AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement"),
dated as of November 30, 1998 by and among IMAGE TECHNOLOGY CORP., INC., a
Delaware corporation having an office at Arsenal Business Center Building 210-3,
0000 Xxxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Company"), DIRECT
CONNECT INTERNATIONAL INC., a Delaware corporation with a mailing address at
X.X. Xxx 00, Xxxxxxxxx, Xxx Xxxxxx 00000 ("Direct Connect"), and IMAGE
ACQUISITION CORP., a Delaware corporation to be formed having an office at
Arsenal Business Center Building 210-3, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000 ("Sub").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Company, in accordance
with the Delaware General Corporation Law (the "DGCL"), has determined that it
is advisable and in the best interests of their stockholders to consummate, and
subject to the approval of its shareholders, the business combination
transaction provided for herein in which Direct Connect would merge with and
into Sub (the "Merger"), and Direct Connect shall become the "Surviving
Corporation;"
WHEREAS, the Board of Directors of Direct Connect, in
accordance with the Delaware General Corporation Law (the "DGCL"), has
determined that it is advisable and in the best interests of their stockholders
to consummate, and have approved, the Merger, subject to the receipt from a
qualified investment banking or financial institution of an opinion stating that
the Merger is fair to the holders of the capital stock of Direct Connect from a
financial point of view (the "Fairness Opinion") and subject to approval of
Direct Connect's shareholders;
WHEREAS, the Company, Sub and Direct Connect desire to make
certain representations, warranties and agreements in connection with the Merger
and also to prescribe various conditions to the Merger; and
WHEREAS, it is the express intention of the Company, Sub and
Direct Connect that this Agreement constitute a plan of reorganization intended
to qualify for federal income tax purposes as a "reorganization" within the
meaning of Section 368(a)(1)B of the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute thereto (the "Code").
NOW, THEREFORE, in consideration of the mutual premises,
covenants and agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER.
1.1 Terms of the Merger. At the Effective Time (as defined in Section 1.2), upon
the terms and subject to the conditions of this Agreement, Direct Connect shall
be merged with and into Sub in accordance with the DGCL. Direct Connect shall be
the surviving corporation in the Merger. In consideration of the Merger, the
common stock of the Company shall be issued to the shareholders of Direct
Connect in the manner and amount provided in Article II hereof.
1.2 Effective Time. At the Closing (as defined in Section 1.3), a certificate of
merger (the "Certificate of Merger") shall be duly prepared and executed by
Direct Connect and thereafter delivered to the Secretary of State of the State
of Delaware (the "Secretary") for filing on, or as soon as practicable after,
the Closing Date (as defined in Section 1.3). The Merger shall become effective
at the time of the filing of the Certificate of Merger with the Secretary (the
date and time of such filing being referred to herein as the "Effective Time").
At the Effective Time, Direct Connect shall file with the Secretary of State of
the State of Delaware all other necessary documentation to effectuate the
Merger.
1.3 Closing. The closing of the Merger (the "Closing") will take place at the
offices of XxXxxxxxxx & Xxxxx, LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000, on or about February 28, 1999, or at such other time or place as the
parties hereto mutually agree (the "Closing Date"), on a date and at a time to
be specified by the parties, which shall in no event be later than April 30,
1999, provided that the closing conditions set forth in Article VII have been
satisfied or, if permissible, waived in accordance with this Agreement.
1.4 Certificate of Incorporation and By-laws of the Surviving Corporation. At
the Effective Time, (i) the Certificate of Incorporation of Direct Connect as in
effect immediately prior to the Effective Time shall be the Certificate of
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Incorporation of the Surviving Corporation until as may be thereafter amended as
provided by law and such certificate of incorporation, and (ii) the By-laws of
Direct Connect as in effect immediately prior to the Effective Time shall be the
By-laws of the Surviving Corporation and thereafter may be amended as provided
therein and under the DGCL.
1.5 Directors of the Surviving Corporation and Direct Connect. From and after
the Effective Time, the directors of Direct Connect immediately prior to the
Closing Date shall resign and be replaced by the directors designated by the
Company. The new directors of the Surviving Corporation shall serve until their
successors shall have been duly elected or appointed and qualified or until the
earlier of their death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-laws.
1.6 Effects of the Merger. Subject to the foregoing, the effects of the Merger
shall be as provided in the applicable provisions of the DGCL.
2. STATUS AND CONVERSION OF SECURITIES.
2.1 Stock of the Company.
(1) Each share of common stock of Direct Connect, par value $.01 per share, (the
"Direct Connect Common Stock") issued and outstanding at the Effective Time
shall, by virtue of the Merger and without any action on the part of the holders
thereof, be converted into the right to receive shares of the Common Stock of
the Company, par value $.00000005 a share (the "Stock Consideration"), at the
rate of 14 shares of Direct Connect Common Stock for one (1) share of Company
Common Stock (the "Ratio"). The total Stock Consideration shall be 1,878,142
shares of the Company's Common Stock and shall include all issued outstanding
unexpired options and warrants to purchase the Direct Connect Common Stock as
set forth in Schedules 2.1 and 2.2. There shall not be included in the Stock
Consideration the 9,887,517 shares of Direct Connect Common Stock issuable
pursuant to the terms of the Redeemable Class A Warrants and the Redeemable
Class B Warrants (the "Redeemable Warrants") currently outstanding, which Direct
Connect has represented is the maximum number of shares of Direct Connect Common
Stock issuable under such Redeemable Warrants. All warrants, options and the
Redeemable Warrants shall be adjusted as to the number of shares the holders
thereof are entitled to receive pursuant to the Ratio, and the exercise price
shall likewise be adjusted pursuant to the Ratio.
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(2) The Stock Consideration shall include Direct Connect's Convertible Preferred
Stock. Prior to the Effective Time, Direct Connect shall use its best efforts to
issue to holders of the Convertible Preferred Stock shares of the Common Stock
at the rate of three (3) shares of Common Stock for each Convertible Preferred
Share outstanding in accordance with the terms of the Convertible Preferred
Stock. At the Effective Time, the holders of the Common Stock received by virtue
of the conversion shall receive shares of the Company Common Stock in accordance
with the Ratio. The holders shall not be entitled to sell, hypothecate or
otherwise transfer the Company Common Stock for a period of 13 months from the
date of issuance by the Company. The stock certificates issued by the Company
shall bear a legend incorporating such restrictions.
(3) Exchange of Direct Connect Common Stock.
(1) The Stock Consideration issued upon the surrender for exchange of Direct
Connect Common Stock in accordance with the terms hereof shall be deemed to have
been fully paid non-assessable and issued, as applicable, in full satisfaction
of all rights pertaining to such shares of Direct Connect Common Stock.
(2) After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of Direct Connect of the shares of Common
Stock that were outstanding immediately prior to the Effective Time. After the
Effective Time, any then holders of certificates representing shares of Direct
Connect Common Stock shall cease to have any rights as shareholders of Direct
Connect except such rights, if any, as they may have pursuant to Delaware law.
(3) No fractional shares of Company Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, shall be issued upon the
surrender for exchange of Direct Connect Common Stock. All fractional shares of
Direct Connect Common Stock which entitle the shareholders of Direct Connect to
receive Company Common Stock upon the merger, at the Effective Time, shall be
aggregated. If a fractional share results from such aggregation, such fractional
share shall be rounded up to the nearest whole number and that number of shares
of Company Common Stock shall be issued to such holder.
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(4) Appraisal Rights. If any holder of Direct Connect Common Stock has not voted
in favor of the merger and has complied with the requirements of Section 262 of
the DGCL (a "Direct Connect Shareholder"), notwithstanding anything contained in
this Agreement to the contrary, said Shareholder shall be entitled to appraisal
rights, and each share of Direct Connect Common Stock held by such Shareholder
shall not be converted into or represent the right to receive the Merger
Consideration pursuant to Section 2.1, but such Shareholder shall be entitled to
the rights specified in the DGCL; however, if said Shareholder fails to comply
with the requirements of Section 262 of the DGCL, the Direct Connect Common
Stock held by such person shall be deemed to be converted as of the Effective
Time, into the Merger Consideration as set forth in Section 2.1, without any
interest thereon.
2.2 Assumption of Direct Connect Options and Warrants.
(1) Schedule 2.2 sets forth a true, correct and complete list of the outstanding
Redeemable Class A and Class B Warrants and all other options and warrants to
acquire Direct Connect Common Stock (all hereinafter referred to as the "Direct
Connect Warrants"). The Class A and Class B Warrants expire March 31, 1999.
Direct Connect agrees not to extend the exercise date beyond the Effective Date.
(2) At the Effective Time, all outstanding Direct Connect Warrants shall be
canceled and replaced with fully vested warrants (all hereinafter referred to as
the "Substituted Warrants") to acquire, on the same terms and conditions as were
applicable under such Direct Connect Warrants; however, each Substituted Warrant
shall be adjusted at the rate of one (1) Substituted Warrant for fourteen (14)
Direct Connect Warrants issued to holder thereof prior to the Effective Time,
which shall entitle the holder thereof to purchase one (1) share of the
Company's Common Stock at an exercise price equal to fourteen (14) times the
exercise price in effect prior to the Effective Time.
(3) The Company shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Company Common Stock for delivery
under the Substituted Warrants and the Direct Connect Convertible Preferred
Stock as defined in Section 3.4 pursuant to the terms of this Agreement.
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3. COVENANTS.
3.1 Covenants of the Company. The Company agrees that, unless
Direct Connect otherwise agrees in writing:
(1) Articles of Incorporation and By-laws. Until the earlier of the Effective
Time or the termination of this Agreement pursuant to Article VIII (the "Release
Time"), no amendment will be made to the articles of incorporation or By-laws of
the Company or Sub.
(2) Shares and Options. Until the Release Time, no share of Common Stock of the
Company, option or warrant for any such share, right to subscribe to or purchase
any such share, or security convertible into or exchangeable for any such share,
shall be authorized, issued or sold by the Company nor shall the Company enter
into any agreement or commitment to effect any such issuance or sale.
Notwithstanding the foregoing, the Company may issue in its sole discretion its
Common Stock and/or warrants or options to purchase its Common Stock not to
exceed fifteen percent (15%) of the issued and outstanding Common Stock at the
date of execution of this Agreement. The Company shall provide Direct Connect
with written notice prior to such issuance of its Common Stock or warrants or
options to purchase its Common Stock.
(3) Dividends and Purchases of Stock.
Until the Release Time, no cash or non-cash dividend or liquidating or other
distribution or stock split shall be authorized, declared, paid, or effected by
the Company in respect of the outstanding shares of the Company's Common Stock.
Until the Release Time, no direct or indirect redemption, purchase, or other
acquisition shall be made by the Company of shares of the Company's Common
Stock.
