SECOND AMENDMENT AND WAIVER
OF AGREEMENT AND PLAN OF REORGANIZATION
This Second Amendment and Waiver of Agreement and Plan of
Reorganization (this "Amendment and Waiver") is made as of the 5th day of
February, 1999, by and among SoftNet Systems, Inc., a New York corporation
("Acquiror"), SoftNet Acquisitions, Inc., a Delaware corporation ("Acquisition
Sub"), Intelligent Communications, Inc., a Delaware corporation ("Target"),
Xxxxx Xxxxxxx, an individual and principal stockholder of Target ("Meachim") and
Xxxxxxxxx Xxxxxx, an individual and principal stockholder of Target ("Xxxxxx").
Capitalized terms used herein without definition shall have the same meaning
herein as in the Acquisition Agreement (as defined below).
RECITALS
A. Each of Acquiror, Acquisition Sub and Target are parties to an
Agreement and Plan of Reorganization dated as of November 22, 1998, as amended
by the First Amendment and Waiver of Agreement and Plan of Reorganization dated
as of December 23, 1998 by and among Acquiror, Acquisition Sub, Target, Meachim
and Xxxxxx (as amended, the "Acquisition Agreement"), pursuant to which Target
has agreed to be merged with and into Acquisition Sub with Acquisition Sub
surviving as a wholly-owned subsidiary of Acquiror (the "Merger").
B. Section 6.2 of the Acquisition Agreement provides that the
obligations of Target to consummate and effect such agreement are subject to the
satisfaction at or prior to the effective time of certain conditions, each of
which may be waived.
C. Section 6.3 of the Acquisition Agreement provides that the
obligations of Acquiror and Acquisition Sub to consummate and effect such
agreement are subject to the satisfaction at or prior to the effective time of
certain conditions, each of which may be waived.
D. Section 7.1(c) of the Acquisition Agreement provides that Acquiror
may terminate such agreement if Target shall have breached any representation,
warranty, obligation or agreement thereunder.
E. Section 7.1(d) of the Acquisition Agreement provides that Target may
terminate such agreement if Acquiror or Acquisition Sub shall have breached any
representation, warranty, obligation or agreement thereunder.
F. Section 7.5 of the Acquisition Agreement requires that any waiver of
inaccuracy of a representation or warranty by any party in such agreement or in
any document executed in connection therewith or any waiver of compliance with
any agreement or condition for the benefit of a party be set forth in writing in
an instrument signed by the party waiving the inaccuracy or non-compliance.
G. The parties to the Acquisition Agreement desire to waive certain
inaccuracies and the compliance with certain closing conditions as more
particularly set forth below and to otherwise amend the Acquisition Agreement to
make provision for such waivers.
NOW THEREFORE, in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Target hereby waives compliance with Section 5.14 of the Acquisition
Agreement insofar as Acquiror is required to cause the Surviving Corporation to
execute and deliver the Security Agreement immediately following the Effective
Time. Target acknowledges that pursuant to existing senior debt documentation
between Acquiror and RGC International Investors, Ltd ("RGC Investors"),
Acquiror is required to obtain the consent of RGC Investors prior to allowing
any security interest to be placed on the assets of any of Acquiror's
subsidiaries and that, despite the good faith efforts of Acquiror to date,
Acquiror has been unable to obtain such consent prior to the date hereof.
Acquiror represents and warrants that, to the best of its knowledge, such
consent will be forthcoming. Acquiror hereby agrees to use its best efforts to
obtain the consent of RGC Investors and to cause the Surviving Corporation to
execute the Security Agreement immediately following the provision of such
consent by RGC Investors. Acquiror further agrees to prevent the Surviving
Corporation from incurring any lien, except for Permitted Liens (as defined in
the Security Agreement), on the Collateral (as defined in the Security
Agreement) prior to the execution and delivery of the Security Agreement and the
UCC Financing Statement being executed in connection therewith.
2. Target hereby waives compliance with 6.2(c) of the Acquisition
Agreement to the extent that Acquisition Sub is required to provide a
certificate relating to its payment of all applicable taxes.
3. Target hereby waives compliance with Section 6.2(e) of the
Acquisition Agreement to the extent that Acquiror is required to guarantee
payment of the Guaranteed Debt at or prior to the Effective Time. Acquiror
hereby covenants and agrees to either pay in full or guarantee in writing any
Guaranteed Debt prior to the close of business on February 9, 1999.
4. Acquiror hereby waives compliance with section 6.3(c) of the
Acquisition Agreement to the extent that consents to the assignment of certain
third-party contracts have not been provided before the Effective Time.
