AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
TANGIBLE ASSET GALLERIES, INC.
TANGIBLE ASSET GALLERIES ACQUISITION CORP.,
GAVELNET.COM, INC.
AND
BENCHMARK EQUITY GROUP, INC.
JUNE 21, 2000
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I THE MERGER..............................................................................................2
1.1 The Merger......................................................................................2
1.2 Effective Time..................................................................................2
1.3 Effect of the Merger............................................................................3
1.4 Certificate of Incorporation and Bylaws.........................................................3
1.5 Directors and Officers..........................................................................3
1.6 Effect on Capital Stock.........................................................................4
1.7 Dissenting Shares...............................................................................7
1.8 Surrender of Certificates.......................................................................8
1.9 Delivery of Company Financial Statements.......................................................10
1.10 No Further Transfers in Company Common Stock...................................................10
1.11 Lost, Stolen or Destroyed Certificates.........................................................10
1.12 Tax and Accounting Consequences................................................................10
1.13 Taking of Necessary Action; Further Action.....................................................11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY AND BENCHMARK...............................................11
2.1 Organization...................................................................................11
2.2 Company Capital Structure......................................................................12
2.3 Subsidiary.....................................................................................13
2.4 Authority......................................................................................14
2.5 No Conflict....................................................................................14
2.6 Consents.......................................................................................14
2.7 Company Financial Statements...................................................................15
2.8 No Undisclosed Liabilities.....................................................................15
2.9 No Changes.....................................................................................15
2.10 Tax and Other Returns and Reports..............................................................17
2.11 Restrictions on Business Activities............................................................19
2.12 Title of Properties; Absence of Liens and Encumbrances.........................................19
2.13 Intellectual Property..........................................................................20
2.14 Agreements, Contracts and Commitments..........................................................25
2.15 Compliance with Laws...........................................................................27
2.16 Governmental Authorization.....................................................................27
2.17 Litigation.....................................................................................27
2.18 Accounts Receivable............................................................................27
2.19 Insurance......................................................................................28
2.20 Environmental Matters..........................................................................28
2.21 Employee Matters and Benefit Plans.............................................................29
2.22 Warranties; Indemnities........................................................................33
2.23 Complete Copies of Materials...................................................................33
-i-
<PAGE>
2.24 Information Supplied...........................................................................33
2.25 Representations Complete.......................................................................33
2.26 No Brokers or Finders..........................................................................34
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..............................................34
3.1 Organization...................................................................................34
3.2 Parent Capital Structure.......................................................................34
3.3 Subsidiaries...................................................................................36
3.4 Authority......................................................................................36
3.5 No Conflict....................................................................................36
3.6 Consents.......................................................................................37
3.7 Parent Financial Statements; SEC documents.....................................................37
3.8 Valid Issuance.................................................................................38
3.9 Information Supplied...........................................................................38
ARTICLE IV CONDUCT BEFORE THE EFFECTIVE TIME.....................................................................38
4.1 Conduct of Business of the Company.............................................................38
4.2 No Solicitation................................................................................40
ARTICLE V ADDITIONAL AGREEMENTS..................................................................................41
5.1 Financing Transactions.........................................................................41
5.2 Information Statement; Stockholder Approval....................................................42
5.3 Access to Information..........................................................................42
5.4 Confidentiality................................................................................43
5.5 Expenses.......................................................................................43
5.6 Public Disclosure..............................................................................43
5.7 Consents.......................................................................................43
5.8 FIRPTA Compliance..............................................................................44
5.9 Reasonable Efforts.............................................................................44
5.10 Notification of Certain Matters................................................................44
5.11 Additional Documents and Further Assurances....................................................44
5.12 Continuation of Certain Benefits; Termination of Certain Benefits..............................44
ARTICLE VI CONDITIONS TO THE MERGER..............................................................................45
6.1 Conditions to Obligations of Each Party to Effect the Merger...................................45
6.2 Additional Conditions to Obligations of the Company............................................45
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..............................46
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION..........................................49
7.1 Survival of Representations and Warranties.....................................................49
7.2 Indemnity......................................................................................49
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...................................................................53
8.1 Termination....................................................................................53
8.2 Effect of Termination..........................................................................54
-ii-
<PAGE>
8.3 Amendment......................................................................................54
8.4 Extension; Waiver..............................................................................54
ARTICLE IX GENERAL PROVISIONS....................................................................................54
9.1 Notices........................................................................................54
9.2 Interpretation.................................................................................56
9.3 Counterparts...................................................................................56
9.4 Representative.................................................................................56
9.5 Entire Agreement; Assignment...................................................................56
9.6 Severability...................................................................................57
9.7 Other Remedies.................................................................................57
9.8 Governing Law..................................................................................57
9.9 Rules of Construction..........................................................................57
9.10 Specific Performance...........................................................................57
</TABLE>
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
Exhibit A Form of Financial Support Agreement
Exhibit B Form of Certificate of Merger
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Employment Agreement
Exhibit E Form of Escrow Agreement
-iii-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made
and entered into as of June 21, 2000 among Tangible Asset Galleries, Inc., a
Nevada corporation ("PARENT"), and Tangible Asset Galleries Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), on
the one hand, and GavelNet.com, Inc., a Delaware corporation (the "COMPANY") and
Benchmark Equity Group, Inc., a Delaware corporation ("BENCHMARK"), on the other
hand. Certain capitalized terms used in this Agreement are defined in the text.
RECITALS
A. The Boards of Directors of the Company, Parent and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Parent acquire the Company
through the merger of Merger Sub with and into the Company (the "MERGER") under
the terms of this Agreement and, in furtherance thereof, have approved the
Merger, subject to the satisfaction of the conditions herein set forth.
B. As a condition to the consummation of the Merger, among other
things, all of the issued and outstanding shares of preferred stock of the
Company ("COMPANY CONVERTED PREFERRED STOCK") will be converted into shares of
common stock of the Company, par value $0.0001 per share (the "COMPANY COMMON
STOCK") before the Closing (defined below).
C. Under the Merger, among other things, and subject to the terms and
conditions of this Agreement, all issued and outstanding shares of Company
Capital Stock (defined below) will be converted into the right to receive shares
of common stock of Parent, par value $0.001 per share ("PARENT COMMON STOCK"),
as set forth in this Agreement.
D. The Company, Benchmark, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Code, and to cause the
Merger to qualify as a reorganization under the provisions of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
F. In connection with the Merger, Parent seeks introductions to one or
more accredited investors who will agree to purchase equity securities of Parent
("EQUITY SECURITIES") for an aggregate cash purchase price of Two Million
Dollars ($2,000,000) under the terms of a written agreement in such form and
substance that is acceptable to Parent (the "INITIAL SALE").
G. As a condition to the consummation of the Merger, Parent shall
receive, at the Closing Date (defined below) in a simultaneous closing, Net
Offering Proceeds (defined below) of at least Eight Million Dollars ($8,000,000)
from the sale of Equity Securities (including the funds received in connection
with the Initial Sale), under the terms and conditions described in this
Agreement.
***REORGANIZATION AGREEMENT***
-1-
<PAGE>
I. Concurrently with the execution of this Agreement, the Company and
Parent desire to enter into an Financial Support Agreement in the form attached
hereto as EXHIBIT A (the "FINANCIAL SUPPORT AGREEMENT"), under which the Company
expects to borrow from Parent certain funds (the "INTERIM FUNDS") to finance the
cost of the Company's ongoing operations through the Closing Date (defined
below).
NOW, THEREFORE, as consideration for the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in SECTION 1.2
hereof) and subject to and on the terms and conditions of this Agreement and the
applicable provisions of the General Corporate Law of the State of Delaware
("DELAWARE LAW"), Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation and as a wholly-owned subsidiary of
Parent. The surviving corporation after the Merger is sometimes referred to
hereinafter as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME.
(a) Unless this Agreement is earlier terminated under SECTION
8.1 of this Agreement, the closing of the Merger (the "CLOSING") will take place
as promptly as practicable after the execution and delivery hereof by the
parties hereto, but no later than the later of (i) ninety (90) days after this
Agreement is first executed by all of the parties hereto, or (ii) ten (10)
business days following satisfaction or waiver of the other conditions set forth
in ARTICLE VI hereof, at the offices of Pillsbury Madison & Sutro LLP, unless
another time and/or place is mutually agreed on in writing by Parent and the
Company. The date on which the Closing actually occurs shall be referred to
herein as the "CLOSING DATE." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing a Certificate of Merger (or like
instrument) and the accompanying officers certificates, each in the form
attached hereto as EXHIBIT B, with the Secretary of State of the State of
Delaware (the "CERTIFICATE OF MERGER"), in accordance with the applicable
provisions of Delaware Law (the time of acceptance by the Secretary of State of
the State of Delaware of such filings shall be referred to in this Agreement as
the "EFFECTIVE TIME").
(b) As promptly as practicable but in no event later than five
(5) business days following the Outside Date (hereinafter defined), there shall
be, at the offices Pillsbury, Madison & Sutro LLP, a subsequent closing (the
"SUBSEQUENT CLOSING") of all the outstanding obligations of the Parent to (i)
deliver and effect the exchange of the Additional Parent Shares, if any, and the
Undistributed Converted Debt Parent Shares (as both terms are hereinafter
defined), if any, (ii) to repay the Company Convertible Debt as contemplated
under Section 6.3(d) of this Agreement and (iii) to otherwise complete any other
requirements of the Parent as contemplated by this Agreement.
***REORGANIZATION AGREEMENT***
-2-
<PAGE>
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise agreed to under the terms of this Agreement,
all the property, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) Unless otherwise determined by Parent before the Effective
Time, the Certificate of Incorporation of Merger Sub, as in effect immediately
before the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation at the Effective Time until thereafter amended in
accordance with Delaware Law and as provided in such Certificate of
Incorporation; PROVIDED, HOWEVER, that at the Effective Time, Article I of the
Certificate of Incorporation of the Surviving Corporation shall be amended and
restated in its entirety to read as follows: "The name of the corporation is
GavelNet, Inc."
(b) Unless otherwise determined by Parent before the Effective
Time, the bylaws of Merger Sub, as in effect immediately before the Effective
Time, shall be the bylaws of the Surviving Corporation at the Effective Time
until thereafter amended in accordance with Delaware Law and as provided in the
Certificate of Incorporation of the Surviving Corporation and such bylaws.
1.5 DIRECTORS AND OFFICERS.
(a) The directors of the Surviving Corporation immediately
after the Effective Time shall be Silvano DiGenova, Paul Biberkraut and Michael
Haynes, each to hold the office of a director of the Surviving Corporation in
accordance with the provisions of Delaware Law and the Certificate of
Incorporation and bylaws of the Surviving Corporation until their successors are
duly elected and qualified.