(4) Leases and Indebtedness. Until the Release time, the Company shall not (A)
acquire, lease or dispose or agree to acquire, lease or dispose of any material
capital assets or any other assets other than in the ordinary course of
business, except that the Company may make equipment purchases or leases of
equipment in an amount not to exceed the sum of $500,000; (B) incur additional
indebtedness or encumber or grant a security interest in any asset other than in
each case in the ordinary course of business or in connection with the
refinancing of indebtedness outstanding on the date of this Agreement or in
connection with purchases of equipment in an amount not to exceed $500,000; (C)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
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substantial equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, except that the Company shall be permitted to acquire or agree to
acquire by merging, consolidating with or by purchasing an equity interest in
any business or corporation if such acquisition or purchase does not exceed a
value of more than twenty percent (20%) of the Company's total assets as of the
date of execution of this Agreement; or (D) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing, except an
increase in borrowings up to $1,000,000, provided the proceeds of which are used
for working capital purposes.
(5) Notwithstanding anything to the contrary herein, the Company shall not
encumber or sell or otherwise transfer any of its software, databases or other
intellectual property without the prior written consent of Direct Connect.
(6) Benefits. Except as set forth in Schedule 3.1(e), until the Release Time,
the Company shall not except as may be required to comply with applicable law or
regulation and except as provided in hereof, (A) adopt, enter into, terminate or
amend any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or other Company
Benefit Plan (as defined in Section 4.7), agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current or
former employee, (B) increase in any manner the compensation or fringe benefit
of any director or officer, (C) pay any benefit not provided under any existing
plan or arrangement, or (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Company Benefit Plan.
(7) Access. Until the Release Time, the Company will afford the officers,
directors, employees, counsel, agents, investment bankers, accountants, and
other representatives of Direct Connect reasonable access to the plants,
properties, books, and records of the Company and the Company subsidiaries, will
permit them to make extracts from and copies of such books and records, and will
from time to time furnish Direct Connect with such additional financial and
operating data and other information as to the financial condition, results of
operations, businesses, properties, assets, liabilities, or future prospects of
the Company and the Company subsidiaries as Direct Connect from time to time may
reasonably request. As soon as practicable, the Company shall provide to Direct
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Connect audited financial statements for the periods ended December 31, 1996 and
December 31, 1997, or as otherwise requested by the Securities and Exchange
Commission (the "SEC"), and the Company's unaudited financial statements for the
nine (9) months ended September 30, 1998, and the most recent quarter of the
Company prior to the Closing. All information furnished by or on behalf of the
Company pursuant to this Section 3.1(f) or otherwise obtained from the Company
as contemplated by this Section 3.1(f) shall be held as confidential by Direct
Connect and its representatives.
(8) Conduct of Business. Except as otherwise contemplated or permitted hereby,
until the Release Time, the Company shall not take any action that would or is
reasonably likely to result in any of the representations or warranties of the
Company set forth in this Agreement being untrue at the Closing Date or in any
of the conditions to the Merger set forth in Article VII not being satisfied.
The Company shall carry on its respective business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, other
than the offering of court records and briefs over the Internet and the
implementation thereof, and shall, and shall cause its subsidiaries to, use
reasonable efforts to preserve intact their present business organizations, keep
available the services of their employees and preserve their relationships with
customers, suppliers and others having business dealings with them. The Company
shall (i) maintain insurance coverages and its books, accounts and records in
the usual manner consistent with prior practices; (ii) comply in all material
respects with all laws, ordinances and regulations of Governmental Entities (as
defined in Section 4.10) applicable to the Company; and (iii) perform in all
material respects its obligations under all contracts and commitments to which
it is a party or by which it is bound, in each case referred to in this Section
3.1(g) other than where the failure to so maintain, comply or perform, either
individually or in the aggregate, would not result in a Company Material Adverse
Effect (as defined in Section 4.1).
(9) Advice of Changes. Until the Release Time, the Company will promptly advise
Direct Connect in a reasonably detailed written notice of any fact or occurrence
or any pending or threatened occurrence of which it obtains knowledge and which
(if existing and known at the date of the execution of this Agreement) would
have been required to be set forth or disclosed in or pursuant to the Agreement,
which (if existing and known at any time prior to or at the Effective Time)
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would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult than in
the absence of such fact or occurrence, or which (if existing and known at the
time of the Effective Time) would cause a condition to any party's obligations
under this Agreement not to be fully satisfied.
(10) Public Statements. Before the Company releases any information concerning
this Agreement, the Merger or any of the other transactions contemplated by this
Agreement which is intended for or is reasonably expected to result in public
dissemination thereof, the Company shall cooperate with Direct Connect, shall
furnish drafts of all documents or proposed oral statements to Direct Connect
for comments, and shall not release any such information without the prior
consent of Direct Connect; provided, however, that the foregoing shall not be
deemed to prevent the Company from releasing any information or making any
disclosure to the extent that the Company reasonably determines that it is
required to do so by law.
(11) Other Proposals. Until the Release Time, the Company shall not, and shall
not authorize or permit any officer, director, employee, counsel, agent,
investment banker, accountant, or other representative of the Company, directly
or indirectly, to: (i) initiate contact with any person or entity in an effort
to solicit any Takeover Proposal (as defined below); (ii) cooperate with, or
furnish or cause to be furnished any non-public information concerning the
financial condition, results of operations, businesses, properties, assets,
liabilities, or future prospects of the Company to any person or entity in
connection with any Company Takeover Proposal; (iii) negotiate with any person
or entity with respect to any Company Takeover Proposal; or (iv) enter into any
agreement or understanding with the intent to effect a Company Takeover
Proposal; provided, however, that the Company shall be entitled to take any
action described in the foregoing clauses (ii)-(iv) if and to the extent that
the Board of Directors of the Company determines in good faith, based on the
advice of its counsel, that the failure to take any such action would violate
its fiduciary duties to the Company's shareholders. The Company will immediately
give prompt written notice to Direct Connect of the details of any Company
Takeover Proposal of which the Company becomes aware. As used in this Section
3.1(j), "Company Takeover Proposal" shall mean any proposal, other than as
contemplated by this Agreement, for a merger, consolidation, reorganization,
other business combination, or recapitalization involving the Company, for the
acquisition of a 15% or greater interest in the equity or in any class or series
of capital stock of the Company, for the acquisition of the right to cast 15% or
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more of the votes on any matter with respect to the Company or any Company
subsidiary, or for the acquisition of one of its divisions or of a substantial
portion of any of their respective assets, other than in the ordinary course of
their respective businesses, the effect of which may be to prohibit, restrict,
or delay the consummation of the Merger or any of the other transactions
contemplated by this Agreement or impair the contemplated benefits to Direct
Connect of the Merger or any of the other transactions contemplated by this
Agreement.
(12) Transfer Taxes. The Company shall timely prepare and file any declaration
or filing necessary to comply with any transfer tax statutes that require any
such filing before the Effective Time.
(13) Notwithstanding anything to the contrary contained herein or elsewhere in
this Agreement, if the Company determines to enter into any transaction which
exceeds the limitations in subsection (b) or (d) of this Section 3.1 then the
Company shall be required to furnish prior notice thereof to Direct Connect, and
if Direct Connect does not consent to such transaction by written notice thereof
to the Company within five (5) business days after receipt of Company's written
notice, then the Company may terminate this Agreement, provided Company gives
prompt written notice of such termination to Direct Connect. If Company elects
to terminate this Agreement, it shall pay Direct Connect all reasonable legal
expenses, filing and registration fees, accounting fees, appraisal or fairness
opinion fees, printing expenses and other miscellaneous expenses directly
related to this Agreement and the transactions contemplated herein. Payment of
such fees and expenses shall be due on or before the thirtieth (30th) days after
receipt by Company of Direct Connect's invoice and supporting documentation for
said fees and expenses. In addition thereto, the Loan set forth in 3.2(k) shall
be repaid by Company on or before the thirtieth (30) day after the date of
Company's written notice of termination.
3.2 Covenants of Direct Connect. Direct Connect agrees that, unless
the Company otherwise agrees in writing:
(1) Certificate of Incorporation and By-laws. Until the Release Time, no
amendment will be made to the Certificate of Incorporation or By-laws of Direct
Connect; except for an amendment to Direct Connect's Certificate of
Incorporation (i) increasing the number of authorized shares of Direct Connect
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Common Stock in an amount at least sufficient to meet the requirements of the
issuance of shares for its outstanding warrants and options and the Convertible
Preferred Stock (as defined in Section 3.4).
(2) Shares and Options. Until the Release Time, no share of capital stock of
Direct Connect, option or warrant for any such share, right to subscribe to or
purchase any such share, or security convertible into or exchangeable for any
such share, shall be issued or amended in any way or sold by Direct Connect,
except as provided herein, nor shall Direct Connect enter into any agreement or
commitment or amend an existing agreement to effect any such issuance or sale,
otherwise than as may be required upon the exercise of stock options, related
stock appreciation rights, or warrants now outstanding or hereafter granted
pursuant to any Direct Connect employee benefit plan which was or is now in
effect, all as set forth in Schedules 2.1 and 2.2.
(3) Dividends and Purchases of Stock. Until the Release Time, no cash or
non-cash dividend or liquidating or other distribution or stock split shall be
authorized, declared, paid, or effected by Direct Connect in respect of the
outstanding shares of Direct Connect Common Stock. Until the Release Time, no
direct or indirect redemption, purchase, or other acquisition shall be made by
Direct Connect of shares of Direct Connect Common Stock.
(4) Leases and Indebtedness. Direct Connect shall not (A) acquire, lease or
dispose or agree to acquire, lease or dispose of any material capital assets or
any other assets other than in the ordinary course of business; (B) incur
additional indebtedness or encumber or grant a security interest in any asset
other than in each case in the ordinary course of business or in connection with
the refinancing of indebtedness outstanding on the date of this Agreement; (C)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof; or (E) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing.
(5) Benefits. Direct Connect shall not, except as may be required to comply with
applicable law or regulation and except as provided in hereof, (A) adopt, enter
into, terminate or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or Direct Connect Benefit Plans (as defined in Section 6.7),
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agreement, trust, fund or other arrangement for the benefit or welfare of any
director, officer or current or former employee, (B) increase in any manner the
compensation or fringe benefit of any director or officer, (C) pay any benefit
not provided under any existing plan or arrangement, or (D) grant any awards
under any bonus, incentive, performance or other compensation plan or
arrangement or Direct Connect Benefit Plan.