5. Section 3(a) of Exhibit B to the Acquisition Agreement is hereby
deleted in its entirety and the following substituted therefor:
"Principal and interest due under this Note shall be payable
on the Maturity Date or the date of any prepayment of this
Note under Section 4 hereof or acceleration of this Note under
Section 7 hereof in either lawful currency of the United
States in immediately available funds or in whole shares of
Maker Stock or any combination thereof. The election as to
whether this Note shall be paid in cash or Maker Common Stock
or some combination thereof shall be made by Maker as to the
portion of the balance due on this Note equal to the amount of
cash beyond $300,000 that the Maker is required to pay at
Closing to pay unpaid obligations of Target, including,
without limitation, (a) obligations with respect to any
portion of the Initial Deposit or the Cash Deposit which was
not set aside for payment to the Target Shareholders; (b)
aggregate obligations in excess of $100,000 with respect to
all third-party vendors whose services were employed in
connection with the Merger; and (c) obligations with respect
to tax withholding on behalf of any Target Shareholder in
connection with the exercise by such Target Shareholder of
non-statutory stock options of Target prior to Closing
(including Target obligations with respect to the payment of
Medicare, FICA and other similar taxes); and shall be made by
the Shareholders' Agent as to the remaining balance due on
this Note. The percentage of this note to be paid in Maker
Stock on the Maturity Date or earlier date of any prepayment
or acceleration of this Note is referred to below as the
"Stock Percentage."
6. The second paragraph of Section 2 of Exhibit F to the Acquisition
Agreement is hereby deleted in its entirety and the following substituted
therefor:
"Notwithstanding the immediately preceding paragraph, the
Investors hereby acknowledge that (a) the Company is party to
a Registration Rights Agreement (the "RGC Agreement") dated as
of August 31, 1998 granting certain Registration Rights to the
Investors set forth therein (the "RGC Investors"), and further
acknowledge and agree that the right of the Investors to
include their shares in any Company Registration shall
expressly be made subordinate to the right of the RGC
Investors to include all of their "Registrable Securities" as
defined by the RGC Agreement, in such Company Registration;
and (b) in order to raise necessary working capital for the
growth of the Company's business, the Company is currently in
the process of a Company Registration (the "February 1999
Registration") and that Investors shall have no right to
include any of their Registrable Securities in the February
1999 Registration."
Meachim and Xxxxxx, being the holders of a majority in interest of Registrable
Securities, hereby acknowledge and agree to the foregoing amendment and agree to
waive any rights of the Target Shareholders to challenge such amendment.
7. (a) Acquiror and Target hereby acknowledge that (i) Target is in the
process of completing an acquisition of Web Presence Providers, Inc., a
California corporation ("WPP"), pursuant to which the shareholders of WPP will
receive Common Stock of Target in consideration of their shares in WPP (the "WPP
Merger"), (ii) the WPP Merger was expected to be completed prior to the
Effective Time at the time that the Acquisition Agreement was executed and (iii)
the WPP Merger has not been completed as of the date hereof. Acquiror and Target
hereby agree that a pro rata portion of the consideration to be provided to the
Target Shareholders pursuant to Article I of the acquisition Agreement will be
set aside and held in escrow by the Exchange Agent for payment to the WPP
shareholders as though the WPP Merger had been completed prior to the date
hereof and the WPP shareholders had become Target Shareholders at the Effective
Time. Notwithstanding any other provision of the Acquisition Agreement or the
Promissory Notes, the Exchange Percentages of all Target Shareholders shall be
computed as though the WPP Merger had been completed prior to the Effective
Time. Payment of the Closing Stock and any cash due at Closing (including the
Cash Purchase Price) to the WPP shareholders shall be made by the Exchange Agent
promptly following the certification by the California Secretary of State that
the WPP Merger has been completed.
(b) Target hereby waives any provision of the Acquisition
Agreement that would be violated as a consequence of Section 7(a) hereof and
agrees that the Target Shareholders will indemnify Acquiror against any claim of
damages by the Target Shareholders based solely upon such payment to the WPP
shareholders. Such indemnification shall be made through the right of Acquiror
to offset any payment of Future Compensation through the mechanism set forth in
Article VIII of the Acquisition Agreement as though Section 7(a) had been
included in the Acquisition Agreement, except that such indemnity shall not be
included in the basket of indemnification claims which are limited to $1,000,000
pursuant to Sections 8.1(e) or 8.2(a) thereof.