(b) The directors of Parent immediately after the Effective
Time shall be Silvano DiGenova, Paul Biberkraut, Chris Efird, Michael Haynes and
one other individual to be designated by Silvano DiGenova, each to hold the
office of a director of Parent in accordance with the provisions of General
Corporate Law of the State of Nevada and the Articles of Incorporation and
bylaws of Parent until their successors are duly elected and qualified.
(c) The officers of the Surviving Corporation immediately
after the Effective Time shall serve as the officers of Parent (in their
respective capacities), and the officers of Parent immediately after the
Effective Time shall be Silvano DiGenova as Chairman of the Board of Directors
and Chief Executive Officer, Paul Biberkraut as Chief Financial Officer and
Secretary, Mary Inman as Chief Technology Officer, and Michael Haynes as
President and Chief Operating Officer, each to hold office in accordance with
the provisions of the bylaws of the Surviving Corporation.
***REORGANIZATION AGREEMENT***
-3-
<PAGE>
1.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of
this Agreement, by virtue of the Merger and without any action on the part of
Merger Sub, Company or the holders of any of the following securities, at the
Effective Time or at the Subsequent Closing, as the case may be:
(a) CONVERSION OF COMPANY COMMON STOCK. Parent shall issue the
Aggregate Number of Parent Shares, the Additional Parent Shares (as such terms
are defined under Section 1.6(h) of this Agreement) and the Undistributed
Converted Debt Parent Shares in exchange for all of the shares of Company Common
Stock. Each share of Company Common Stock issued and outstanding immediately
before the Effective Time (other than any of the Dissenting Shares, as defined
and to the extent provided in Section 1.7(a)) shall be canceled and
extinguished, and converted automatically into the right to receive shares of
Parent Common Stock consisting of (A) that portion of the Aggregate Number of
Parent Shares equal to the Exchange Ratio (as defined in paragraph (h)(ix) of
this Section 1.6 below) with such receipt at the Effective Time, except for the
Escrow Shares (as defined in paragraph (a) of Section 7.2 below), (B) that
number of the Additional Parent Shares equal to the Additional Stock Exchange
Ratio (as defined in paragraph (h)(ii) of this Section 1.6 below) with such
receipt at the Subsequent Closing and (C) that number of the Undistributed
Converted Debt Parent Shares equal to the Undistributed Stock Exchange Ratio (as
defined in paragraph (h)(xiii) of this Section 1.6 below) with such receipt at
the Subsequent Closing, upon surrender of the certificate evidencing such share
of Company Common Stock in the manner provided in Section 1.8. A portion of the
shares of Parent Common Stock to be issued under this section will be deposited
in an escrow account under Sections 1.8(i) and 7.2. Parent and Company agree
that for the purposes of determining the Exchange Ratio at the Closing, they
will use the Closing Date Balance Sheet in accordance with Section 1.9 hereof.
(b) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each
share of Company Capital Stock owned by Merger Sub, Parent, the Company or any
direct or indirect wholly-owned subsidiary of Parent immediately before the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) ASSUMED COMPANY RIGHTS. Parent shall assume all of the
Assumed Company Rights (defined below) in accordance with the provisions
described below.
(i) Each of the Assumed Company Rights so assumed by
Parent under this Agreement shall continue to have, and be subject to, the same
terms and conditions set forth in any plan governing such right before the
Effective Time and as provided in the respective option agreements immediately
before the Effective Time, except as set forth in the following two
subparagraphs under this paragraph (c) of Section 1.6.
(ii) The Assumed Company Rights shall be restructured
before the Closing such that they shall be immediately exercisable at the
Effective Time in the aggregate for an amount not to exceed Five Hundred
Thousand (500,000) shares of Parent Common Stock at the weighted-average
exercise price of One Dollar and Fifty Cents ($1.50) per share, and shall have
terms not to exceed five (5) years after the date of grant by the Company of the
original option or warrant that preceded the Assumed Company Rights.
***REORGANIZATION AGREEMENT***
-4-
<PAGE>
(iii) Promptly following the Effective Time, Parent
will issue to the holders of the Assumed Company Rights, appropriate documents
evidencing the above-described assumption of such Assumed Company Rights by
Parent. Subject to the conditions and limitations set forth in this Agreement,
Parent covenants that at all times it shall reserve a sufficient number of
shares of Parent Common Stock to allow the exercise of all of the Assumed
Company Rights for all of the shares that will be issued with respect to such
Assumed Company Rights.
(d) CANCELLATION OF REMAINING OPTIONS, WARRANTS AND RIGHTS.
Other than the Assumed Company Rights, all options, warrants and other rights to
purchase Company Capital Stock or any other security of the Company that shall
not have been exercised or converted before the Closing, shall be canceled and
extinguished, and shall be of no further force or effect.
(e) CAPITAL STOCK OF MERGER SUB. Each share of common stock of
Merger Sub issued and outstanding immediately before the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIOS. The Exchange Ratio, the
Additional Stock Exchange Ratio and the Undistributed Stock Exchange Ratio shall
be adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock occurring after the date hereof and before the
Effective Time with respect to the Exchange Ration or before the Outside Date
with respect to the Additional Stock Exchange Ratio or the Undistributed Stock
Exchange Ratio.
(g) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, the number of shares of Parent Common
Stock to be received shall be rounded down to the whole number of shares.
(h) CERTAIN DEFINITIONS.
(i) ADDITIONAL PARENT SHARES. The "Additional Parent
Shares" means such number of shares of Parent Common Stock equal to 300 shares
for each $1,000.00 of the Net Offering Proceeds in excess of Eight Million
Dollars ($8,000,000) that Parent shall receive through the Outside Date, which
(together with the Aggregate Number of Parent Shares) shall be issued in
exchange for the Aggregate Company Common Number of shares of Company Common
Stock; PROVIDED, HOWEVER, that the number of Additional Parent Shares shall not
exceed Two Million One Hundred Thousand (2,100,000).
(ii) ADDITIONAL STOCK EXCHANGE RATIO. The "Additional
Stock Exchange Ratio" means the quotient obtained by dividing the number of
Additional Parent Shares by the Aggregate Company Common Number.
***REORGANIZATION AGREEMENT***
-5-
<PAGE>
(iii) AGGREGATE COMPANY COMMON NUMBER. The "Aggregate
Company Common Number" means the aggregate number of shares of Company Common
Stock outstanding immediately before the Effective Time, including (without
limitation) the shares of Company Common Stock that shall have been issued
before the Closing upon conversion of the Converted Company Preferred Stock.
Parent understands and agrees that the Company may make certain changes to the
capital structure of the Company as set forth in Section 2.2, at or prior to the
Effective Time, including, but not limited to, effecting a stock split, stock
dividend, reorganization or recapitalization, and may amend its certificate of
incorporation and/or bylaws in connection thereunder.
(iv) AGGREGATE NUMBER OF PARENT SHARES. The
"Aggregate Number of Parent Shares" means the aggregate number of shares of
Parent Common Stock (other than the Additional Parent Shares) issuable in
exchange for the Aggregate Company Common Number of shares of Company Common
Stock, which is Nine Million Two Hundred Fifty Thousand (9,250,000) shares of
Company Common Stock; PROVIDED, HOWEVER, that the Aggregate Number of Parent
Shares shall be subject to the following adjustments at Closing:
(A) FINANCIAL ADJUSTMENT. If the difference
between (i) the total current liabilities reflected on the
Closing Date Balance Sheet (exclusive of the Company
Convertible Debt) including, without limitation, all Interim
Funds advanced by Parent to the Company under the terms of the
Financial Support Agreement, and (ii) the total current
assets, less prepaid expenses and other current assets (and
after any allowance for doubtful accounts), exceeds One
Million Two Hundred Fifty Thousand Dollars ($1,250,000), then
the Aggregate Number of Parent Shares shall be reduced by One
(1) share for each One Dollar ($1.00) of such excess.
(B) CONVERTIBLE DEBT PAYMENT ADJUSTMENT. The
Aggregate Number of Parent Shares shall be decreased by One
Million Nine Hundred Eleven Thousand Nine Hundred Four
(1,911,904) shares (the "CONVERTED DEBT PARENT SHARES") which
shall be treated as provided in Section 6.3(d).
(v) ASSUMED COMPANY RIGHTS. "Assumed Company Rights"
means those options, warrants and rights to purchase shares of Company Capital
Stock that are referenced under Section 2.2(c) of this Agreement and described
in Section 2.2(c) of the Company Disclosure Schedule, which will be restructured
by the Company before the Closing under Section 1.6(c) of this Agreement.
(vi) COMPANY CAPITAL STOCK. "Company Capital Stock"
means the shares of Company Common Stock outstanding after conversion of all
shares of Company Converted Preferred Stock.
(vii) CONVERTED COMPANY PREFERRED SHARES. "Converted
Company Preferred Shares" means the shares of preferred stock of the Company
that shall have been converted into shares of Company Common Stock before the
Closing, including (without limitation) all shares of the Company's Series A 5%
Convertible Redeemable Preferred Stock, par value $0.0001 per share, Series B 5%
Convertible Redeemable Preferred Stock, par value $0.0001 per share, Series C
12% Convertible Redeemable Preferred Stock, par value $0.0001 per share, and
Series D 10% Convertible Redeemable Preferred Stock, par value $0.0001 per
share.
***REORGANIZATION AGREEMENT***
-6-
<PAGE>
(viii) COMPANY CONVERTIBLE DEBT. "Company Convertible
Debt" means those certain debt obligations of the Company in the aggregate
amount of One Million Nine Hundred Eleven Thousand Nine Hundred Four Dollars
($1,911,904) that arise from amounts borrowed under the terms of (A) the 12%
Convertible Promissory Notes issued between July 26, 1999 and October 18, 1999,
in the aggregate amount of $1,500,000 and (B) the Series One Promissory Notes
issued on or about April 26, 2000, in the aggregate amount of $411,904.
(ix) EXCHANGE RATIO. The "Exchange Ratio" means the
quotient obtained by dividing the Aggregate Number of Parent Shares by the
Aggregate Company Common Number.
(x) OUTSIDE DATE. The "Outside Date" means the date
that is Ninety (90) days after the Closing Date.
(xi) UNPAID PORTION OF COMPANY CONVERTIBLE DEBT.