(6) Access. Until the Release Time, Direct Connect will afford the officers,
directors, employees, counsel, agents, investment bankers, accountants, and
other representatives of the Company reasonable access to the plants,
properties, books, and records of Direct Connect, will permit them to make
extracts from and copies of such books and records, and will from time to time
furnish the Company with such additional financial and operating data and other
information as to the financial condition, results of operations, businesses,
properties, assets, liabilities, or future prospects of Direct Connect as the
Company from time to time may reasonably request. All information furnished by
or on behalf of Direct Connect pursuant to this Section 3.2(f) or otherwise
obtained from Direct Connect as contemplated by this Section 3.2(f) shall be
held as confidential.
(7) Conduct of Business. Until the Release Time, Direct Connect shall not take
any action that would or is reasonably likely to result in any of the
representations and warranties of Direct Connect set forth in this Agreement
being untrue at the Closing Date or to any of the conditions to the Merger set
forth in Article VII not being satisfied. Direct Connect shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, and shall use reasonable efforts to preserve
intact its present business organization, keep available the services of its
employees and preserve its relationships with customers, suppliers and others
having business dealings with it ; provided, however, that neither (i) the
resignation of one or more executive officers of the Company in connection with
the Merger nor (ii) the sale of Datatec Systems, Inc. common stock by Direct
Connect shall be deemed a breach of the foregoing requirement. Direct Connect
shall (i) maintain insurance coverages and its books, accounts and records in
the usual manner consistent with prior practices; (ii) comply in all material
respects with all laws, ordinances and regulations of Governmental Entities
applicable to Direct Connect; and (iii) perform in all material respects its
obligations under all contracts and commitments to which it is a party or by
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which it is bound, in each case referred to in this subsection (g) other than
where the failure to so maintain, comply or perform, either individually or in
the aggregate, would not result in a Direct Connect Material Adverse Effect (as
defined in Section 6.1). Except as otherwise contemplated or permitted hereby,
until the Release Time, Direct Connect will conduct no other material business
except in connection with this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement, or as may be required as part of
its ordinary business.
(8) Advice of Changes. Except as otherwise contemplated or permitted hereby,
until the Release Time, Direct Connect shall not take any action that would or
is reasonably likely to result in any of the representations or warranties of
Direct Connect set forth in this Agreement being untrue at the Closing Date or
in any of the conditions to the Merger set forth in Article VII not being
satisfied. Until the Release Time, Direct Connect will promptly advise the
Company in a reasonably detailed written notice of any fact or occurrence or any
pending or threatened occurrence of which it obtains knowledge and which (if
existing and known at the date of the execution of this Agreement) would have
been required to be set forth or disclosed in or pursuant to this Agreement,
which (if existing and known at any time prior to or at the Effective Time)
would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult than in
the absence of such fact or occurrence, or which (if existing and known at the
time of the Effective Time) would cause a condition to any party's obligations
under this Agreement not to be fully satisfied.
(9) Public Statements. Before Direct Connect releases any information concerning
this Agreement, the Merger, or any of the other transactions contemplated by
this Agreement which is intended for or is reasonably expected to result in
public dissemination thereof, Direct Connect shall cooperate with the Company,
shall furnish drafts of all documents or proposed oral statements to Xxxxxxxx
Xxxxxx, Chairman of the Board of the Company, for comments, and shall not
release any such information without the prior consent of the Company; provided,
however, that the foregoing shall not be deemed to prevent Direct Connect from
releasing any information or making any disclosure to the extent that Direct
Connect reasonably determines that it is required to do so by law.
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(10) Consents Without Any Condition. Direct Connect shall not make any agreement
or reach any understanding, not approved in writing by the Company, as a
condition for obtaining any consent, authorization, approval, order, license,
certificate, or permit required for the consummation of the transactions
contemplated by this Agreement.
(11) Loan. Concurrently with the execution of this Agreement, Direct Connect
shall loan the sum of (i) $110,000 to the Company and (ii) $150,000 on or before
15 days after execution of this Agreement, exclusive of the date of execution,
at an interest rate of 6.5% per annum (hereinafter, the "Loan"), and principal
and interest of the Loan shall be due on or before one hundred eighty (180) days
after termination of this Agreement, except the Note shall be due and payable on
or before the thirtieth (30th) day after the termination of this Agreement
pursuant to Article VIII hereof or as otherwise provided. After the Effective
Time, the Company intends to cause Direct Connect to cancel the outstanding
Loan.
(12) Board Action. The Board of Directors of Direct Connect shall duly call and
hold a meeting, as soon as reasonably possible after the execution of this
Agreement, whereby the requisite vote of all directors present (a) determine
that the Merger is advisable and fair and in the best interests of Direct
Connect and its stockholders, subject to the receipt of the Fairness Opinion,
(b) approve the Merger in accordance with the applicable provisions of the DGCL,
(c) recommend the approval of this Agreement and the Merger, and the
transactions contemplated thereby, by the holders of Direct Connect Common Stock
and Convertible Preferred Stock and direct that the Merger be submitted for
consideration by Direct Connect's stockholders at Direct Connect Stockholders'
Meeting (as defined in Section 3.4) and (d) recommend the increase of authorized
Direct Connect Common Stock of an amount sufficient to issue Direct Connect
Common Stock to satisfy the requirements of the Convertible Preferred Stock and
the outstanding warrants and options and submit such recommendation for approval
by the stockholders of Direct Connect at the Direct Connect Stockholders'
Meeting.
(13) At the Effective Time, Direct Connect shall have at least $1,000,000 of
unrestricted free cash together with a sufficient sum of liquid tangible assets
to pay all liabilities then outstanding and all other fees and expenses required
to be paid by Direct Connect in connection with this transaction, including but
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not limited to legal fees, commissions, SEC fees or NASD fees. "Unrestricted
free cash" shall mean cash or marketable US Government securities having a
maturity of no more than 15 days.
3.3 Preparation of Registration Statement and Proxy Statement.
(1) Direct Connect shall prepare and file with the SEC as soon as reasonably
practicable after the date hereof the proxy statement of Direct Connect required
to be mailed to the shareholder's of Direct Connect in connection with the
Merger (the "Proxy Statement"), and the Company shall prepare and file with the
SEC as soon as reasonably practicable after the date hereof a registration
statement as may be required on Form S-4 together with a registration statement
covering the issuance of the Company's Common Stock in the Merger, as amended or
supplemented from time to time (as so amended and supplemented, the
"Registration Statement"), in which the Proxy Statement will be included as part
of the prospectus. The Company and Direct Connect shall use their best efforts
to have the Registration Statement declared effective by the SEC as promptly as
practicable after such filing. The Company shall also take any action (other
than qualifying as a foreign corporation or taking any action which would
subject it to service of process in any jurisdiction where the Company is not
now so qualified or subject) required to be taken under applicable state blue
sky or securities laws in connection with the issuance of the Company's Common
Stock in connection with the Merger. If at any time prior to the Effective Time
any event shall occur that should be set forth in an amendment of or a
supplement to the Registration Statement, Direct Connect and/or the Company
shall prepare and file with the SEC such amendment or supplement as soon
thereafter as is reasonably practicable. Direct Connect and the Company shall
cooperate with each other in the preparation of the Registration Statement and
the Proxy Statement and any amendment or supplement thereto, and each shall
notify the other of the receipt of any comments from the SEC with respect to the
Registration Statement or the Proxy Statement and of any requests by the SEC for
any amendment or supplement thereto or for additional information, and shall
provide to the other promptly copies of all correspondence between the SEC and
Direct Connect or the Company, as the case may be, or any of its representatives
with respect to the Registration Statement or the Proxy Statement. The parties
and their counsel shall have the opportunity to review the Registration
Statement and all responses to requests for additional information by and
replies to comments of the SEC before their being filed with, or sent to, the
SEC. Each of the Company and Direct Connect agrees to use its best efforts,
after consultation with the other parties hereto, to respond promptly to all
15
such comments of and requests by the SEC and to cause the Registration Statement
to be declared effective by the SEC, and the Proxy Statement to be mailed to the
holders of Direct Connect Common Stock entitled to vote at the Direct Connect
Stockholder's Meeting at the earliest practicable time.
(2) None of the information supplied by the Company for inclusion in (i) the
Registration Statement and (ii) the Proxy Statement will, in the case of the
Proxy Statement or any amendments or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the Direct Connect Stockholders' Meeting, or, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time in regard to the Company, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
(3) None of the information with respect to Direct Connect or its subsidiary to
be included or incorporated by reference in the Proxy Statement or the
Registration Statement will, in the case of the Proxy Statement or any
amendments or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of the
Direct Connect Stockholders' Meeting, or, in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Securities Exchange Act of 1934 as amended, and the
rules and regulations thereunder (the "Exchange Act").
16
3.4 Approval of Stockholders.
(1) Direct Connect shall, through it Board of Directors, duly call, give notice
of, convene and hold a special meeting of the holders of Direct Connect Common
Stock and the holders of Direct Connect convertible preferred stock, par value,
$.001 per share (the "Convertible Preferred Stock"), each of whom shall vote as
a separate class (the "Direct Connect Stockholders' Meeting") for the purpose of
(i) ratifying and approving this Agreement and any transactions contemplated by
this Agreement (the "Direct Connect Merger Proposal"), (ii) electing new
directors nominated by the Board of Directors, whose election shall be effective
as soon as reasonably practicable following the Effective Time and (iii)
amending the 1988 Incentive Stock Option Plan of Direct Connect or adopting a
new stock option plan consistent with the terms of the Company's 1988 Incentive
Stock Option Plan. Subject to the exercise of fiduciary obligations under
applicable law as advised by independent legal counsel and the Fairness Opinion,
Direct Connect shall, through its Board of Directors, include in the Proxy
Statement the recommendation of the Board of Directors of Direct Connect that
the stockholders of Direct Connect vote in favor of the Direct Connect Merger
Proposal and the nominees to the Board of Directors (the "Direct Connect
Stockholders' Approval") and the amendment to 1988 Incentive Stock Option Plan
and shall use its best efforts to obtain such adoption and approval as set forth
in Schedules 2.1 and 2.4.
(2) Subject to the exercise of fiduciary obligations under applicable law as
advised by independent counsel, (i) the Company shall, through its Board of
Directors, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Company Stockholders' Meetings" and, together with the Direct
Connect Stockholder's Meeting, the "Stockholders' Meetings") for the purpose of
approving this Agreement and the approval of the Merger (the " Company Merger
Proposal") as soon as reasonably practicable after the date hereof; and (ii) the
Company shall, through its Board of Directors, recommend that the stockholders
of the Company vote in favor of the Company Merger Proposal (the "Company
Stockholders' Approval"), and shall use its best efforts to obtain such
approval. In lieu of a meeting, the Company may obtain the written consent of
the shareholders of the Company to approve the Company Merger Proposal.