8. The parties hereto hereby acknowledge that certain Target
Shareholders (hereinafter referred to as the "Optionholders") have recently
exercised employee stock options which may have been "non-statutory stock
options" as that term is used in the Internal Revenue Code, as amended, and may,
as a result, be taxed upon the difference between the exercise price of such
options and the fair market value of such options at the time of exercise as
though such difference were income. The parties hereto further acknowledge that
Target failed to withhold any taxes which are payable by the Optionholders on
such difference and that such failure constitutes a breach by Target of the
representations regarding payment of taxes set forth in Section 2.14 of the
Acquisition Agreement. The parties further acknowledge that Target incurred
transaction costs associated with the Merger in excess of $100,000 and that,
pursuant to Section 5.13 of the Acquisition Agreement, such additional expenses
are to be paid by the Target Shareholders at Closing. Accordingly, the parties
hereto agree as follows:
(a) At Closing, the Exchange Agent shall disburse to any
third-party vendor or governmental agency, including, without limitation, (i)
Xxxxxx & Xxxxx LLP, legal counsel to Target, (ii) Xxxxxxxx Brothers LLC,
financial advisor to Target and (iii) Corporation Trust Company, registered
agent of the Surviving Corporation, any fees due such parties in connection with
the Merger in excess of $100,000. Such disbursements shall be made from the cash
payable at Closing to the Target Shareholders prior to any disbursement to the
Target Shareholders.
(b) Following the disbursements set forth in Section 8(a)
hereof, the Exchange Agent shall at Closing hold in escrow an amount sufficient
to cover the maximum possible continuing liability of the Surviving Corporation
for income taxes owed by the Optionholders as determined in the sole discretion
of Acquiror plus an additional amount deemed sufficient to pay the costs and
expenses of an independent valuation firm (as discussed below) (the "Escrow
Consideration"). Such amount shall be withheld exclusively from the amount of
cash and stock otherwise payable to the Optionholders and not from other Target
Shareholders and shall be withheld first from the cash payable at closing to the
Optionholders and then, to cover the remaining liability of the Optionholders,
from the Closing Stock payable to the Optionholders.
(c) Promptly following the Closing, the Shareholders' Agent
shall engage an independent valuation firm to evaluate the fair market value of
the options granted to the Optionholders on the date of each grant. The costs of
such valuation shall be borne entirely by the Optionholders, allocated among the
Optionholders on a pro rata basis based upon their Exchange Percentages and paid
by the Exchange Agent from the Escrow Consideration prior to any other
disbursement therefrom. Based upon such valuation, Acquiror shall recompute the
maximum possible continuing liability of the Surviving Corporation for income
taxes owed by each Optionholder (the "Individual Tax Computation"). If the
Individual Tax Computation for any Optionholder is less then the amount of
Escrow Consideration being held by the Exchange Agent for such Optionholder
pursuant to Section 8(b) (following provision for payment of the costs and
expenses of the independent valuation firm), Acquiror shall instruct the
Exchange Agent to disburse the difference to such Optionholder by first
releasing any stock held in escrow and then releasing any cash held in escrow.
(d) Any Acquiror Common Stock which is held in escrow pursuant
to this Section shall be valued at the average closing price for such stock for
the 15 days immediately preceding the Closing Date.
(e) Section 8.1(d) of the Acquisition Agreement is hereby
deleted in its entirety and the following substituted therefor:
"The liability of Acquiror to the Target Shareholders for the
indemnification obligations of Section 8.2(c) shall terminate
at the end of the Indemnification Period except with respect
to breaches of Section 2.14 regarding the failure by Target to
withhold taxes upon the exercise of non-statutory stock
options, provided, that notwithstanding the foregoing
limitation, such liability shall extend to claims made during
the Indemnification Period which are unresolved at the
expiration thereof and to Legal Fees arising therefrom,
including those Legal Fees incurred after the expiration of
the Indemnification Period."
(f) The first sentence of Section 8.1(e) of the Acquisition
Agreement is hereby deleted in its entirety and the following substituted
therefor:
"Claims for indemnity made by an Acquiror Indemnified Person
pursuant to this Article VIII or otherwise pursuant to this
Agreement, other than claims for compensation for Acquiror
Damages which are caused by a breach of the representations of
Target made in Section 2.11(a), (b), (c), (d), (e), (g), (h)
or (i) (collectively, the "Key Intellectual Property
Representations") or Sections 2.14 (solely with respect to the
failure to withhold taxes due upon the exercise of
non-statutory stock options by Target Shareholders), 2.37,
5.17 or 5.18, shall be limited to $1,000,000."