"Unpaid Portion of Company Convertible Debt" means that portion of Company
Convertible Debt that is not repaid, which shall be converted into the right to
receive such number of shares of Parent Common Stock equal to the remainder of
(A) the Converted Debt Parent Shares, reduced by (B) One (1) share for each One
Dollar ($1.00) that is used to repay the Company Convertible Debt on or after
the Outside Date (the "ADJUSTED NUMBER OF CONVERTED DEBT PARENT SHARES"), as
contemplated under Section 6.3(d) of this Agreement. The difference between (Y)
the Converted Debt Parent Shares and (Z) the Adjusted Number of Converted Debt
Parent Shares is referenced in this Agreement as the "Undistributed Converted
Debt Parent Shares."
(xii) UNDISTRIBUTED STOCK EXCHANGE RATIO.
"Undistributed Stock Exchange Ratio" means the quotient obtained by dividing the
Undistributed Converted Debt Parent Shares by the Aggregate Company Common
Number.
1.7 DISSENTING SHARES
(a) Notwithstanding any other provisions of this Agreement to
the contrary, any share of Company Capital Stock held by a holder who has
exercised and perfected appraisal rights for such shares in accordance with
Delaware Law and who, as of the Effective Time, has not effectively withdrawn or
lost such appraisal rights ("DISSENTING Shares"), shall not be converted into or
represent a right to receive Parent Common Stock under SECTION 1.6 hereof, but
the holder thereof shall be entitled to such rights as are provided by Delaware
Law.
(b) Notwithstanding the provisions of SECTION 1.7(a) hereof,
if any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) such holder's appraisal rights under Delaware
Law, then, as of the later of the Effective Time and the occurrence of such
event, such holder's shares shall be converted automatically into and represent
only the right to receive Parent Common Stock under Section 1.6 hereof, upon
surrender of the certificate evidencing such shares.
***REORGANIZATION AGREEMENT***
-7-
<PAGE>
(c) The Company shall give Parent prompt notice of any written
demand for appraisal received by the Company pursuant to the applicable
provisions of Delaware Law.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. The Parent shall name the office of
Parent's Chief Financial Officer or an entity reasonably acceptable to the
Company to serve as exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange,
in accordance with this Article I, the balance of the Aggregate Number of Parent
Shares not deposited into the escrow account under Section 1.8(i) of this
Agreement. Subject to the conditions of this Agreement, promptly after the
Subsequent Closing, Parent shall make available to Exchange Agent the Additional
Parent Shares and the Undistributed Converted Debt Parent Shares.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
the Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately before the
Effective Time represented outstanding shares of Company Capital Stock, whose
shares were converted into the right to receive shares of Parent Common Stock
under Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent and Company mutually and
reasonably agree before the Effective Time) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
reasonably appointed by Parent, together with such letter of transmittal, duly
completed and validly executed in material accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
therefore, at the Closing or at the Subsequent Closing, as the case may be, a
certificate representing the number of whole shares of Parent Common Stock
(less, at the Closing, the number of shares of Parent Common Stock deposited
into the escrow account under Section 1.8(i) and Section 7.2), and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that, before the Effective Time, represented shares
of Company Capital Stock will be deemed from and after the Effective Time, for
all corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Parent Common Stock into which such
shares of Company Capital Stock shall have been so converted. The holder of each
Certificate shall receive such holder's respective PRO RATA portion of (A) the
Aggregate Number of Parent Shares at the Closing (based on the Exchange Ratio)
and (B) the Additional Parent Shares (based on the Additional Stock Exchange
Ratio) and the Undistributed Converted Debt Parent Shares (based on the
Undisputed Stock Exchange Ratio) with receipt for such shares at the Subsequent
Closing.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of record of
***REORGANIZATION AGREEMENT***
-8-
<PAGE>
such Certificate shall surrender such Certificate or provide an affidavit under
Section 1.11. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor at
the time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any Certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
endorsed properly and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other tax required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the reasonable
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) TERMINATION OF EXCHANGE. Any portion of the Aggregate
Number of Parent Shares, Additional Parent Shares and Undisputed Converted Debt
Parent Shares that remains undistributed to the previous holders of Company
Capital Stock one (1) year after the Effective Time will be delivered to Parent
(except for such shares deposited into the escrow account under Section 1.8(i)
of this Agreement), upon demand, and any stockholder of Parent who previously
has not complied with this Section 1.8 will thereafter look only to Parent for
payment of Parent Common Stock and any dividend and distribution with respect to
Parent Common Stock.
(g) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.8, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Capital Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(h) DISSENTING SHARES. The provisions of this Section 1.8 also
will apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 1.8 will commence on the date of loss
of such status, and the holder of such shares will be entitled to receive in
exchange for such shares the number of Parent Common Stock to which such holder
is entitled under Section 1.7.
(i) ESCROW. As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Section 7.2, Parent will
cause to be deposited with Alpha Tech Transfer & Trust (the "ESCROW AGENT") a
certificate or certificates evidencing 20.0% of the Aggregate Number of Parent
Shares (after adding back all of the Converted Debt Parent Shares) to be issued
under Section 1.6(a). All such certificates deposited with Escrow Agent will be
registered in the name of Escrow Agent as nominee for the holders of
Certificates canceled under this Section 1.8. Such holders will beneficially own
such shares, which will be held in escrow and will be available to compensate
Parent for certain of the damages provided in Article VII. To the extent that
they are not used for such purpose, such shares will be released on the date
that is three (3) years after the date on which the Company last sold its
securities in any transaction.
***REORGANIZATION AGREEMENT***
-9-
<PAGE>
1.9 DELIVERY OF COMPANY FINANCIAL STATEMENTS. For the purposes of the
adjustments under paragraph (h)(iv)(A) of Section 1.6 of this Agreement and in
connection with Parent's due diligence review of Company, together with the
execution of this Agreement, Company has delivered or is delivering to Parent
the following: (i) audited financial statements relating to the operations,
changes in stockholders' equity and cash flows of the Company from its inception
through December 31, 1999, including Company's balance sheet at December 31,
1999, and (ii) the unaudited consolidated statements of operations, changes in
stockholders' equity and cash flows for the four-month period ended April 30,
2000, and the Company's related balance sheet at April 30, 2000 (the "CURRENT
DATE BALANCE SHEET"). The above-described 1999 financial statements will be
audited by the firm of BDO Seidman, LLP (the "COMPANY INDEPENDENT AUDITOR"). No
later than five (5) business days after the Closing Date, the Company shall
prepare and present to Parent a balance sheet of the Company dated at the
Closing Date (the "CLOSING DATE BALANCE SHEET") and a statement of changes in
stockholder's equity for the period from January 1, 2000 through the Closing
Date (collectively, the "CLOSING DATE COMPANY FINANCIAL STATEMENTS"). The
Closing Date Company Financial Statements shall be prepared in accordance with
GAAP (defined below) applied on a basis consistent throughout the periods
indicated and consistent with each other. The Closing Date Company Financial
Statements shall present fairly the financial condition and operating results of
the Company as of the date and during the periods indicated therein, subject to
normal adjustments, which will not be material in amount or significance. After
the Closing, to review and evaluate the Closing Date Company Financial
Statements, the Company Independent Auditor will have full access, at all
reasonable times and in a manner not disruptive of the ongoing operations of
Parent or the Surviving Corporation, to the books, records and properties
acquired by Parent hereunder.
1.10 NO FURTHER TRANSFERS IN COMPANY COMMON STOCK. After the Effective
Time there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock that were outstanding
immediately before the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any of the
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock and cash for
fractional shares, if any, as may be required under Section 1.6.
1.12 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE").
1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
***REORGANIZATION AGREEMENT***
-10-
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
COMPANY AND BENCHMARK
Each of the Company and Benchmark (as to Section 2.2(a)(i) and (ii),
2.4, 2.5 and 2.6 only) hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
schedule (referencing the appropriate section and paragraph numbers) supplied by
the Company to Parent (the "COMPANY DISCLOSURE SCHEDULE") and dated as of the
date hereof, that on the date hereof and as of the Effective Time, as though
made at the Effective Time as follows; provided, that the representations and
warranties made as of a specified date will be true and correct as of such date:
2.1 ORGANIZATION. Each of the Company and its Subsidiary (as defined
below) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of organization. Each of the Company and its
Subsidiary has the corporate power to own its properties and to carry on its
business as now being conducted. Each of the Company and its Subsidiary is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets), condition
(financial or otherwise), prospects or results of operations of such entity
(hereinafter referred to as a, "MATERIAL ADVERSE EFFECT"). The Company has
delivered a true and correct copy of its Certificate of Incorporation and bylaws
(and other applicable organizational documents) of the Company and the
applicable organizational documents of its Subsidiary, each as amended to date,
to Parent. SECTION 2.1 of the Company Disclosure Schedule lists the directors
and officers of the Company and its Subsidiary. Except as set forth in Section
2.1 of the Company Disclosure Schedule, the operations now being conducted by
the Company or its Subsidiary are not now and have never been conducted by the
Company or its Subsidiary under any other name.
2.2 COMPANY CAPITAL STRUCTURE.
(a) As of the date of the execution hereof, the authorized
capital stock of the Company consists of:
(i) PREFERRED STOCK. 4,000,000 shares of preferred
stock of the Company, par value $0.0001 per share (the "COMPANY PREFERRED
STOCK"), of which 11,000 shares have been designated as Series A 5% Convertible
Redeemable Preferred Stock (the "SERIES A PREFERRED STOCK"), 11,000 shares have
been designated as Series B 5% Convertible Redeemable Preferred Stock (the
"SERIES B PREFERRED STOCK"), 248,000 shares have been designated as Series C 12%
Convertible Redeemable Preferred Stock (the "SERIES C PREFERRED STOCK") and
3,500,000 shares have been designated as Series D 10% Convertible Redeemable
***REORGANIZATION AGREEMENT***
-11-
<PAGE>
Preferred Stock (the "SERIES D PREFERRED STOCK"). The following numbers of
shares of each authorized series of Company Preferred Stock are outstanding: (i)
10,000 of Series A Preferred Stock; (ii) 6,600 shares of Series B Preferred
Stock; 200,000 shares of Series C Preferred Stock and (iv) 2,063,023 shares of
Series D Preferred Stock. The outstanding shares of Company Preferred Stock have
been duly and validly issued and are fully paid, nonassessable, free of liens,
encumbrances and restrictions on transfer other than restrictions under
applicable state and federal securities laws and are free of liens, encumbrances
an preemptive or similar rights contained in the Company's Certificate of
Incorporation or BYLAWS, or any agreement to which the Company is a party. The
outstanding shares of Company Preferred Stock have been issued in accordance
with the registration or qualification provisions of the Securities Act (defined
below) and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(ii) COMMON STOCK. 46,000,000 shares of Company
Common Stock, of which 15,532,350 shares are issued and outstanding. The
outstanding shares of Company Common Stock have been duly and validly issued and
are fully paid, non-assessable, free of liens, encumbrances and restrictions on
transfer other than restrictions under applicable state and federal securities
laws and are free of liens, encumbrances and preemptive or similar rights
contained in the Certificate of Incorporation or bylaws of the Company or in any
agreement to which the Company is a party. The outstanding shares of Company
Common Stock have been issued in compliance with all provisions of the
Securities Act (defined below) and any relevant state securities laws or
pursuant to valid exemptions therefrom.