(3) Direct Connect and the Company shall coordinate and cooperate with respect
to the timing of the Stockholders' Meetings and shall use their best efforts to
17
cause the Stockholders' Meetings to be held on the same day and as soon as
practicable after the date hereof.
3.5 During the period from the date of this Agreement to the Effective Time, Sub
shall not engage in any activities of any nature whatsoever, except as provided
or contemplated by this Agreement.
3.6 Notice of Breach. Each party shall promptly give written notice to the other
party upon becoming aware of the occurrence of any event which would cause or
constitute a breach of any of its representations, warranties or covenants
contained or referenced in this Agreement and will use its best efforts to
prevent or promptly remedy the same. Any such notification shall not be deemed
an amendment of the Company Disclosure Schedule (as defined in Article III) or
Direct Connect Disclosure Schedule (as defined in Article IV).
3.7 HSR Act and Related Matters. The Company and Direct Connect shall file as
soon as practicable, but in no event later than 10 days after the date hereof;
if required, notifications under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended (the "HSR Act") in connection with the Merger and the
transactions contemplated hereby, and shall respond as promptly as practicable
to any inquiries received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") for
additional information or documentation and to all inquiries and requests
received from any State Attorney General or other governmental authority in
connection with antitrust matters. Direct Connect shall take all actions,
including without limitation sales, transfers, divestitures or other
dispositions of businesses, product lines or assets of Direct Connect, or, after
the Merger, of the Company as shall be necessary to obtain timely governmental
or regulatory action or non-action, consent or approval of the Merger by the
FTC, the Antitrust Division and any other Governmental Entity in connection with
antitrust matters.
3.8 Additional Agreements. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using best
efforts to obtain all necessary permits, waivers, consents and approvals, to
18
effect all necessary registrations and filings (including, but not limited to,
filings under the HSR Act and with all applicable Governmental Entities) and to
lift any injunction or other legal bar to the Merger (and, in such case, to
proceed with the Merger as expeditiously as possible), subject, however, in the
case of this Agreement, to the appropriate vote of the stockholders of Direct
Connect.
3.9 Additional Actions. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and/or directors of Direct Connect, the Company and the
Surviving Corporation shall take all such necessary action at their respective
corporation's expense and at times and locations reasonably satisfactory to such
respective officers.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to Direct Connect that, except as disclosed in the Company Disclosure
Schedule attached hereto(the "Company Disclosure Schedule"):
4.1 Organization and Qualification. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power to carry on its business as it is now being
conducted. Except as set forth in Schedule 4.1 hereto, the Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities make such qualification necessary, except
where the failure to be so qualified will not, individually or in the aggregate,
have a material adverse effect on the business or financial condition of the
Company (a "Company Material Adverse Effect").
4.2 Capitalization. The authorized capital stock of the Company consists of
20,000,000 shares of Image Common Stock, par value $.00000005 per share, of
which 5,500,000 shares are issued and outstanding. There are 750,000 options to
purchase 750,000 shares of the Company's Common Stock at various prices. Except
as set forth in Schedule 4.2, there are no options, warrants, calls or other
rights, agreements or commitments presently outstanding obligating the Company
to issue, deliver or sell shares of its capital stock or debt securities, or
obligating the Company to grant, extend or enter into any such option, warrant,
call or other such right, agreement or commitment. All of the shares of Company
Common Stock issuable in accordance with this Agreement in exchange for Direct
Connect Common Stock (including options or warrants to purchase Company Common
19
Stock) at the Effective Time in accordance with this Agreement will be duly
authorized, validly issued, fully paid and nonassessable.
4.3 Subsidiaries. The Company has no subsidiaries other than Sub.
4.4 Authority Relative to this Agreement. The Company has the corporate power to
enter into this Agreement and, subject to the Company Stockholders' Approval, to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Company's Board of Directors. This
Agreement constitutes a valid and binding obligation of the Company enforceable
in accordance with its terms. The Company is not subject to or obligated under
(i) any charter or By-law provision or (ii) any indenture or other loan document
provision, any other contract, license, franchise, permit, order, decree,
concession, lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets, which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit, by its
executing and carrying out this Agreement other than, in the case of clause (ii)
only, (A) any breaches, violations, defaults, terminations, cancellations,
accelerations or losses which, either singly or in the aggregate, will not have
a Company Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby or thereby and (B) the laws and regulations
referred to in the next sentence. Except as disclosed in Schedule 4.4 hereto or
in connection, or in compliance, with the provisions of the HSR Act, the
Securities Act, the Exchange Act, and the environmental, corporation, securities
or blue sky laws or regulations of the various states, no filing or registration
with, or authorization, consent or approval of; any public body or authority is
necessary for the consummation by the Company of the Merger or the other
transactions contemplated by this Agreement, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Company Material Adverse Effect or prevent the consummation of
the transactions contemplated hereby or thereby.
4.5 Financial Statements. As soon as practicable, but no later than 45 days
after execution of this Agreement, the Company will furnish Direct Connect with
20
true and complete copies of the audited financial statements for the years ended
December 31, 1996 and December 31, 1997, or as otherwise required by the SEC,
and its unaudited financial statements for the nine months ended September 30,
1998 and the most recent quarter of the Company prior to the Closing Date
("Company Financial Statements"). The audited consolidated financial statements
and unaudited interim financial statements of the Company shall have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of the Company and its
subsidiaries as at the dates thereof and the results of their operations and
changes in financial position for the periods then ended subject, in the case of
the unaudited interim financial statements, to normal year-end audit adjustments
and any other adjustments described therein.
4.6 Litigation. Except as disclosed in Schedule 4.6 hereto, as of the date
hereof; there is no suit, action or proceeding pending or, to the knowledge of
the Company, threatened against or affecting the Company which, alone or in the
aggregate, is likely, insofar as the Company reasonably foresees, to have a
Company Material Adverse Effect, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against the Company or any of its
subsidiaries having, or which, insofar as the Company reasonably foresees, in
the future could have, either alone or in the aggregate, any such Company
Material Adverse Effect.
4.7 Employee Benefit Plans. Except as disclosed in Schedule 4.7, there are no
material employee benefit or compensation plans, agreements or arrangements,
including "employee benefit plans," as defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and including, but not limited to,
plans, agreements or arrangements relating to former employees, including, but
not limited to, retiree medical plans maintained by the Company or material
collective bargaining agreements to which the Company is a party (together, the
"Company Benefit Plans"). No default exists with respect to the obligations of
the Company under any such Company Benefit Plan, which default, alone or in the
aggregate, would have a Company Material Adverse Effect. There are no pending
disputes or grievances subject to any grievance procedure, unfair labor practice
proceedings, arbitration or litigation under such Company Benefit Plans, which
have not been finally resolved, settled or otherwise disposed of; nor is there
21
any default, or any condition which, with notice or lapse of time or both, would
constitute such a default, under any such Company Benefit Plans, by the Company
or its subsidiaries or, to the best knowledge of the Company and its
subsidiaries, any other party thereto, which failure to resolve, settle or
otherwise dispose of or default, alone or in the aggregate, would have a Company
Material Adverse Effect. There are no pending strikes, lockouts or work
stoppages or slowdowns, or to the best knowledge of the Company and its
subsidiaries, jurisdictional disputes or organizing activity occurring or
threatened with respect to the business or operations of the Company or its
subsidiaries which have had or would have a Company Material Adverse Effect.
4.8 ERISA. All Company Benefit Plans are in compliance with the applicable
provisions of ERISA, except where such failures to comply would not have a
Company Material Adverse Effect. Each of the Company Benefit Plans which is
intended to meet the requirements of the Code has been determined by the
Internal Revenue Service to be "qualified," within the meaning of such section
of the Code, and the Company knows of no fact which is likely to have an adverse
affect on the qualified status of such plans. There is no `accumulated funding
deficiency" (whether or not waived) as that term is defined in of the Code for
any of the Company Benefit Plans which are defined benefit pension plans and the
fair market value of the assets of each such plan equals or exceeds the accrued
liabilities of such plan. There are no non-exempt "prohibited transactions," as
such term is defined in of the Code or of ERISA, involving a Company Benefit
Plan which could subject the Company to the penalty or tax imposed under (i) of
ERISA or of the Code. No Company Benefit Plan which is subject to Title IV of
ERISA has been completely or partially terminated; no proceedings to completely
or partially terminate any Company Benefit Plan have been instituted within the
meaning of Subtitle C of said Title IV of ERISA; and no reportable event within
the meaning of 3(b) of said Subtitle C of ERISA has occurred with respect to any
Company Benefit Plan. The Company has not made a complete or partial withdrawal,
within the meaning of ERISA, from any multiemployer plan which has resulted in,
or is reasonably expected to result in, any withdrawal liability to the Company
except for any such liability which would not have a Company Material Adverse
Effect.
4.9 Financial Advisor. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
22
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
4.10 Compliance with Applicable Laws. Except as set forth in Schedule 4.10
hereto, the Company hold all permits, licenses, variances, exemptions, orders
and approvals of all courts, administrative agencies (including the Food and
Drug Administration) or commissions or other governmental authorities or
instrumentalities, domestic or foreign (each, a "Governmental Entity"), except
for such permits, licenses, variances, exemptions, orders and approvals the
failure of which to hold would not have a Company Material Adverse Effect (the
"Company Permits"). To the best knowledge of the Company, the Company is in
compliance with the terms of the Company Permits, except for such failures to
comply, which singly or in the aggregate, would not have a Company Material
Adverse Effect. To the best knowledge of the Company, the business operations of
the Company is not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not and would not have a Company Material
Adverse Effect.
4.11 Intellectual Property.
(1) Schedule 4.11 hereto sets forth a complete list and description of the
following:
(1) all trademarks, service marks, trade names, label filings, patents,
copyrights, royalty rights, logos, applications therefor and registrations
thereof and inventions owned or used (pursuant to license agreements or
otherwise) by the Company in or applicable to the businesses of the Company
(collectively, the "Proprietary Rights"), and the jurisdictions in which the
Proprietary Rights have been registered, filed or issued;
(2) contracts, agreements or understandings pursuant to which the Company or
any of its subsidiaries has authorized any person to use any of the Proprietary
Rights; and
(3) all research and development results, records of experiments, scientific,
technical, engineering and marketing data and literature and other know-how,
23
formulae and techniques, recorded or available in any form whatsoever which are
used in connection with the operation of the businesses of the Company
(collectively, the "Trade Secrets").
(2) The Proprietary Rights have been properly registered, filed or issued in the
offices and jurisdictions in which such registration, filing or issuance is
necessary to protect the rights therein of the Company for the conduct of its
business, and all applicable fees due and payable have been paid. Except as
otherwise indicated in Schedule 4.11, the Company is the sole and exclusive
owners of the Proprietary Rights and the Trade Secrets and all rights related
thereto, free and clear of any obligation to pay royalties or any similar
obligation and free and clear of all mortgages, liens or other encumbrances.