(g) The last sentence of Section 8.1(e) of the Acquisition
Agreement is hereby deleted in its entirety and the following substituted
therefor:
"Acquiror and the Surviving Corporation acknowledge and agree
that any delivery of cash from the Cash Escrow Fund or offset
from the Future Compensation to satisfy a claim for
indemnification pursuant to this Article VIII shall be done so
as to reduce each Target Shareholder's interest in the Cash
Escrow Fund or the Future Compensation in a pro rata manner
based on the Target Shareholder's respective ownership
interests in the Cash Escrow Fund or the Future Compensation,
provided that the foregoing clause shall not apply to any
offset made to cover the failure of Target to withhold taxes
due on behalf of any individual Target Shareholder as the
result of the exercise by such Target Shareholder of
non-statutory stock options."
(h) Section 8.2(a) of the Acquisition Agreement is hereby
deleted in its entirety and the following is substituted therefor:
"Notwithstanding the foregoing, Acquiror may not offset
payment of any Future Compensation or receive any distribution
from the Cash Escrow Fund unless and until an Acquiror
Officer's Certificate or Certificates (as defined in Section
8.6 below) identifying Acquiror Damages the aggregate amount
of which exceeds $50,000 have been delivered to the
Shareholders Agent and/or the Cash Escrow Agent as provided in
Section 8.6 below and such amount is determined pursuant to
this Article VIII to be payable, in which case Acquiror shall
offset payment of Future Compensation or receive a
distribution of Escrow Cash equal in value to the full amount
of Acquiror Damages; provided, that (a) in no event shall an
Acquiror Indemnified Person receive more than $1,000,000 in
Escrow Cash or in offsets to Future Compensation for claims
which are not related, directly or indirectly, to the Key
Intellectual Property Representations or to claims based on
the failure of Target to withhold taxes due as a consequence
of the exercise of non-statutory stock options by any Target
Shareholder, and (b) the foregoing requirement that damage
claims exceed $50,000 shall not apply to any claim resulting
from the failure of Target to withhold taxes due as a
consequence of the exercise of non-statutory stock options by
any Target Shareholder. In determining the amount of any
Damage attributable to a breach, any materiality standard
contained in a representation, warranty or covenant shall be
disregarded."
9. Target hereby acknowledges and agrees that notwithstanding anything
to the contrary in the Acquisition Agreement, the Exchange Agent shall be
Wilmington Trust Company and not Acquiror's transfer agent.
10. Except as set forth above, the Acquisition Agreement shall remain
unmodified and in full force and effect and the Parties shall continue to enjoy
and be bound by all of their rights and obligations thereunder.
11. This Amendment and Waiver may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
12. This Amendment and Waiver constitutes the entire agreement among
the Parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof
13. In the event that any provision of this Amendment and Waiver, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Amendment and Waiver will continue in full force and effect and the application
of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The Parties further agree
to replace such void or unenforceable provision of this Amendment and Waiver
with a valid and enforceable provision that will achieve, to the extent
possible, the economic, business and other purposes of such void or
unenforceable provision.
14. This Amendment and Waiver shall be governed by and construed in
accordance with the laws of California without reference to principles of
conflicts of law.
15. The parties hereto agree that they have been represented by counsel
during the negotiation, preparation and execution of this Amendment and Waiver
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
16. The agreements set forth in this Amendment and Waiver shall
terminate at the Effective Time, except for any amendment to the Acquisition
Agreement, which provision shall terminate at the time provided therein as if
included at the time of signing thereof, Section 7(a), which shall expire
following the payment of the Closing consideration to the WPP shareholders,
Section 7(b), which shall expire at the end of the Indemnification Period and
Section 8, which shall expire on the third anniversary of the Closing Date.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, Target, Acquiror, Acquisition Sub, Meachim
and Xxxxxx have caused this Second Amendment and Waiver of Agreement and Plan of
Reorganization to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
INTELLIGENT COMMUNICATIONS,
INC.
By: /s/ Xxxxxxxxx X. Xxxxxx
---------------------------------
Xxxxxxxxx X. Xxxxxx
President
SOFTNET SYSTEMS, INC.
By: /s/ Xx. Xxxxxxxx X. Brilliant
---------------------------------
Xx. Xxxxxxxx X. Brilliant
President and Chief Executive Officer
SOFTNET ACQUISITIONS, INC.
By: /s/ Xx. Xxxxxxxx X. Brilliant
---------------------------------
Xx. Xxxxxxxx X. Brilliant
President
Solely as to Section 6 hereof:
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Xxxxx X. Xxxxxxx, individually
By: /s/ Xxxxxxxxx X. Xxxxxx
---------------------------------
Xxxxxxxxx X. Xxxxxx, individually