(iii) Parent understands and agrees that the Company
may make certain changes to the capital structure at or prior to the Effective
Time, including, but not limited to, effecting a stock split, stock dividend,
reorganization or recapitalization, and may amend its certificate of
incorporation and/or bylaws in connection thereunder.
(b) The Company Capital Stock is held by the persons, with the
domicile addresses and in the amounts set forth on Section 2.2(b) of the Company
Disclosure Schedule. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the certificate of incorporation or bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound. There are no declared or accrued but unpaid dividends with respect to
any shares of Company Capital Stock. The Company has no other capital stock
authorized, issued or outstanding.
(c) The Company has reserved a total of 6,000,000 shares of
Company Common Stock for issuance to employees and consultants upon exercise of
options, warrants and rights, of which 3,150,995 shares are subject to
outstanding, unexercised options and 2,849,005 shares remain available for
future grant. Section 2.2(c) of the Company Disclosure Schedule sets forth for
each of the outstanding options to purchase shares of Company Common Stock (the
"COMPANY OPTIONS") the name of the holder of such option, the number of shares
of Company Common Stock subject to such option, the per share price at which
such option may be exercised and the applicable expiration date. SECTION 2.2(C)
of the Company Disclosure Schedule also sets forth the name of the holder of any
Company Capital Stock subject to a right or repurchase by the Company ("COMPANY
RESTRICTED STOCK"), the number of shares of Company Restricted Stock and the
vesting schedule for such Company Restricted Stock. Except for the Company
Options described in Section 2.2(c) of the Company Disclosure Schedule, there
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any share of the
***REORGANIZATION AGREEMENT***
-12-
<PAGE>
Company Capital Stock or obligating the Company to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. The holders of Company Options
have been or will be given, or shall have waived properly, any required notice
before the Merger and all such rights will be terminated at or before the
Effective Time. Section 2.2(c) of the Company Disclosure Schedule sets forth for
each outstanding Company stock appreciation right (each a "COMPANY SAR"), the
name of the holder of such Company SAR, the number of shares of Common Stock
associated with such Company SAR. Except for the Company SARs described in
Section 2.2(c) of the Company Disclosure Schedule, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or other
similar rights with respect to the Company. Except as contemplated hereby, there
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of the Company. As a result of the Merger and as of
the Effective Time, Parent will be the record and sole beneficial owner of all
outstanding shares of Company Capital Stock and rights to acquire or receive
Company Capital Stock.
(d) Except for (i) the conversion privileges of the Series A
Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, (ii) the options and rights to purchase or to receive
shares of Company Common Stock that are described in Section 2.2(c) of Company
Disclosure Schedule, which shall be restructured under Section 1.6(c) and (iii)
the shares of Company Common Stock that are issuable in exchange for the Company
Convertible Debt, there are not outstanding any options, warrants, rights or
agreements for the purchase or acquisition from the Company of any share of
Company Capital Stock.
2.3 SUBSIDIARY. Except for any subsidiary disclosed in the Company
Disclosure Schedule (the "SUBSIDIARY"), the Company does not have, and has never
had, any subsidiary or affiliated company and does not otherwise own, and has
not otherwise owned, any share in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint venture
or other business entity. Section 2.3 of the Company Disclosure Schedule sets
forth the capitalization of the Subsidiary. The Company is the record and
beneficial owner of all the outstanding capital stock of the Subsidiary. Section
2.3 of the Company Disclosure Schedule also sets forth each jurisdiction where
the Subsidiary is qualified to do business. There are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which either the Company or the Subsidiary is a party or by which it is bound
obligating the Subsidiary to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any share of
capital stock of the Subsidiary or obligating the Subsidiary to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Subsidiary.
2.4 AUTHORITY. Each of the Company and Benchmark has all requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
***REORGANIZATION AGREEMENT***
-13-
<PAGE>
authorized by all necessary corporate action on the part of the Company, and no
further action is required on the part of the Company to authorize the Agreement
and the transactions contemplated hereby, subject only to the approval of this
Agreement by the holders of shares of Company Capital Stock (all such holders of
Company Capital Stock collectively, the "GAVELNET STOCKHOLDERS"). This Agreement
and the Merger have been approved unanimously by the Board of Directors of the
Company. This Agreement has been duly executed and delivered by the Company and
Benchmark, as the case may be, and, assuming the due authorization, execution
and delivery by the other parties hereto, constitute the valid and binding
obligation of the Company and Benchmark, as the case may be, enforceable in
accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and to
rules of law governing specific performance, injunctive relief or other
equitable remedies.
2.5 NO CONFLICT. Except as set forth in Section 2.5 of the Company
Disclosure Schedule, the execution and delivery of this Agreement by either the
Company or Benchmark (or any of them) does not, and, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the certificate of incorporation and bylaws of
the Company or its Subsidiary, (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise or license to which
the Company, its Subsidiary or Benchmark or any of their respective properties
or assets are subject, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, its Subsidiary or
Benchmark or their respective properties or assets.
2.6 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission (a "GOVERNMENTAL ENTITY") or
any third party (other than the GavelNet Stockholders), including a party to any
agreement with the Company (so as not to trigger any Conflict), is required by
or with respect to the Company, its Subsidiary or Benchmark in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws thereby, and (ii) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware.
2.7 COMPANY FINANCIAL STATEMENTS. Section 2.7 of the Company Disclosure
Schedule sets forth (i) the Company's audited consolidated balance sheet at
December 31, 1999, and the related audited consolidated statements of
operations, changes in stockholders' equity and cash flows for the period from
the Company's inception to December 31, 1999, and (ii) the Company's unaudited
Current Date Balance Sheet and the related unaudited consolidated statements of
operations, changes in stockholders' equity and cash flows for the four-month
period then ended (collectively, the "COMPANY FINANCIALS"). The Company
Financials are correct in all material respects and have been prepared in
accordance with generally accepted accounting principles, as practiced in the
United States ("GAAP"), applied on a basis consistent throughout the periods
indicated and consistent with each other. The Company Financials present fairly
the financial condition and operating results of the Company as of the dates and
during the periods indicated therein, subject to normal year-end adjustments,
which will not be material in amount or significance.
***REORGANIZATION AGREEMENT***
-14-
<PAGE>
2.8 NO UNDISCLOSED LIABILITIES. Except as set forth in Section 2.8 of
the Company Disclosure Schedule, neither the Company nor its Subsidiary has any
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), which
individually or in the aggregate, (i) has not been reflected in the Current Date
Balance Sheet, or (ii) has not arisen in the ordinary course of business since
April 30, 2000, consistent with past practices.
2.9 NO CHANGES. Except as set forth in Section 2.9 of the Company
Disclosure Schedule and except as specifically described or contemplated in this
Agreement, since April 30, 2000, there has not been, occurred or arisen any:
(a) transaction by the Company or its Subsidiary except in the
ordinary course of business as conducted on that date and consistent with past
practices;
(b) amendments or changes to the certificate of incorporation
or bylaws or other organizational documents of the Company or its Subsidiary;
(c) capital expenditure or commitment by the Company or its
Subsidiary, either individually or in the aggregate, exceeding $10,000
individually or $25,000 in the aggregate;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company or its Subsidiary (whether or not covered by
insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action with respect to the Company or its Subsidiary;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or its
Subsidiary;
(g) revaluation by the Company or its Subsidiary of any of its
assets;
(h) any strike or labor dispute, other than routine individual
grievances, or to the best of the knowledge of the Company, any activity or
proceeding by a labor union or representative thereof to organize any employee
of Company, which employee was not subject to a collective bargaining agreement
at the Current Balance Sheet Date, or any material lockout, strike, slowdown,
work stoppage or threat thereof by or with respect to such employee;
(i) any tax election, change in accounting method or any
settlement or compromise of any material tax liability;
***REORGANIZATION AGREEMENT***
-15-
<PAGE>
(j) declaration, setting aside or payment of a dividend or
other distribution (whether in cash, stock or property) with respect to the
capital stock of the Company or its Subsidiary, or any split, combination or
reclassification with respect to the capital stock of the Company or its
Subsidiary, or any issuance or authorization of any issuance of any other
security in respect of, in lieu of or in substitution for shares of capital
stock of the Company or its Subsidiary or any direct or indirect redemption,
repurchase or other acquisition by the Company or its Subsidiary of its capital
stock (or options, warrants or other rights exercisable therefor);
(k) increase in the salary or other compensation payable or to
become payable by the Company or its Subsidiary to any of its officers,
directors, employees or advisors, or the declaration, payment or commitment or
obligation of any kind for the payment, by the Company or its Subsidiary, of a
bonus or other additional salary or compensation to any such person except as
otherwise contemplated by this Agreement;
(l) sale, lease, license or other disposition of any of the
assets or properties of the Company or its Subsidiary or any creation of any
security interest in such assets or properties, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(m) any material agreement, contract, covenant, instrument,
lease, license or commitment to which the Company or its Subsidiary is a party
or by which they or any of its assets are bound or any termination, extension,
amendment or modification the terms of any material agreement, contract,
covenant, instrument, lease, license or commitment to which the Company or its
Subsidiary is a party or by which it or any of its assets are bound;
(n) loan by the Company or its Subsidiary to any person or
entity, incurring by the Company or its Subsidiary of any indebtedness,
guaranteeing by the Company or its Subsidiary of any indebtedness, issuance or
sale of any debt securities of the Company or its Subsidiary or guaranteeing of
any debt securities of others except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(o) waiver or release of any right or claim of the Company or
its Subsidiary, including any write-off or other compromise of any account
receivable of the Company or its Subsidiary;
(p) the commencement or notice or, to the best of the
knowledge of the Company, threat of commencement of any lawsuit or proceeding
against or investigation of the Company or its Subsidiary or their affairs;
(q) notice of any claim of ownership by a third party of
Company Intellectual Property (as defined in Section 2.13 below) or of
infringement by the Company or its Subsidiary of any third party's intellectual
property rights;
(r) issuance or sale, or contract to issue or sell, by the
Company or its Subsidiary of any shares of capital stock or securities
exchangeable, convertible or exercisable therefor, or any securities, warrants,
options or rights to purchase any of the foregoing, except for options to
purchase capital stock of the Company granted to employees of the Company or its
Subsidiary in the ordinary course of business consistent with past practice;
***REORGANIZATION AGREEMENT***
-16-
<PAGE>
(s) (i) selling or entering into any license agreement with
respect to Company Intellectual Property with any third party or (ii) buying or
entering into any license agreement with respect to the intellectual property of
any third party;
(t) change in pricing or royalties set or charged by the
Company or its Subsidiary to its customers or licensees or in pricing or
royalties set or charged by persons who have licensed intellectual property to
the Company or its Subsidiary;
(u) any event or condition of any character that has or could
be reasonably expected to have a Material Adverse Effect on the Company or its
Subsidiary; or
(v) agreement by the Company or its Subsidiary or any officer
or employees thereof to do any of the things described in the preceding clauses
(a) through (s) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.10 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES", means all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities (if any), including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreement or arrangement
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Section
2.10 of the Company Disclosure Schedule:
(i) Each of the Company and its Subsidiary as of the
Effective Time will have prepared and filed all required federal, state, local
and foreign returns, estimates, information statements and reports ("RETURNS")
relating to any and all Taxes concerning or attributable to the Company or its
Subsidiary or their operations and such Returns are true and correct and have
been completed in accordance with applicable law.