(3) None of the Proprietary Rights will be adversely affected by the
consummation of the transactions contemplated by this Agreement.
(4) Except as set forth in Schedule 4.11, to the best of the Company's knowledge
after due investigation, there are no claims or demands of any person pertaining
to the Proprietary Rights or the Trade Secrets or the rights of the Company
thereunder, and no proceedings have been instituted or are pending or, to the
knowledge of the Company, threatened which challenge the rights of the Company
in respect thereof; and none of the issued trademarks, service marks, trade
names, label filings, patents, copyrights, logos, registrations thereof; or, as
the case may be, the rights granted to the Company in respect thereof and to be
listed in Schedule 4.11, infringes on or is being infringed upon by others, and
none is subject to any outstanding order, decree, judgment, stipulation,
injunction, restriction or agreement restricting the scope of the use by
Company.
(5) Except as disclosed in Schedule 4.11, to the best of the Company's knowledge
after due investigation, the Company is not infringing or violating, and during
the past five years, the Company has not infringed or violated, any Proprietary
Rights of others, nor used any confidential information or trade secrets or
patentable or unpatentable inventions of any former employer of any employee of
the Company.
24
(6) Except as is disclosed in Schedule 4.11, the Company has no knowledge of any
patented device or application therefor which could materially and adversely
affect the operation of the businesses of the Company, as now conducted.
(7) Except as indicated in Schedule 4.11, the Trade Secrets have been, and will
not be, disclosed by the Company to any person other than Direct Connect and its
agents and representatives, and comprise all of the same necessary to permit the
continued operation of the businesses of the Company and its subsidiaries.
4.12 Insurance.
(1) The Company maintains, and, at all times has maintained, insurance with
financially sound and reputable insurance companies insuring against such risks
and in such amounts as reasonably prudent and appropriate considering its size,
business and operations.
(2) The Company is not in default with respect to any provision of any policy of
fire, liability, products liability, workers compensation, title or other form
of insurance held by it.
(3) The Company has not failed to give any notice or to submit any claim under
any policy of insurance in a proper and timely fashion.
4.13 Taxes. Except as specifically set forth on the attached schedules:
(1) The Company and any combined, consolidated, unitary or affiliated group of
which the Company is or has been a member on or prior to the Closing Date (i)
has paid all Taxes, as defined in Section 4.13(o), required to be paid on or
prior to the Closing Date (including, without limitation, estimated Taxes) for
which the Company could be held liable; (ii) has accurately and timely filed (or
timely filed an extension for), all federal, state, local and foreign Tax
Returns (as defined in Section 4.13(o)), with respect to such Taxes required to
be filed by them on or before the Closing Date and (iii) has established an
adequate accrual or reserve for the payment of all Taxes payable in respect of
the period, including portions and contingent portions thereof; subsequent to
the period covered by such returns up to and including the Closing Date.
25
(2) No deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Tax has been proposed, asserted, or assessed by any
taxing authority against, or with respect to the activities of the Company or
any member of any combined, consolidated, unitary or affiliated group of which
the Company is or has been a member on or prior to the Closing Date.
(3) The Company has not consented to extend the time within which any Taxes may
be assessed or collected.
(4) The Company has not requested or been granted an extension of time for the
filing any Tax Return to a date later than the Closing Date.
(5) There is no action, suit, tax authority proceeding, or audit now in
progress, pending, or threatened against or with respect to the Company with
respect to any Taxes.
(6) The Company has not been a member of an affiliated group or filed or been
included in a combined, consolidated, or unitary Tax Return.
(7) No claim has ever been made by a taxing authority in a jurisdiction where
the Company does not pay Taxes or file Tax Returns that the Company may be
subject to the Taxes assessed by such jurisdiction.
(8) The Company has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other party pursuant to the Federal Insurance
Contributions Act, the Federal Unemployment Tax Act, or Chapter 24 of the Code,
with respect to the withholding of income tax at the source on wages.
(9) The Company has disclosed on the Tax Returns of the Company and any
combined, consolidated, unitary or affiliated group of which the Company is or
has been a member on or prior to the Closing Date has disclosed on their Tax
Returns all positions taken therein which could give rise to a substantial
understatement of federal Tax.
26
(10) There is no material dispute or claim concerning any liability for Taxes of
the Company either (i) claimed or raised by any authority in writing or (ii) as
to which the Company has knowledge based upon personal contact with any agent of
such authority.
(11) The Company (i) has not filed a consent under Code Section 341(f)
concerning collapsible corporations; (ii) has not made any payments, nor is it
obligated to make any payments, nor is it a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G; (iii) will not have any liability after the
Closing Date pursuant to any tax allocation or sharing agreement; and (iv) does
not have any liability for the Taxes of any person as a transferee or successor,
by contract, or otherwise, including pursuant to any tax allocation or sharing
agreement.
(12) Schedule 4.13(1) contains a list setting forth all the states, territories,
jurisdictions in which the Company is required to file a Tax Return relating to
its operations and the Taxes to which the Company is subject in such
jurisdictions.
(13) The Company has no liability outstanding, contingent, or proposed and will
not have any liability outstanding, contingent, or proposed resulting from the
operation of Treasury Regulations ss. 1.1502-6, or any similar state, local, or
foreign provision, arising from an obligation for Taxes of a corporation which
is or was a member of any combined, consolidated, unitary or affiliated group of
which the Company is or has been a member on or prior to the Closing Date.
(14) Any allocation or sharing agreement of the Company with respect to Taxes
shall be cancelled as of the date of the Closing Date.
(15) For purposes of this Agreement, (i) Taxes means all federal, state or local
taxes and foreign taxes and other government fees, charges, levies, and
assessments, including but not limited to, income, property, franchise, sales,
use, ad valorem, profits, gross receipts, payroll, employment, and excise taxes,
which are payable or remittable by the Company or levied on its property, income
or assets by any federal, state, local or foreign government or governmental or
quasi-governmental agency or instrumentality, and all additions to tax,
penalties and interest relating thereto; and (ii) Tax Return means any return,
27
declaration, report, claim for refund, or information return or statement
relating to Taxes, including interest and penalties.
4.14 Environmental Matters.
(1) The Company has no liability under, and there is no fact currently known to
the Company that could hereafter give rise to any liability of the Company
under, any federal, state, foreign, provincial or local laws, statutes,
ordinances, regulations, rules and orders pertaining to the environment,
pollution and/or the health and safety of human beings (collectively,
"Environmental Laws").
(2) To the Company's knowledge, there is no, and has been no, discharge,
spillage, uncontrolled loss, seepage or filtration of hazardous waste (including
without limitation all inks and oils) on-site at the Company's premises. All
hazardous waste on-site at the premises of the Company has been and shall
continue to be disposed of in compliance with all Environmental Laws and other
applicable laws, and is being managed in accordance with all Environmental Laws
and other applicable laws.
(3) Except as disclosed on Schedule 4.14, the Company has not received a notice
or claim relating to the exposure of employees to hazardous waste, in the course
and scope of their respective employments with Company or its predecessors.
4.15 Labor Matters. Except as set forth in Schedule 4.15, the Company is not a
party to any collective bargaining agreement and there are no material or formal
complaints, charges, cases or controversies or any conciliation agreement,
consent or decree pending or threatened Company and any of its employees acting
individually or in concert and/or any administrative agency of the United States
government and no organization is presently attempting to gain, petitioning for
or asserting representational status with respect to any group or groups of
employees of Company, and Company is in material compliance with federal and
state laws respecting employment practices, terms and conditions of employment,
wages and hours, and is not presently engaged in any unfair labor practice,
There is no labor strike or other labor dispute and there is no complaint,
proceeding or other action instituted under the Equal Opportunity Act pending,
threatened against Company. No key employee of Company has indicated that he is
considering terminating his employment.
28
5. REPRESENTATIONS AND WARRANTIES REGARDING SUB. The Company and Sub jointly
and severally represent and warrant to Direct Connect as follows:
5.1 Organization. Sub will be duly organized within ten (10) days hereof and
will be validly existing and in good standing under the laws of the State of
Delaware. Sub will not engage in any business (other than certain organizational
matters) since it was incorporated.
5.2 Capitalization. The authorized capital stock of Sub will consist of 100
shares of common stock, no par value per share, all of which will be validly
issued and outstanding, fully paid and nonassessable and are owned by the
Company free and clear of all liens, claims and encumbrances.
5.3 Authority Relative to this Agreement. Sub will have the corporate power to
enter into this Agreement and to carry out its obligations hereunder and
thereunder, respectively. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors and sole stockholder of Sub, respectively,
and no other corporate proceedings on the part of Sub are necessary to authorize
this Agreement and the transactions contemplated hereby and thereby,
respectively. Except as referred to herein or in connection, or in compliance,
with the provisions of the HSR Act, the Securities Act, the Exchange Act and the
environmental, corporation, securities or blue sky laws or regulations of the
various states, no filing or registration with, or authorization, consent or
approval of, any public body or authority is necessary for the consummation by
Sub of the Merger or the transactions contemplated by this Agreement, other than
filings, registrations, authorizations, consents or approvals the failure to
make or obtain would not prevent the consummation of the transactions
contemplated hereby or thereby.
6. REPRESENTATIONS AND WARRANTIES OF DIRECT CONNECT. Direct Connect and its
subsidiary represent and warrant to the Company that, except as disclosed in the
Direct Connect Disclosure Schedules attached hereto (the "Direct Connect
Disclosure Schedule"):
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6.1 Organization and Qualification. Direct Connect is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted. Except as set forth in Schedule 6.1 hereof, Direct Connect is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not have a material adverse effect on
the business or financial condition of Direct Connect (a "Direct Connect
Material Adverse Effect").
6.2 Capitalization. The authorized capital stock of Direct Connect consists of
15,000,000 shares of Company Common Stock and 5,000,000 shares of Preferred
Stock. As of August 31, 1998, 9,062,066 shares of Direct Connect Common Stock
were validly issued and outstanding, fully paid and nonassessable. As of August
31, 1998, 5,000,000 shares of Convertible Preferred Stock were issued and
outstanding and are convertible into 15,000,000 shares of Direct Connect Common
Stock. The authorized capital stock of Direct Connect is currently insufficient
to fulfill the conversion features of the Convertible Preferred Shares and the
exercise provisions of the outstanding warrants and options. As of the date
hereof, there are no bonds, debentures, notes or other indebtedness issued or
outstanding having the right to vote on any matters on which Direct Connect's
stockholders may vote. Schedule 6.2 sets forth all options, warrants, calls,
convertible securities or other rights, agreements or commitments presently
outstanding obligating Direct Connect to issue, deliver or sell shares of its
capital stock or debt securities, or obligating Direct Connect to grant, extend
or enter into any such option, warrant, call or other such right, agreement or
commitment and the amount of Direct Connect Common Stock for which they may
converted or exchanged.
