reasonably necessary
or appropriate to evidence or consummate the transactions contemplated by this
Agreement. In addition, no party shall take or fail to take any action for the
purpose of impairing such party's ability to perform its obligations under this
Agreement.
39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
"XXXX" "SSI"
HOLLYWOOD MEDIA CORP. STUDIO SYSTEMS, INC.
By: /s/ Xxxxxxxx Xxxxxxxxxx By: /s/ Xxxx Xxxxxx
-------------------------------- ---------------------------------------
Its: Chief Executive Officer Its: President and Chief Executive Officer
------------------------------- --------------------------------------
"Acquisition Sub" "Shareholder Agent"
SSI ACQUISITION SUB, INC. SSI INVESTMENTS LLC
By: /s/ Xxxxxxxx Xxxxxxxxxx By Vavasseur Overseas Holdings Limited,
-------------------------------- as sole member
Its: Chief Executive Officer
------------------------------- By Crosswall Nominees Limited,
a director of Vavasseur Overseas
Holdings Limited
By /s/ Xxxxxx Xxxx
---------------------------------------
Name: Xxxxxx Xxxx
Title: Director
40