(ii) Each of the Company and its Subsidiary as of the
Effective Time: (A) will have paid or accrued all Taxes it is required to pay or
accrue and (B) will have withheld with respect to its employees all federal and
state income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Neither the Company nor its Subsidiary has been
delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against the Company or its Subsidiary, nor has
the Company or its Subsidiary executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.
***REORGANIZATION AGREEMENT***
-17-
<PAGE>
(iv) No audit or other examination of any Return of
the Company or its Subsidiary is presently in progress, nor has the Company or
its Subsidiary been notified of any request for such an audit or other
examination.
(v) Neither the Company nor its Subsidiary has any
liabilities for unpaid federal, state, local and foreign Taxes which have not
been accrued or reserved against in accordance with GAAP on the Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and neither the Company
nor its Subsidiary has knowledge of any basis for the assertion of any such
liability attributable to the Company, its Subsidiary or their assets or
operations.
(vi) The Company has provided to Parent copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of Company's incorporation.
(vii) There are (and as of immediately following the
Closing there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("LIENS") on the assets of the Company or its
Subsidiary relating to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for
the assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or its
Subsidiary.
(ix) None of the assets of the Company or its
Subsidiary are treated as "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company or its Subsidiary that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to Section 280G
or 162 of the Code.
(xi) Neither the Company nor its Subsidiary has filed
any consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or its
Subsidiary.
(xii) Neither the Company nor its Subsidiary is a
party to a tax sharing or allocation agreement nor does the Company or its
Subsidiary owe any amount under any such agreement.
(xiii) Neither the Company nor its Subsidiary is, or
has been at any time, a "United States real property holding corporation" within
the meaning of Section 897(c)(2) of the Code.
(xiv) Neither the Company nor its Subsidiary has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (x) in the two years before the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
***REORGANIZATION AGREEMENT***
-18-
<PAGE>
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or its Subsidiary is a party or otherwise binding upon the
Company or its Subsidiary which has or may have the effect of prohibiting or
impairing any business practice of the Company or its Subsidiary, any
acquisition of property (tangible or intangible) by the Company or its
Subsidiary or the conduct of business by the Company or its Subsidiary. Without
limiting the foregoing, neither the Company nor its Subsidiary has entered into
any agreement under which the Company or its Subsidiary is restricted from
selling, licensing or otherwise distributing any of its technology or products
to or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Neither the Company nor its Subsidiary owns real property,
nor has either ever owned any real property. Section 2.12(a) of the Company
Disclosure Schedule sets forth a list of all real property currently, or at any
time in the past, leased by the Company or its Subsidiary, the name of the
lessor and the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable under
any such lease and the termination date of any such lease. All such current
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company or its Subsidiary has good and valid title to,
or, in the case of leased properties and assets, valid leasehold interests in,
all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens, except as reflected
in the Current Balance Sheet and except for Liens for Taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not detract from the
value, or interfere with the present use, of the property subject thereto or
affected thereby.
(c) Section 2.12(c) of the Company Disclosure Schedule lists
all material items of equipment (the "EQUIPMENT") owned or leased by the Company
or its Subsidiary and such Equipment is, (i) sufficient for the conduct of the
business of the Company or its Subsidiary as currently conducted and (ii) in
good operating condition, regularly and properly maintained, subject to normal
wear and tear.
(d) The Company or its Subsidiary has sole and exclusive
ownership, free and clear of any Liens, of all customer files and other customer
information relating to customers of the current and former customers of the
Company or its Subsidiary (the "CUSTOMER INFORMATION"). No person other than the
Company or its Subsidiary possesses any claims or rights with respect to use of
the Customer Information.
***REORGANIZATION AGREEMENT***
-19-
<PAGE>
2.13 INTELLECTUAL PROPERTY.
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
(i) "TECHNOLOGY" shall mean any or all of the
following: (i) works of authorship including, without limitation, computer
programs, source code and executable code, whether embodied in software,
firmware or otherwise, documentation, designs, files, net lists, records, or
data; (ii) inventions (whether or not patentable), improvements, and technology;
(iii) proprietary and confidential information, including technical data and
customer and supplier lists, trade secrets and know how; (iv) databases, data
compilations and collections and technical data; (v) logos, trade names, trade
dress, trademarks, service marks; (vi) World Wide Web addresses, domain names
and sites; (vii) tools, methods and processes; and (viii) all instantiations of
the foregoing in any form and embodied in any media.
(ii) "INTELLECTUAL PROPERTY RIGHTS" shall mean any or
all of the following and all rights in, arising out of, or associated therewith:
(i) all United States and foreign patents and utility models and applications
therefor and all reissues, divisions, re-examinations, renewals, extensions,
provisionals, continuations and continuations-in-part thereof, and equivalent or
similar rights anywhere in the world in inventions and discoveries including
without limitation invention disclosures ("PATENTS"); (ii) all trade secrets and
other rights in know-how and confidential or proprietary information; (iii) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world ("COPYRIGHTS"); (iv) all
industrial designs and any registrations and applications therefor throughout
the world; (v) all rights in World Wide Web addresses and domain names and
applications and registrations therefor; (vi) all trade names, logos, common law
trademarks and service marks, trademark and service mark registrations and
applications therefor and all goodwill associated therewith throughout the world
("TRADEMARKS"); and (vii) any similar, corresponding or equivalent rights to any
of the foregoing anywhere in the world.
(iii) "COMPANY INTELLECTUAL PROPERTY" shall mean any
Technology and Intellectual Property Rights including the Company Registered
Intellectual Property Rights (as defined below) that are owned (in whole or in
part) by or exclusively licensed to the Company or its Subsidiary.
(iv) "REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall
mean all United States, international and foreign: (i) Patents, including
applications therefor; (ii) registered Trademarks, applications to register
Trademarks, including intent-to-use applications, or other registrations or
applications related to Trademarks; (iii) Copyrights registrations and
applications to register Copyrights; and (iv) any other Technology that is the
subject of an application, certificate, filing, registration or other document
issued by, filed with, or recorded by, any state, government or other public or
private legal authority at any time.
(b) SECTION 2.13 (b) of the Company Disclosure Schedule lists
all Registered Intellectual Property Rights owned by, filed in the name of, or
applied for, by the Company or its Subsidiary (the "COMPANY REGISTERED
INTELLECTUAL PROPERTY RIGHTS") and lists any proceedings or actions before any
court, tribunal (including the United States Patent and Trademark Office (the
"PTO") or equivalent authority anywhere in the world) related to any of the
Company Registered Intellectual Property Rights or Company Intellectual
Property.
***REORGANIZATION AGREEMENT***
-20-
<PAGE>
(c) Each item of Company Registered Intellectual Property
Rights is valid and subsisting, and all necessary registration, maintenance and
renewal fees in connection with such Company Registered Intellectual Property
Rights have been paid and all necessary documents and certificates in connection
with such Company Registered Intellectual Property Rights have been filed with
the relevant patent, copyright, trademark or other authorities in the United
States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property Rights. Except as set forth on
SECTION 2.13(c) of the Company Disclosure Schedule, there are no actions that
must be taken by the Company or its Subsidiary within one hundred twenty (120)
days of the Closing Date, including the payment of any registration, maintenance
or renewal fees or the filing of any responses to PTO office actions, documents,
applications or certificates for the purposes of obtaining, maintaining,
perfecting or preserving or renewing any Registered Intellectual Property
Rights. In each case in which the Company or its Subsidiary has acquired any
Technology or Intellectual Property Right from any person, the Company or its
Subsidiary has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Technology and the associated
Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to the Company or its Subsidiary. To the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company or its Subsidiary has recorded each such assignment of a Registered
Intellectual Property Right assigned to the Company or its Subsidiary with the
relevant Governmental Entity, including the PTO, the U.S. Copyright Office, or
their respective equivalents in any relevant foreign jurisdiction, as the case
may be. Except as set forth on SECTION 2.13(c) of the Company Disclosure
Schedule, neither Company nor its Subsidiary has claimed a particular status,
including "Small Business Status," in the application for any Intellectual
Property Rights, which claim of status was at the time made, or which has since
become, inaccurate or false or that will no longer be true and accurate as a
result of the Closing.
(d) The Company has no knowledge of any facts or circumstances
that would render any Company Intellectual Property invalid or unenforceable.
Without limiting the foregoing, the Company knows of no information, materials,
facts, or circumstances, including any information or fact that would constitute
prior art, that would render any of the Company Registered Intellectual Property
Rights invalid or unenforceable, or would adversely effect any pending
application for any Company Registered Intellectual Property Right and neither
Company nor its Subsidiary has misrepresented, or failed to disclose, or has
knowledge of any misrepresentation or failure to disclose, any fact or
circumstances in any application for any Company Registered Intellectual
Property Right that would constitute fraud or a misrepresentation with respect
to such application or that would otherwise affect the validity or
enforceability of any Company Registered Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and
clear of any Liens except for non-exclusive licenses granted to end-user
customers in the ordinary course of business. The Company or its Subsidiary is
the exclusive owner or exclusive licensee of all Company Intellectual Property.
Without limiting the foregoing: (i) the Company or its Subsidiary is the
exclusive owner of all Trademarks used in connection with the operation or
conduct of the business of the Company or its Subsidiary, including the sale,
licensing, distribution or provision of any products or services by the Company
or its Subsidiary; (ii) the Company or its Subsidiary owns exclusively, and has
good title to, all Copyrighted Works that are products of the Company or its
Subsidiary or which the Company or its Subsidiary otherwise purports to own; and
(iii) to the extent that any Patents would otherwise be infringed by any product
or services of the Company or its Subsidiary, such Patents constitute Company
Intellectual Property.