6.3 Subsidiaries. The only subsidiary of Direct Connect is Amerawell Products,
Ltd. ("Amerawell"), which is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, Hong Kong,
and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted. Amerawell is duly qualified as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
30
the nature of its activities makes such qualification necessary except where the
failure to be so qualified will not have a Direct Connect Material Adverse
Effect. All the outstanding shares of capital stock of Amerawell are validly
issued, fully paid and nonassessable and owned by Direct Connect or by a wholly
owned subsidiary of Direct Connect, free and clear of any liens, claims or
encumbrances. There are no existing options, warrants, calls or other rights,
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of Amerawell.
6.4 Authority Relative to this Agreement. Direct Connect has the corporate power
to enter into this Agreement and, subject to approval of this Agreement by the
holders of Direct Connect Common Stock, to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Direct Connect's
Board of Directors. This Agreement constitutes a valid and binding obligation of
Direct Connect enforceable in accordance with its terms. Direct Connect is not
subject to or obligated under (i) any charter or by-law provision or (ii) any
indenture or other loan document provision, any other contract, license,
franchise, permit, order, decree, concession, lease, instrument, judgment,
statute, law, ordinance, rule or regulation applicable to Direct Connect or its
subsidiary or their respective properties or assets which would be breached or
violated, or under which there would be a default (with or without notice or
lapse of time, or both), or under which there would arise a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit, by its executing and carrying out this Agreement, other than,
in the case of clause (ii) only, (A) any breaches, violations, defaults,
terminations, cancellations, accelerations or losses which, either singly or in
the aggregate, will not have a Direct Connect Material Adverse Effect or prevent
the consummation of the transactions contemplated hereby and (B) the laws and
regulations referred to in the next sentence. Except as disclosed in the Direct
Connect Disclosure Schedule or, with respect to the Merger or the transactions
contemplated thereby, in connection, or in compliance, with the provisions of
the HSR Act, the Securities Act, the Exchange Act, and the environmental,
corporation, securities or blue sky laws or regulations of the various states,
no filing or registration with, or authorization, consent or approval of, any
public body or authority is necessary for the consummation by Direct Connect of
the Merger or the other transactions contemplated hereby, other than filings,
registrations, authorizations, consents or approvals the failure of which to
make or obtain would not have a Direct Connect Material Adverse Effect or
prevent the consummation of the transactions contemplated hereby.
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6.5 Reports and Financial Statements; Outstanding Obligations.
(1) Direct Connect has duly complied and is complying, in all material respects,
with all federal and State securities laws, including all periodic reporting
requirements, and to Direct Connect's knowledge there is no pending or
threatened investigation by the SEC or any state securities regulatory agency
concerning Direct Connect, its subsidiary or any officer or director thereof.
(2) Direct Connect will furnish the Company with true and complete copies of its
(i) Annual Reports on Form 10-K for the three years ended April 30, 1998, as
filed with the Commission,(ii) Quarterly Report on Form 10-Q for the most recent
quarter ended October 31, 1998, as filed with the SEC, and (iii) Current Reports
on Form 8-K relating to events occurring after December 31, 1995, as filed with
the SEC, (clauses (i) through (iii) being referred to herein collectively as the
"Direct Connect SEC Reports"). As of their respective dates and to Direct
Connect's knowledge, Direct Connect SEC Reports have complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC thereunder applicable to such Direct Connect SEC Reports. As of their
respective dates, Direct Connect SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
Direct Connect included in Direct Connect SEC Reports comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, and the financial
statements included in Direct Connect SEC Reports have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present the financial position of Direct Connect and its subsidiary as at the
dates thereof and the results of their operations and changes in financial
position for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any other
adjustments described therein.
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6.6 Litigation. Except as disclosed in Schedule 6.6, as of the date hereof,
there is no suit, action or proceeding pending or, to the knowledge of Direct
Connect, threatened against or affecting Direct Connect or its subsidiary which,
either alone or in the aggregate, is likely, insofar as Direct Connect
reasonably foresees, to have a Direct Connect Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Direct Connect or its subsidiary having, or which, insofar as Direct
Connect reasonably foresees, in the future could have, either alone or in the
aggregate, any such Direct Connect Material Adverse Effect.
6.7 Employee Benefit Plans. Except as disclosed in Schedule 6.7, there are no
employee benefit or compensation plans, agreements or arrangements, including
"employee benefit plans," as defined in) of ERISA, and including, but not
limited to, plans, agreements or arrangements relating to former employees,
including, but not limited to, retiree medical plans, maintained by Direct
Connect or its subsidiary or material collective bargaining agreements to which
Direct Connect or its subsidiary is a party (together, the "Direct Connect
Benefit Plans"). No default exists with respect to the obligations of Direct
Connect or its subsidiary under such Direct Connect Benefit Plan, which default,
alone or in the aggregate, would have a Direct Connect Material Adverse Effect.
There are no pending disputes or grievances subject to any grievance procedure,
unfair labor practice proceedings, arbitration or litigation under such Direct
Connect Benefit Plans, which have not been finally resolved, settled or
otherwise disposed of, nor is there any default, or any condition which, with
notice or lapse of time or both, would constitute such a default, under any such
Direct Connect Benefit Plans, by Direct Connect or its subsidiary or, to the
best knowledge of Direct Connect and its subsidiary, any other party thereto,
which failure to settle or otherwise dispose of or default, alone or in the
aggregate, would have a Direct Connect Material Adverse Effect. There are no
pending strikes, lockouts or work stoppages. or slowdowns, or to the best
knowledge of Direct Connect and its subsidiary, jurisdictional disputes or
organizing activity occurring or threatened with respect to the business or
operations of Direct Connect or its subsidiary which have had or would have a
Direct Connect Material Adverse Effect.
6.8 ERISA. All Direct Connect Benefit Plans are in compliance with the
applicable provisions of ERISA, except where such failures to comply would not
have a Direct Connect Material Adverse Effect. Each of Direct Connect Benefit
33
Plans which is intended to meet the requirements of the Code has been determined
by the Internal Revenue Service to be "qualified," within the meaning of such
section of the Code, and Direct Connect knows of no fact which is likely to have
an adverse effect on the qualified status of such plans. No Direct Connect
Benefit Plan is subject to Title IV of ERISA or of the Code, other than
multiemployer pension plans disclosed in Direct Connect Disclosure Schedule.
There are no non-exempt "prohibited transactions," as such term is defined in of
the Code or of ERISA, involving Direct Connect's Benefit Plans which could
subject Direct Connect, its subsidiary or the Company to the penalty or tax
imposed under (i) of ERISA or of the Code. Neither Direct Connect nor its
subsidiary has made a complete or partial withdrawal, within the meaning of 3(b)
of said Subtitle C of ERISA, from any multiemployer plan which has resulted in,
or is reasonably expected to result in, any withdrawal liability to Direct
Connect or its subsidiary except for any such liability which would not have a
Direct Connect Material Adverse Effect.
6.9 Financial Advisor. Direct Connect represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Direct Connect.
6.10 Compliance with Applicable Laws. To the best knowledge of Direct Connect,
Direct Connect and its subsidiary hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities, except for such
permits, licenses, variances, exemptions, orders and approvals the failure of
which to hold would not have a Direct Connect Material Adverse Effect (the
"Direct Connect Permits"). To the best knowledge of Direct Connect, Direct
Connect and its subsidiary are in compliance with the terms of Direct Connect
Permits, except for such failures to comply, which singly or in the aggregate,
would not have a Direct Connect Material Adverse Effect. To the best knowledge
of Direct Connect, except as disclosed in Direct Connect SEC Reports filed prior
to the date of this Agreement, the business operations of Direct Connect and its
subsidiary are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not and would not have a Direct Connect
Material Adverse Effect.
34
6.11 Intellectual Property.
(1) Schedule 6.11 sets forth a complete list and description of the following:
(1) all trademarks, service marks, trade names, label filings, patents,
copyrights, royalty rights, logos, applications therefor and registrations
thereof and inventions owned or used (pursuant to license agreements or
otherwise) by Direct Connect or its subsidiary in or applicable to the
businesses of Direct Connect and its subsidiary (collectively, the "Direct
Connect Proprietary Rights"), and the jurisdictions in which the Direct Connect
Proprietary Rights have been registered, filed or issued;
(2) contracts, agreements or understandings pursuant to which Direct Connect or
its subsidiary has authorized any person to use any of the Direct Connect
Proprietary Rights; and
(3) all research and development results, records of experiments, scientific,
technical, engineering and marketing data and literature and other know-how,
formulae and techniques, recorded or available in any form whatsoever which are
used in connection with the operation of the businesses of Direct Connect and
its subsidiary (collectively, the "Direct Connect Trade Secrets").
(2) The Direct Connect Proprietary Rights have been properly registered, filed
or issued in the offices and jurisdictions in which such registration, filing or
issuance is necessary to protect the rights therein of Direct Connect and its
subsidiary for the conduct of their businesses, and all applicable fees due and
payable have been paid. Except as otherwise indicated in the Schedule 6.11,
Direct Connect and its subsidiary are the sole and exclusive owners of the
Proprietary Rights and the Direct Connect Trade Secrets and all rights related
thereto, free and clear of any obligation to pay royalties or any similar
obligation and free and clear of all mortgages, liens or other encumbrances.
(3) None of the Direct Connect Proprietary Rights will be adversely affected by
the consummation of the transactions contemplated by this Agreement.
35
(4) Except as set forth in Schedule 6.11, there are no claims or demands of any
person pertaining to the Direct Connect Proprietary Rights or the Direct Connect
Trade Secrets or the rights of Direct Connect and its subsidiary thereunder, and
no proceedings have been instituted or are pending or, to the knowledge of
Direct Connect, threatened which challenge the rights of Direct Connect in
respect thereof, and none of the issued trademarks, service marks, trade names,
label filings, patents, copyrights, logos, registrations thereof, or, as the
case may be, the rights granted to Direct Connect in respect thereof and to be
listed in Schedule 6.11, infringes on or is being infringed upon by others, and
none is subject to any outstanding order, decree, judgment, stipulation,
injunction, restriction or agreement restricting the scope of the use by Direct
Connect.
(5) Except as disclosed in Schedule 6.11, Direct Connect is not infringing or
violating, and during the past five years, Direct Connect has not infringed or
violated, any Direct Connect Proprietary Rights of others, nor used any
confidential information or trade secrets or patentable or unpatentable
inventions of any former employer of any employee of Direct Connect.