***REORGANIZATION AGREEMENT***
-21-
<PAGE>
(f) All Company Intellectual Property will be fully
transferable, alienable or licensable by Surviving Corporation and/or Parent
without restriction and without payment of any kind to any third party.
(g) To the extent that any Technology has been developed or
created by a third party for the Company or its Subsidiary, the Company or its
Subsidiary has a written agreement with such third party with respect thereto
and the Company or its Subsidiary thereby either (i) has obtained ownership of,
and is the exclusive owner of, or (ii) has obtained a license (sufficient for
the conduct of its business as currently conducted and as proposed to be
conducted) to all such third party's Intellectual Property Rights in such
Technology by operation of law or by valid assignment, to the fullest extent it
is legally possible to do so.
(h) Except as set forth on SECTION 2.13(h) of the Company
Disclosure Schedule and with exception of "shrink-wrap" or similar
widely-available commercial end-user licenses, all Technology used in or
necessary to the conduct of Company's or its Subsidiary's business as presently
conducted or currently contemplated to be conducted by the Company or its
Subsidiary was written and created solely by either (i) employees of the Company
or its Subsidiary acting within the scope of their employment or (ii) by third
parties who have validly and irrevocably assigned all of their rights, including
Intellectual Property Rights therein, to the Company or its Subsidiary, and no
third party owns or has any rights to any of the Company Intellectual Property.
(i) All employees of the Company or its Subsidiary have
entered into a valid and binding written agreement with the Company or its
Subsidiary sufficient to vest title in the Company or its Subsidiary of all
Technology, including all accompanying Intellectual Property Rights, created by
such employee in the scope of his or her employment with the Company or its
Subsidiary.
(j) The Company or its Subsidiary has taken all steps that are
reasonably required to protect the rights in confidential information and trade
secrets of the Company or its Subsidiary or provided by any other person to the
Company or its Subsidiary.
(k) Except as set forth on SECTION 2.13(k) of the Company
Disclosure Schedule, no person who has licensed Technology or Intellectual
Property Rights to the Company or its Subsidiary has ownership rights or license
rights to improvements made by the Company or its Subsidiary in such Technology
or Intellectual Property Rights.
(l) Neither the Company nor its Subsidiary has transferred
ownership of, or granted any exclusive license of or right to use, or authorized
the retention of any exclusive rights to use or joint ownership of, any
Technology or Intellectual Property Right that is or was Company Intellectual
Property, to any other person.
***REORGANIZATION AGREEMENT***
-22-
<PAGE>
(m) Other than inbound "shrink-wrap" and similar publicly
available commercial binary code end-user licenses and outbound "shrink-wrap"
licenses in the form set forth on SECTION 2.13(m) of the Company Disclosure
Schedule, the contracts, licenses and agreements listed in SECTION 2.13(m) of
the Company Disclosure Schedule lists all contracts, licenses and agreements to
which the Company or its Subsidiary is a party with respect to any Technology or
Intellectual Property Rights. Neither the Company nor its Subsidiary is in
breach of nor has the Company or its Subsidiary failed to perform under, any of
the foregoing contracts, licenses or agreements and, to the knowledge of the
Company, no other party to any such contract, license or agreement is in breach
thereof or has failed to perform thereunder.
(n) SECTION 2.13(n) of the Company Disclosure Schedule lists
all material contracts, licenses and agreements between the Company or its
Subsidiary and any other person wherein or whereby the Company or its Subsidiary
has agreed to, or assumed, any obligation or duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any obligation
or liability or provide a right of rescission with respect to the infringement
or misappropriation by the Company or its Subsidiary or such other person of the
Intellectual Property Rights of any person other than the Company or its
Subsidiary.
(o) To the best of the knowledge of the Company, there are no
contracts, licenses or agreements between the Company or its Subsidiary and any
other person with respect to Company Intellectual Property under which there is
any dispute regarding the scope of such agreement, or performance under such
agreement, including with respect to any payments to be made or received by the
Company or its Subsidiary thereunder.
(p) The operation of the business of the Company or its
Subsidiary as it currently is conducted or is contemplated to be conducted by
the Company or its Subsidiary, including but not limited to the design,
development, use, import, branding, advertising, promotion, marketing,
manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of the Company or
its Subsidiary does not and will not and will not when conducted by Parent
and/or Surviving Corporation in substantially the same manner following the
Closing, infringe or misappropriate any Intellectual Property Right of any
person, violate any right of any person (including any right to privacy or
publicity) or constitute unfair competition or trade practices under the laws of
any jurisdiction, and neither the Company nor its Subsidiary has received notice
from any person claiming that such operation or any act, product, technology or
service (including products, technology or services currently under development)
of the Company or its Subsidiary infringes or misappropriates any Intellectual
Property Right of any person or constitutes unfair competition or trade
practices under the laws of any jurisdiction (nor does the Company have
knowledge of any basis therefor).
(q) To the best of the knowledge of the Company, no person is
infringing or misappropriating any Company Intellectual Property Right.
***REORGANIZATION AGREEMENT***
-23-
<PAGE>
(r) No Company Intellectual Property or service of the Company
or its Subsidiary is subject to any proceeding or outstanding decree, order,
judgment or settlement agreement or stipulation that restricts in any manner the
use, transfer or licensing thereof by the Company or its Subsidiary or may
affect the validity, use or enforceability of such Company Intellectual
Property.
(s) To the best of the knowledge of the Company, no (i)
product, technology, service or publication of the Company or its Subsidiary,
(ii) material published or distributed by the Company or its Subsidiary, or
(iii) conduct or statement of the Company or its Subsidiary constitutes obscene
material, a defamatory statement or material, false advertising or otherwise
violates in any material respect any law or regulation.
(t) Except as set forth on SECTION 2.13(t) of the Company
Disclosure Schedule, the Company Intellectual Property constitutes all the
Technology and Intellectual Property Rights used in and/or necessary to the
conduct of the business of the Company or its Subsidiary as it currently is
conducted, and, to the best of the knowledge of the Company, as it is currently
planned or contemplated to be conducted by the Company or its Subsidiary,
including, without limitation, the design, development, manufacture, use, import
and sale of products, technology and performance of services (including, without
limitation, products, technology or services currently under development).
(u) Neither this Agreement nor the transactions contemplated
by this Agreement, including the assignment to Parent or Surviving Corporation,
by operation of law or otherwise, of any contracts or agreements to which the
Company or its Subsidiary is a party, will result in (i) either Parent's or the
Surviving Corporation's granting to any third party any right to or with respect
to any Technology or Intellectual Property Right owned by, or licensed to,
either of them, (ii) either Parent's or the Surviving Corporation's being bound
by, or subject to, any non-compete or other restriction on the operation or
scope of their respective businesses, or (iii) either Parent's or the Surviving
Corporation's being obligated to pay any royalties or other amounts to any third
party in excess of those payable by Parent or Surviving Corporation,
respectively, before the Closing.
(v) All of the products of the Company or its Subsidiary
(including products currently under development): (i) will record, store,
process, calculate and present calendar dates falling on and after (and if
applicable, spans of time including) January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner, and with
the same functionality, data integrity and performance, as the products record,
store, process, calculate and present calendar dates on or before December 31,
1999, or calculate any information dependent on or relating to such dates
(collectively, "YEAR 2000 COMPLIANT"); (ii) will lose no functionality with
respect to the introduction of records containing dates falling on or after
January 1, 2000; and (iii) will be interoperable with other products used and
distributed by Parent that may reasonably deliver records to the Company's or
its Subsidiary's products or receive records from the Company's or its
Subsidiary's products, or interact with the Company's or its Subsidiary's
products, including but not limited to back-up and archived data. All of the
Information Technology (as defined below) of the Company or its Subsidiary is
Year 2000 Compliant, and will not cause an interruption in the ongoing
operations of the business of the Company or its Subsidiary. For purposes of the
foregoing, the term "INFORMATION TECHNOLOGY" shall mean and include all
***REORGANIZATION AGREEMENT***
-24-
<PAGE>
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or services (other than
general utility services including gas, electric, telephone and postal) that are
owned or used by the Company or its Subsidiary in the conduct of its business,
or purchased by the Company or its Subsidiary from third party suppliers.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth in or excepted from (by virtue the
specific exclusions contained in Sections 2.13(g) or 2.13(h) hereof) Sections
2.13(g), and 2.13(h) of the Company Disclosure Schedule or as set forth in
2.14(a) of the Company Disclosure Schedule, and except as specifically described
or contemplated in this Agreement, neither the Company nor its Subsidiary is a
party to nor is either bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract
or commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement, (vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
(either individually or in the aggregate) in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of the Company or its Subsidiary to engage in
any line of business or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000,
***REORGANIZATION AGREEMENT***
-25-
<PAGE>
(xi) any agreement, contract or commitment relating
to the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of business,
(xii) any mortgage, indenture, loan or credit
agreement, security agreement or other debt obligation, or any other agreement
or instrument relating to the borrowing of money or extension of credit,
including guaranties referred to in clause (viii) hereof,
(xiii) any purchase order or contract for the
purchase of raw materials involving $25,000 or more,
(xiv) any construction contract,
(xv) any distribution, joint marketing or development
agreement, or
(xvi) any other agreement, contract or commitment
that involves $25,000 or more or is not cancelable without penalty within thirty
(30) days.
(b) Each of the Company and its Subsidiary is in compliance
with and has not breached, violated or defaulted under, or received notice that
it has breached, violated or defaulted under, any of the material terms or
conditions of any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company or its Subsidiary is a party or by which it is
bound (collectively a "CONTRACT"), nor is the Company aware of any event that
would constitute such a breach, violation or default with the lapse of time,
giving of notice or both. Each Contract is in full force and effect and, to the
best of the knowledge of the Company, is not subject to any default thereunder
by any party obligated to the Company pursuant thereto. The Company has
obtained, or will obtain before the Closing Date, all necessary consents,
waivers and approvals of parties to any Contract as are required thereunder in
connection with the Merger or for such Contracts to remain in effect without
modification after the Closing. Following the Effective Time, each of the
Company and its Subsidiary will be permitted to exercise all of its rights under
the Contracts without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which the Company or its
Subsidiary would otherwise be required to pay had the transactions contemplated
by this Agreement not occurred.
2.15 COMPLIANCE WITH LAWS. Each of the Company and its Subsidiary has
complied in all material respects with, is not in material violation of, and has
not received any notices of violation with respect to, any foreign, federal,
state or local statute, law or regulation.