(6) Except as is disclosed in Schedule 6.11, Direct Connect has no knowledge of
any patented device or application therefor which could materially and adversely
affect the operation of the businesses of Direct Connect, as now conducted.
(7)Except as indicated in Schedule 6.11, the Direct Connect Trade Secrets have
been, and will not be, disclosed by Direct Connect to any person other than
Direct Connect and its agents and representatives, and comprise all of the same
necessary to permit the continued operation of the businesses of Direct Connect
and its subsidiary.
6.12 Insurance.
(1) Except as indicated in Schedule 6.12(a), Direct Connect maintains, and, at
all times has maintained, insurance with financially sound and reputable
insurance companies insuring against such risks and in such amounts as
reasonably prudent and appropriate considering its size, business and
operations.
36
(2) Direct Connect is not in default with respect to any provision of any policy
of fire, liability, products liability, workers compensation, title or other
form of insurance held by it.
(3) Direct Connect has not failed to give any notice or to submit any claim
under any policy of insurance in a proper and timely fashion.
6.13 Taxes. Except as specifically set forth on the attached schedules:
(1) Direct Connect, its subsidiary and any combined, consolidated, unitary or
affiliated group of which Direct Connect or its subsidiary is or has been a
member on or prior to the Closing Date (i) has paid all Taxes, required to be
paid on or prior to the Closing Date (including, without limitation, estimated
Taxes) for which Direct Connect or its subsidiary could be held liable; (ii) has
accurately and timely filed (or timely filed an extension for), all federal,
state, local and foreign Tax Returns with respect to such Taxes required to be
filed by them on or before the Closing Date and (iii) has established an
adequate accrual or reserve for the payment of all Taxes payable in respect of
the period, including portions and contingent portions thereof, subsequent to
the period covered by such returns up to and including the Closing Date.
(2) Direct Connect and its subsidiary have delivered to the Company correct and
complete copies of all Tax Returns and information statements, schedules, and
worksheets which relate to Direct Connect or its subsidiary contained within the
Tax Returns, filed with respect to Direct Connect or its subsidiary for taxable
periods ending on or after December 31, 1993, and all examination reports and
statements of deficiencies assessed against or agreed to by Direct Connect or
its subsidiary with respect to such taxable periods.
(3) No deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Tax has been proposed, asserted, or assessed by any
taxing authority against, or with respect to the activities of Direct Connect or
its subsidiary or any member of any combined, consolidated, unitary or
affiliated group of which Direct Connect or its subsidiary is or has been a
member on or prior to the Closing Date.
(4) Neither Direct Connect nor its subsidiary has not consented to extend the
time within which any Taxes may be assessed or collected.
37
(5) Neither Direct Connect nor its subsidiary has not requested or been granted
an extension of time for the filing any Tax Return to a date later than the
Closing Date.
(6) There is no action, suit, tax authority proceeding, or audit now in
progress, pending, or threatened against or with respect to Direct Connect or
its subsidiary with respect to any Taxes.
(7) Neither Direct Connect nor its subsidiary has been a member of an affiliated
group or filed or been included in a combined, consolidated, or unitary Tax
Return, except for the current consolidation with its Hong Kong subsidiary know
as Amerawell Products, Limited.
(8) No claim has ever been made by a taxing authority in a jurisdiction where
Direct Connect or its subsidiary does not pay Taxes or file Tax Returns that
Direct Connect or its subsidiary may be subject to the Taxes assessed by such
jurisdiction.
(9) Except as indicated in Schedule 6.13, Direct Connect has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other party
pursuant to the Federal Insurance Contributions Act, the Federal Unemployment
Tax Act, or Chapter 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), with respect to the withholding of income tax at the source on wages.
(10) Direct Connect and its subsidiary have disclosed on their respective Tax
Returns, and any combined, consolidated, unitary or affiliated group of which
Direct Connect or its subsidiary is or has been a member on or prior to the
Closing Date has disclosed on their Tax Returns, all positions taken therein
which could give rise to a substantial understatement of federal Tax.
(11) There is no material dispute or claim concerning any liability for Taxes of
Direct Connect or its subsidiary either (i) claimed or raised by any authority
in writing or (ii) as to which Direct Connect or its subsidiary has knowledge
based upon personal contact with any agent of such authority.
38
(12) Neither Direct Connect nor its subsidiary (i) has filed a consent under
Code Section 341(f) concerning collapsible corporations; (ii) has made any
payments, nor is obligated to make any payments, nor is a party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Code Section 280G; (iii) will not have any
liability after the Closing Date pursuant to any tax allocation or sharing
agreement; and (iv) does not have any liability for the Taxes of any person as a
transferee or successor, by contract, or otherwise, including pursuant to any
tax allocation or sharing agreement.
(13) Schedule 6.13(m) contains a list setting forth all the states, territories,
jurisdictions in which Direct Connect or its subsidiary is required to file a
Tax Return relating to its operations and the Taxes to which Direct Connect and
its subsidiary is subject in such jurisdictions.
(14) Neither Direct Connect nor its subsidiary has any liability outstanding,
contingent, or proposed and will not have any liability outstanding, contingent,
or proposed resulting from the operation of Treasury Regulations ss. 1.1502-6,
or any similar state, local, or foreign provision, arising from an obligation
for Taxes of a corporation which is or was a member of any combined,
consolidated, unitary or affiliated group of which Direct Connect or its
subsidiary is or has been a member on or prior to the Closing Date.
(15) Any allocation or sharing agreement of Direct Connect or its subsidiary
with respect to Taxes shall be cancelled as of the date of the Closing Date.
(16) Neither Direct Connect nor its subsidiary will recognize income or gain as
a result of the Merger pursuant to Treasury Regulation Sections 1.1502-13 or 19.
6.14 Environmental Matters.
(1) Direct Connect has no liability under, and there is no fact currently
existing that could hereafter give rise to any liability of Direct Connect under
the Environmental Laws.
(2) There is no, and has been no, discharge, spillage, uncontrolled loss,
seepage or filtration of hazardous waste (including without limitation all inks
39
and oils) on-site at Direct Connect's premises. All hazardous waste on-site at
the premises of Direct Connect has been and shall continue to be disposed of in
compliance with all Environmental Laws and other applicable laws, and is being
managed in accordance with all Environmental Laws and other applicable laws.
(3) Direct Connect has not used, and there has not been generated, stored,
disposed of, or located on its property or on premises which it occupies, any
hazardous, toxic or illegal waste or substance, including without limitation
those defined in the Resource Conservation and Recovery Act, as amended, or any
other of the Environmental Laws, nor has there been any other pollution,
contamination or similar harm to its property or on premises which it occupies.
(4) Except as disclosed on Schedule 6.14, Direct Connect has not received a
notice or claim relating to the exposure of employees to hazardous waste, in the
course and scope of their respective employments with Direct Connect or its
predecessors.
6.15 Labor Matters. Except as set forth in Schedule 6.15, Direct Connect is not
a party to any collective bargaining agreement and there are no material or
formal complaints, charges, cases or controversies or any conciliation
agreement, consent or decree pending or threatened against Direct Connect and
any of its employees acting individually or in concert and/or any administrative
agency of the United States government and no organization is presently
attempting to gain, petitioning for or asserting representational status with
respect to any group or groups of employees of Direct Connect, and Direct
Connect is in material compliance with Federal and state laws respecting
employment practices, terms and conditions of employment, wages and hours, and
is not presently engaged in any unfair labor practice, There is no labor strike
or other labor dispute and there is no complaint, proceeding or other action
instituted under the Equal Opportunity Act pending, threatened against Direct
Connect. No key employee of Direct Connect has indicated that he is considering
terminating his employment.
6.16 Material Contracts, Assets, Employment Agreements. Except as disclosed in
Schedule 6.16, Direct Connect has no employment agreements or material assets,
leases or contracts.
40
7. CONDITIONS PRECEDENT.
7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(1) This Agreement and the transactions contemplated hereby shall be subject to
the receipt by Direct Connect of the Fairness Opinion and shall have been
approved and adopted by the requisite vote of the holders of Direct Connect
Common Stock and Convertible Preferred Stock and further subject to a fairness
opinion for the Company if required and approval of the holders of the Company's
securities entitled to vote hereon.
(2) The waiting period applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated.
(3) The Proxy Statement shall
have been approved by the Commission, and the Registration Statement shall have
become effective in accordance with the provisions of the Securities Act. No
stop order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and remain in effect.
(4) No litigation shall be in
process or pending or threatened which challenges the validity or the propriety
of the Merger, or if any federal or state investigations is commenced with
respect to any party to this Agreement or the Merger.
7.2 Conditions to Obligation of the Company to Effect the Merger. The obligation
of the Company to effect the Merger shall be subject to the fulfillment at or
prior to the Effective Time of the additional following conditions, unless
waived by the Company:
(1) Direct Connect shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Effective Time and the
representations and warranties of Direct Connect contained in this Agreement
shall be true when made on and as of the Effective Time as if made on and as of
such date, except as contemplated by this Agreement and except for such failures
to perform agreements and such inaccuracies in representations and warranties
that in the aggregate do not constitute a Direct Connect Material Adverse
Effect; and the Company shall have received a certificate of the Chief Executive
Officer of Direct Connect to the foregoing effect.
41
(2) On the Closing Date, Direct Connect shall have $1,000,000 in unrestricted
free cash together with a sufficient sum of liquid tangible assets to pay all
liabilities then outstanding and all other fees, expenses and payments required
to be paid by Direct Connect in connection with this transaction.
(3) The Registration Statement provided for in this Agreement shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending the effectiveness of such registration statement shall have
been issued by the Commission and remain in effect.
(4) The Company shall have received at the Closing Date an opinion of XxXxxxxxxx
& Xxxxx, LLP, counsel for Direct Connect ("XxXxxxxxxx & Xxxxx"), dated as of
such date, addressed to the Company, in form and substance reasonably
satisfactory to the Company regarding customary corporate matters.
(5) Direct Connect shall have delivered to the Company at or prior to the
Closing Date such other documents as the Company may reasonably request in order
to enable the Company to determine whether the conditions to their obligations
under this Agreement have been met and otherwise to carry out the provisions of
this Agreement.
(6) All actions, proceedings, instruments, and documents required by Direct
Connect to carry out this Agreement or incidental thereto and all other related
legal matters shall be subject to the reasonable approval of Loselle, Xxxxxxxxxx
Xxxxxx & Xxxxx, LLP, counsel to the Company, and Direct Connect shall have
furnished such counsel such documents as such counsel may have reasonably
requested for the purpose of enabling them to pass upon such matters.
(7) There shall not have been instituted or threatened any legal proceeding
relating to, or seeking to prohibit or otherwise challenge the consummation of,
the transactions contemplated by this Agreement, or to obtain substantial
damages with respect thereto.