2.16 GOVERNMENTAL AUTHORIZATION. Section 2.16 of the Company Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to the Company or its Subsidiary by a Governmental Entity
(i) pursuant to which the Company or its Subsidiary currently operates or holds
any interest in any of their properties or (ii) which is required for the
operation of its business or the holding of any such interest (herein
collectively called "COMPANY AUTHORIZATIONS"). The Company Authorizations are in
full force and effect and constitute all Company Authorizations required to
permit the Company and its Subsidiary to operate or conduct their respective
businesses or hold any interest in their respective properties or assets.
***REORGANIZATION AGREEMENT***
-26-
<PAGE>
2.17 LITIGATION. Except as set forth in Section 2.17 of the Company
Disclosure Schedule, there is no action, suit or proceeding of any nature
pending or, to the best of the knowledge of the Company, threatened against the
Company or its Subsidiary, its properties or any of its officers or directors,
in their respective capacities as such. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, to the best of the knowledge of the Company,
there is no investigation pending or threatened against the Company or its
Subsidiary, their respective properties or any of their officers or directors by
or before any governmental entity. Section 2.17 of the Company Disclosure
Schedule sets forth, with respect to any pending or threatened action, suit,
proceeding or investigation, the forum, the parties thereto, the subject matter
thereof and the amount of damages claimed or other remedy requested. No
Governmental Entity has at any time challenged or questioned the legal right of
the Company or its Subsidiary to manufacture, offer or sell any of its products
in the present manner or style thereof.
2.18 ACCOUNTS RECEIVABLE.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company and its Subsidiary ("ACCOUNTS RECEIVABLE") as
of April 30,2000 along with a range of days elapsed since the date of each
invoice.
(b) Except as set forth on Section 2.18(b) of the Company
Disclosure Schedule, all Accounts Receivable of the Company and its Subsidiary
arose in the ordinary course of business and are collectible except to the
extent of reserves therefor set forth in the Current Balance Sheet. Except as
set forth on Schedule 2.18(b), no person has any Lien on any of such Accounts
Receivable and no request or agreement for deduction or discount has been made
with respect to any of such Accounts Receivable.
2.19 INSURANCE. Each of the Company and its Subsidiary has obtained and
maintained in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, including fire and other risks insured against by extended coverage,
as is reasonably prudent. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company and its Subsidiary, there is no
claim by the Company or its Subsidiary pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company and its Subsidiary is
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
Neither the Company nor its Subsidiary has knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.20 ENVIRONMENTAL MATTERS.
***REORGANIZATION AGREEMENT***
-27-
<PAGE>
(i) HAZARDOUS MATERIAL. Neither the Company nor its Subsidiary
has: (i) operated any underground storage tanks at any property that the Company
or its Subsidiary has at any time owned, operated, occupied or leased; or (ii)
illegally released any material amount of any substance that has been designated
by any Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"), but excluding
office and janitorial supplies properly and safely maintained. No Hazardous
Materials are present, as a result of the deliberate actions of the Company or
its Subsidiary, or, to the best of the knowledge of the Company, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company or its Subsidiary has at any time owned, operated, occupied or
leased.
(ii) HAZARDOUS MATERIALS ACTIVITIES. Neither the Company nor
its Subsidiary has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has the Company or its
Subsidiary disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (any or all of the foregoing being collectively
referred to as "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
before or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(iii) PERMITS. Each of the Company and its Subsidiary
currently holds all environmental approvals, permits, licenses, clearances and
consents (the "ENVIRONMENTAL PERMITS") necessary for the conduct of the
Hazardous Material Activities and other businesses of the Company or its
Subsidiary as such activities and businesses are currently being conducted.
(iv) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the Company or
its Subsidiary. Neither the Company nor its Subsidiary is aware of any fact or
circumstance which could involve the Company or its Subsidiary in any
environmental litigation or impose upon the Company or its Subsidiary any
environmental liability.
2.21 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of
"Affiliate" set forth in Section 2.21(a)(i) below (which definition shall apply
only to this Section 2.21), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations issued thereunder;
***REORGANIZATION AGREEMENT***
-28-
<PAGE>
(ii) "CODE" shall mean the Internal Revenue Code of
1986, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall mean any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
(vi) "EMPLOYEE" shall mean any current or former
employee, consultant or director of the Company or any Affiliate;
(vii) "EMPLOYEE AGREEMENT" shall mean each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or other agreement, contract or understanding
between the Company or any Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act
of 1993, as amended;
(x) "INTERNATIONAL EMPLOYEE PLAN" shall mean each
Company Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "MULTIEMPLOYER PLAN" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA;
(xiii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiv) "PENSION PLAN" shall mean each Company Employee
Plan which is an "employee pension benefit plan," within the meaning of Section
3(2) of ERISA.
***REORGANIZATION AGREEMENT***
-29-
<PAGE>
(b) SCHEDULE. Section 2.21(b) of the Company Disclosure
Schedule contains an accurate and complete list of each Company Employee Plan
and each Employee Agreement under each Company Employee Plan or Employee
Agreement. The Company does not have any plan or commitment to establish any new
Company Employee Plan or Employee Agreement, to modify any Company Employee Plan
or Employee Agreement (except to the extent required by law or to conform any
such Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent (i) correct
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including (without limitation) all amendments thereto
and all related trust documents; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and all applications and correspondence to or
from the IRS or the DOL with respect to any such application or letter; (vii)
all material written agreements and contracts relating to each Company Employee
Plan, including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (ix) all correspondence to or from any
governmental agency relating to any Company Employee Plan; (x) all COBRA forms
and related notices; (xi) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan; (xii) all
discrimination tests for each Company Employee Plan for the most recent plan
year; and (xiii) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with each Company
Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Section
2.21(d) of the Company Disclosure Schedule, (i) the Company has performed in all
material respects all obligations required to be performed by it under, is not
in default or violation of, and has no knowledge of any default or violation by
any other party, to each Company Employee Plan, and each Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA or the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has either
received a favorable determination, opinion, notification or advisory letter
from the IRS with respect to each such Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for such
***REORGANIZATION AGREEMENT***
-30-
<PAGE>
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified status of each such Company Employee Plan; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Company Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the best of the knowledge of the
Company, threatened or reasonably anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; (v) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to Parent or Surviving Corporation or any of its Affiliates
(other than ordinary administration expenses); (vi) there are no audits,
inquiries or proceedings pending or, to the best of the knowledge of the Company
and each Affiliate, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code.
(e) PENSION PLAN. Neither the Company nor any Affiliate has
ever maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company or any
Affiliate contributed to or been obligated to contribute to any Multiemployer
Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Section 2.21(g) of the Company Disclosure Schedule, no Company Employee Plan
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has never represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
(h) COBRA ETC. Neither the Company nor any Affiliate has,
before the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Women's Heath and Cancer Rights Act, the requirements of the
Newborns' and Mothers' Health Protection Act of 1996, or any similar provisions
of state law applicable to its Employees.
(i) EFFECT OF TRANSACTION.
(i) Except as set forth on Section 2.21(i) of the
Company Disclosure Schedule, the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
***REORGANIZATION AGREEMENT***
-31-
<PAGE>
(ii) Except as set forth on Section 2.21(i) of the
Company Disclosure Schedule, no payment or benefit which will or may be made by
the Company or its Affiliates with respect to any Employee will be characterized
as a "parachute payment," within the meaning of Section 280G(b)(2) of the Code.
(j) EMPLOYMENT MATTERS. The Company and its Subsidiary: (i)
are in compliance in all respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) have withheld and reported all amounts required
by law or by agreement to be withheld and reported with respect to wages,
salaries and other payments to Employees; (iii) are not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) are not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). There are no
pending, threatened or reasonably anticipated claims or actions against the
Company or its Subsidiary under any worker's compensation policy or long-term
disability policy.
(k) LABOR. No work stoppage or labor strike against the
Company or its Subsidiary is pending, or to the best of the knowledge of the
Company, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. Except
as set forth in Section 2.21(k) of the Company Disclosure Schedule, there are no
actions, suits, claims, labor disputes or grievances pending, or, to the best of
the knowledge of the Company, threatened or reasonably anticipated relating to
any labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to the Company or its Subsidiary.
Neither the Company nor its Subsidiary has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. Except as set forth in
Section 2.21(k) of the Company Disclosure Schedule, neither the Company nor its
Subsidiary is presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company or its
Subsidiary.
(l) INTERNATIONAL EMPLOYEE PLAN. Neither the Company nor its
Subsidiary does now, nor has it ever had the obligation to, maintain, establish,
sponsor, participate in, or contribute to any International Employee Plan.
2.22 WARRANTIES; INDEMNITIES. Except for the warranties and indemnities
contained in (i) those contracts and agreements set forth in Section 2.13(h) of
the Company Disclosure Schedule and (ii) the shrink wrap license agreements of
the Company or its Subsidiary, neither the Company nor its Subsidiary has given
any warranties or indemnities relating to products or technology sold or
licensed or services rendered by the Company or its Subsidiary.
2.23 COMPLETE COPIES OF MATERIALS. Each document of the Company
delivered to Parent under this Agreement or in connection with the Merger or any
of the ancillary or subsidiary transactions contemplated by this Agreement is a
true and complete copy (or summary).
***REORGANIZATION AGREEMENT***
-32-
<PAGE>
2.24 INFORMATION SUPPLIED. The information supplied by the Company
specifically for inclusion in the Information Statement (as defined in Section
5.2) to be sent to the stockholders shall not, on the date the Information
Statement is first mailed or delivered to the stockholders contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which it was made, not misleading or omit to
state any material fact necessary to correct any statement in any earlier
communication to stockholders with respect to this Agreement which has become
false or misleading. Notwithstanding the foregoing, the Company does not make
any representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in any of the foregoing documents.