(8) There shall not have been any action taken, or any law, rule, regulation,
order, judgment, or decree proposed, promulgated, enacted, enforced, or deemed
applicable to the transactions contemplated by this Agreement by any federal,
state, local, or other governmental authority or by any court or other tribunal,
including the entry of a preliminary or permanent injunction, which, in the
42
reasonable judgment of the Company, (i) makes this Agreement, the Merger, or any
of the other transactions contemplated by this Agreement illegal, (ii) results
in a material delay in the ability of the Company, Sub or Direct Connect to
consummate the Merger or any of the other transactions contemplated by this
Agreement, or (iii) otherwise materially prohibits, restricts, or delays
consummation of the Merger or any of the other transactions contemplated by this
Agreement or materially impairs the contemplated benefits to the Company, and
the stockholders of the Company of this Agreement, the Merger or any of the
other transactions contemplated by this Agreement.
(9) There shall not have been change in the business of Direct Connect which
constitutes a Direct Connect Material Adverse Effect.
(10) The exercise price of the Redeemable Class A Warrants shall be adjusted to
provide that one (1) Redeemable Class A Warrants entitles the holder thereof to
purchase one (1) share of the Company's Common Stock at an exercise price of
$7.42 per share, and the Redeemable Class B Warrants shall be adjusted to
provide that one (1) Redeemable Class B Warrants entitles the holder thereof to
purchase one (1) share of the Company's Common Stock at an exercise price of
$10.50 per share, which adjustment is in accordance with the ratio.
7.3 Conditions to Obligations of Direct Connect to Effect the Merger. The
obligations of Direct Connect to effect the Merger shall be subject, unless
waived by Direct Connect, to the fulfillment at or prior to the Effective Time
of the additional conditions that:
(1) The Company and Sub shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Effective Time and the
representations and warranties of the Company and Sub contained in this
Agreement shall be true when made on and as of the Effective Time as if made on
and as of such date as stated therein, except as contemplated by this Agreement
and except for such failures to perform agreements and such inaccuracies in
representations and warranties that in the aggregate do not constitute a Company
Material Adverse Effect; and Direct Connect shall have received a certificate of
the Chief Executive Officer of the Company to that effect;
43
(2) The Registration Statement provided for in this Agreement, shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending the effectiveness of such registration statement shall have
been issued by the Commission and remain in effect;
(3) Direct Connect shall have received the Fairness Opinion;
(4) Direct Connect shall have received on the Closing Date opinions of Xxxxxxx
Xxxxxxxxxx Xxxxxx & Xxxxx, LLP, counsel for the Company, dated as of such date,
addressed to Direct Connect, in form and substance reasonably satisfactory to
Direct Connect regarding customary corporate matters;
(5) The Company and Sub shall have delivered to Direct Connect at or prior to
the Closing Date such other documents as Direct Connect may reasonably request
in order to enable Direct Connect to determine whether the conditions to its
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement;
(6) All actions, proceedings, instruments, and documents required by the Company
and Sub to carry out this Agreement or incidental thereto and all other related
legal matters shall be subject to the reasonable approval of XxXxxxxxxx & Xxxxx,
and the Company shall have furnished such counsel such documents as such counsel
may have reasonably requested for the purpose of enabling them to pass upon such
matters;
(7) There shall not have been instituted or threatened any legal proceeding
relating to, or seeking to prohibit or otherwise challenge the consummation of,
the transactions contemplated by this Agreement, or to obtain substantial
damages with respect thereto;
(8) There shall not have been any action taken, or any law, rule, regulation,
order, judgment, or decree proposed, promulgated, enacted, entered, enforced, or
deemed applicable to the transactions contemplated by this Agreement by any
federal, state, local, or other governmental authority or by any court or other
tribunal, including the entry of a preliminary or permanent injunction, which,
in the reasonable judgment of Direct Connect, (i) makes this Agreement, the
Merger, or any of the other transactions contemplated by this Agreement illegal,
(ii) results in a material delay in the ability of the Company, Sub or Direct
Connect to consummate the Merger or any of the other transactions contemplated
44
by this Agreement, or (iii) otherwise materially prohibits, restricts, or delays
consummation of the Merger or any of the other transactions contemplated by this
Agreement or materially impairs the contemplated benefits to Direct Connect or
the stockholders of Direct Connect of this Agreement, the Merger or any of the
other transactions contemplated by this Agreement;
(9) The Company shall have reserved sufficient authorized shares for issuance to
holders of the Redeemable Class A Warrants and Redeemable Class B Warrants upon
exercise of the aforesaid warrants by the holders thereof and for issuance upon
the exercise of all other outstanding options and warrants; and
(10) There shall not have been change in the business of the Company or Sub
which constitutes a Company Material Adverse Effect.
8. TERMINATION, AMENDMENT AND WAIVER.
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of Direct
Connect:
(1) by mutual consent of the Board of Directors of Company and the Board of
Directors of the Direct Connect;
(2) by either Direct Connect or the Company if the Merger shall not have been
consummated on or before the Release Time provided the terminating party is not
otherwise in material breach of its representations, warranties or obligations
under this Agreement;
(3) by either Direct Connect or the Company, if the Direct Connect Meetin or the
Company Meeting, or any adjournments thereof, shall have been concluded without
having obtained votes of the holders of Direct Connect Common Stock or the
Company Common Stock sufficient for the required stockholder approval of the
Direct Connect Merger Proposal, or if the Company Meeting, or any adjournments
thereof, shall have been concluded without having obtained votes of the holders
of Company Common Stock sufficient for the requisite stockholder approval of the
Merger and adoption of this Agreement (provided the terminating party is not
otherwise in material breach of its representations, warranties or obligations
under this Agreement);
45
(4) by the Company within thirty (30) days after Direct Connect has failed to
deliver the balance of the Loan as provided by subsection 3.2(k).
8.2 Effect of Termination. In the event of termination of this Agreement by
either Direct Connect or the Company, as provided above, this Agreement shall
forthwith become void and there shall be no liability on the part of either the
Company, Sub or Direct Connect or their respective officers or directors, and
each party shall pay their respective expenses associated with this Agreement or
the transactions contemplated by this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto, by or
pursuant to action taken by their respective Boards of Directors, at any time
before or after approval hereof by the stockholders of the Company and Direct
Connect, but, after such approval, no amendment shall be made which changes the
exchange ratio at which Direct Connect Common Stock is to be converted into
Company Common Stock as provided in or which in any way materially adversely
affects the rights of such stockholders, without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Waiver. At any time prior to the Effective Time, the parties hereto, by or
pursuant to action taken by their respective Boards of Directors, may mutually
(i) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any documents delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
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8.5 Indemnification.
(1) The Company agrees that all rights to indemnification existing in favor of
the directors, officers or employees of the Company as provided in the Company's
Articles of Incorporation or By-laws or in indemnification agreements with the
Company, in each case as in effect as of the date hereof, with respect to
matters occurring on or prior to the Effective Time, shall survive the Merger
and shall continue in full force and effect without limitation as to time.
(2) From and after the Effective Time, Company will indemnify each individual
who served as a director or officer of Direct Connect at any time prior to the
Effective Time from and against any and 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 all court costs and reasonable attorneys' fees and
expenses, resulting from, arising out of, relating to, in the nature of, or
caused by the conduct of the company and/or its officer or directors arising out
of this Agreement or any of the transactions contemplated herein.
9. ADJUSTMENTS. The Company shall use its best efforts to raise a minimum of
$2,000,000 additional capital at an average price per share of at least $4.00
during the period from the date of execution of this Agreement and up to and
including September 30, 1999. If, however, and notwithstanding the Company's
best efforts, the Company fails to raise such additional capital, then the
holders of the Company's outstanding Common Stock, as of the date of execution
of this Agreement, will be entitled to increase their aggregate holdings so as
to be equivalent to 85% of the outstanding shares of the Company's Common Stock
as if the merger had been effected at the date of execution of this Agreement.
Notwithstanding anything to the contrary herein, if at the Effective Time Direct
has liquid assets in excess of $1,000,000 of unrestricted free cash and assets
sufficient to pay all liabilities and fees and expenses then outstanding, then
such excess shall be applied to the obligation to raise the $2,000,000 of
additional capital as provided herein.
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10. GENERAL PROVISIONS.
10.1 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties, covenants and agreements contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Merger for one year after the Effective Time.
10.2 Notices. All notices or other communications under this Agreement shall be
in writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex, overnight courier or
other standard form of telecommunications, or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
If to the Company: Image Technology Corporation
Arsenal Business Center Xxxx. 000-0
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention:
Telecopy No.:
With a copy to: Xxxxxxx Xxxxxxxxxx Xxxxxx & Xxxxx LLP
(which copy shall Two Grand Central Tower
not constitute notice) 000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telecopy No.: 000-000-0000
If to Direct Connect: X.X. Xxx 00
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
General Counsel
Telecopy No.: 000-000-0000
With a copy to: XxXxxxxxxx & Xxxxx, LLP
(which copy shall 000 Xxxxxxx Xxxxxx
not constitute notice) Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telecopy No.: 212-448-0066
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
48
10.3 Fees and Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
10.4 Publicity. So long as this Agreement is in effect, Direct Connect, the
Company and Sub agree to consult with each other in issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated by this Agreement, and none of them shall issue any press release
or make any public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing agreement with any
national securities exchange or NASDAQ.
10.5 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
10.6 Miscellaneous. This Agreement (including the documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, (b) is not
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise, except that Sub
shall have the right to assign to Direct Connect or any direct wholly owned
subsidiary of Direct Connect any and all rights and obligations of Sub under
this Agreement. The rights of any third-party beneficiary hereunder are not
subject to any defense, offset or counterclaim. This Agreement, except to the
extent that the Delaware corporate law is mandatorily applicable to the Merger
and the rights of the stockholders of Direct Connect, the Company and Sub, shall
be governed in all respects by the laws of the State of New York (without giving
effect to the provisions thereof relating to conflicts of law). The exclusive
venue for the adjudication of any dispute or proceeding arising out of this
Agreement or the performance thereof shall be the federal or state courts
located in the State of New York, County of New York and the parties hereto and
49
their affiliates each consents to and hereby submits to the jurisdiction of any
court located in the State of New York. This Agreement may be executed in two or
more counterparts which together shall constitute a single agreement.
IN WITNESS WHEREOF, Direct Connect, the Company and Sub have
caused this Agreement to be signed by their respective officers thereunder duly
authorized as of the date first written above.
IMAGE TECHNOLOGY CORP., INC.
By:
---------------------------
Name:
Title:
DIRECT CONNECT INTERNATIONAL INC.
By:
--------------------------
Name:
Title:
IMAGE ACQUISITION CORP.
By:
--------------------------
Name:
Title:
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