2.25 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company and Benchmark (as modified by the Company
Disclosure Schedule), nor any statement made in any schedule or certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or delivered to the stockholders of the Company
in connection with soliciting their consent to this Agreement and the Merger,
contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
2.26 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or
commercial banker, or other person or firm engaged by or acting on behalf of the
Company or any of its affiliates in connection with the negotiation, execution
or performance of this Agreement or the transactions contemplated by this
Agreement is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and the Merger Sub hereby jointly and severally represent and
warrant to Company, subject to such exceptions as are specifically disclosed in
the disclosure schedule (referencing the appropriate section and paragraph
numbers) supplied by Parent to Company (the "PARENT DISCLOSURE SCHEDULE") and
dated as of the date hereof, that on the date hereof and as of the Effective
Time as though made at the Effective Time as follows; provided, that the
representations and warranties made as of a specified date will be true and
correct as of such date:
3.1 ORGANIZATION. Each of Parent and its Subsidiaries (as defined
below) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of organization. Each of Parent and its
Subsidiaries have the corporate power to own their properties and to carry on
their business as now being conducted. Each of Parent and its Subsidiaries are
duly qualified to do business and in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on such entity. Parent has delivered a true and correct copy of
***REORGANIZATION AGREEMENT***
-33-
<PAGE>
its certificate of incorporation and bylaws (and other applicable organizational
documents) of Parent and the applicable organizational documents of its
Subsidiaries, each as amended to date, to Company. SECTION 3.1 of the Parent
Disclosure Schedule lists the directors and officers of Parent and its
Subsidiaries. Except as set forth in Section 3.1 of the Parent Disclosure
Schedule, the operations now being conducted by Parent or its Subsidiaries are
not now and have never been conducted by Parent or its Subsidiaries under any
other name.
3.2 PARENT CAPITAL STRUCTURE.
(a) The authorized capital stock of Parent consists of
50,000,000 shares of authorized Common Stock of which 18,404,632 shares were
issued and outstanding at June 9, 2000. The Parent Capital Stock is held by the
persons, with the domicile addresses and in the amounts set forth on Section
3.2(a) of the Parent Disclosure Schedule. All outstanding shares of Parent
Capital Stock are duly authorized, validly issued, fully paid and non-assessable
and not subject to preemptive rights created by statute, the certificate of
incorporation or bylaws of Parent or any agreement to which Parent is a party or
by which it is bound. There are no declared or accrued but unpaid dividends with
respect to any shares of Parent Capital Stock. Parent has no other capital stock
authorized, issued or outstanding.
(b) Parent has reserved 2,137,500 shares of Common Stock for
issuance to employees and consultants pursuant to outstanding, unexercised
options. Section 3.2(b) of the Parent Disclosure Schedule sets forth for each of
the outstanding Parent Options (defined below) the name of the holder of such
option and the number of shares of Common Stock subject to such option. SECTION
3.2(b) of the Parent Disclosure Schedule also sets forth the name of the holder
of any Parent Capital Stock subject to a right or repurchase by Parent ("PARENT
RESTRICTED STOCK"), the number of shares of Parent Restricted Stock and the
vesting schedule for such Parent Restricted Stock. Except for the options,
warrants and rights described in Section 3.2(b) of the Parent Disclosure
Schedule (the "PARENT Options") and Parent Convertible Note (defined below),
there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which Parent is a party or by which it is bound
obligating the Parent to issue, deliver, sell, repurchase or redeem, or cause to
be issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of the Parent or obligating the Parent to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. The holders of Parent Options
have been or will be given, or shall have properly waived, any required notice
before the Merger and all such rights will be terminated at or before the
Effective Time. Section 3.2(b) of the Parent Disclosure Schedule sets forth for
each outstanding Parent stock appreciation right (each a "PARENT SAR"), the name
of the holder of such Parent SAR, the number of shares of Common Stock
associated with such Parent SAR. Except for the Parent SARs described in Section
3.2(b) of the Parent Disclosure Schedule, there are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or other similar rights
with respect to the Parent. Except as contemplated hereby, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting stock of the Parent. As a result of the Merger, Parent will be the record
and sole beneficial owner of all outstanding capital stock of the Surviving
Corporation and rights to acquire or receive the capital stock of the Surviving
Corporation.
***REORGANIZATION AGREEMENT***
-34-
<PAGE>
(c) Parent has reserved One Million Four Hundred Thousand
(1,400,000) shares of Parent Common Stock for issuance to Silvano DiGenova under
that certain Convertible Promissory Note dated March 31, 1999 in the principal
amount of One Million Four Hundred Thousand Dollars ($1,400,000) (the "PARENT
CONVERTIBLE NOTE"), which Parent issued to Silvano DiGenova.
(d) The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, 1,000 shares of which, as of the date hereof, are
issued and outstanding and are held by Parent. All such shares have been duly
authorized, and all such issued and outstanding shares have been validly issued,
are fully paid and nonassessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof.
3.3 SUBSIDIARIES. Except for any subsidiaries disclosed in the Parent
Disclosure Schedule (the "Subsidiaries"), the Parent does not have, and has
never had, any subsidiary or affiliated company and does not otherwise own, and
has not otherwise owned, any shares in the capital of or any interest in, or
control, directly or indirectly, any corporation, partnership, association,
joint venture or other business entity. Section 3.3 of the Parent Disclosure
Schedule sets forth the capitalization of the Subsidiaries. The Parent is the
record and beneficial owner of all the outstanding capital stock of the
Subsidiaries. Section 3.3 of the Parent Disclosure Schedule also sets forth each
jurisdiction where the Subsidiaries are qualified to do business. There are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which either the Parent or any of its Subsidiaries is a
party or by which it is bound obligating the Subsidiaries to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of capital stock of any of the Subsidiaries or
obligating any of the Subsidiaries to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or other similar rights
with respect to any of the Subsidiaries.
3.4 AUTHORITY. The Parent has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Parent, and no further action is required on
the part of the Parent to authorize the Agreement and the transactions
contemplated hereby, subject only to the approval of this Agreement by the
stockholders of the Parent. This Agreement and the Merger have been unanimously
approved by the Board of Directors of the Parent. This Agreement has been duly
executed and delivered by the Parent, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto, constitute
the valid and binding obligation of the Parent, as the case may be, enforceable
in accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and to
rules of law governing specific performance, injunctive relief or other
equitable remedies.
3.5 NO CONFLICT. Except as set forth in Section 3.5 of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by the Parent
does not, and, the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "CONFLICT") (i) any provision of
***REORGANIZATION AGREEMENT***
-35-
<PAGE>
the certificate of incorporation and bylaws of the Parent or its Subsidiaries,
(ii) any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which the Parent or its Subsidiaries
or any of their respective properties or assets are subject, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Parent or its Subsidiaries, or their respective properties or assets.
3.6 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission (a "GOVERNMENTAL ENTITY") or
any third party, including a party to any agreement with the Parent (so as not
to trigger any Conflict), is required by or with respect to the Parent or its
Subsidiaries in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws
thereby, and (ii) the filing of the Certificate of Merger with the Secretary of
the State of Delaware.
3.7 PARENT FINANCIAL STATEMENTS; SEC DOCUMENTS.
(a) Section 3.7 of the Parent Disclosure Schedule sets forth
the Parent's unaudited consolidated balance sheet as of March 31, 2000 (the
"CURRENT PARENT BALANCE SHEET") and the related unaudited consolidated
statements of operations, stockholders' equity and cash flows for the
three-month period then ended (collectively with the Parent Financial
Statements, the "PARENT FINANCIALS"). The Parent Financials are correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other. The Parent Financials present
fairly the financial condition and operating results of the Parent as of the
dates and during the periods indicated therein, subject to normal year-end
adjustments, which will not be material in amount or significance.
(b) Parent has furnished or made available to the Company true
and complete copies of all reports or registration statements filed by it with
the U.S. Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934 (the "EXCHANGE ACT"), all in the form so filed (all of the
foregoing being collectively referred to as the "SEC DOCUMENTS"). As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed document with the SEC.
The financial statements of Parent, including the notes thereto, included in the
SEC Documents (the "PARENT FINANCIAL STATEMENTS") 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, have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as may be indicated in the notes thereto) and present fairly the
consolidated financial position of Parent at the dates thereof and of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, recurring audit adjustments). There has been no
change in Parent accounting policies except as described in the notes to the
Parent Financial Statements.
***REORGANIZATION AGREEMENT***
-36-
<PAGE>
3.8 VALID ISSUANCE. The shares of Parent Common Stock to be issued
pursuant to the Merger will be duly authorized, validly issued, fully paid,
non-assessable. Parent shall issue the shares of Parent Common Stock in the
Merger in a transaction exempt from registration under the Securities Act or as
otherwise provided in Section 6.1(c) of this Agreement.
3.9 INFORMATION SUPPLIED. The information supplied by Parent or Merger
Sub specifically for inclusion in the Information Statement (as defined in
Section 5.1) to be sent to the stockholders shall not, on the date the
Information Statement is first mailed to the stockholders contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading or omit to state any material fact necessary to correct any statement
in any earlier communication to stockholders with respect to this Agreement
which has become false or misleading. Notwithstanding the foregoing, Parent
makes no representation or warranty with respect to any information supplied by
the Company that is contained in any of the foregoing documents.
ARTICLE IV
CONDUCT BEFORE THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
the other shall otherwise consent in writing), to carry on the business of the
Company and its Subsidiary in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay debts and Taxes
when due, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practice and policies to preserve intact the present business organization, keep
available the services of the present officers and key employees and preserve
their relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired the its goodwill and ongoing businesses at the Effective
Time. The Company shall promptly notify Parent of any event or occurrence or
emergency not in the ordinary course of its business, and any material event
involving it. Except as expressly contemplated by this Agreement, neither the
Company nor its Subsidiary shall, without the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the
ordinary course of business.
(b) (i) Sell or enter into any license agreement with respect
to the Company Intellectual Property with any person or entity or (ii) buy or
enter into any license agreement with respect to the Intellectual Property of
any person or entity;
***REORGANIZATION AGREEMENT***
-37-
<PAGE>
(c) Transfer to any person or entity any rights to the Company
Intellectual Property (other than pursuant to end user licenses in the ordinary
course of business);
(d) Enter into or amend any agreements pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products or technology of the Company or its
Subsidiary;
(e) Enter into or amend any Contract pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products or technology of the Company or its
Subsidiary;
(f) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of, any of the Contracts
set forth or described in the Disclosure Schedule;
(g) Commence any litigation;
(h) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of
its capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital stock of the Company or its
Subsidiary, or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of its capital stock (or options, warrants or other rights
exercisable therefor);
(i) Except for the issuance of shares of Company Capital Stock
upon conversion of Company Converted Preferred Stock, issue, grant, deliver or
sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(j) Cause or permit any amendments to its certificate of
incorporation or bylaws or other organizational documents;
(k) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of the Company or its Subsidiary;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(m) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or its
Subsidiary or guarantee any debt securities of others;
***REORGANIZATION AGREEMENT***
-38-
<PAGE>
(n) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement except for advances
to employees for travel and business expenses in the ordinary course of
business, consistent with past practices;
(o) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof and disclosed in the
Disclosure Schedule;
(p) Adopt or amend any employee benefit plan, or enter into
any employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(q) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(r) Take any action, including the acceleration of vesting of
any options, warrants, restricted stock or other rights to acquire shares of the
capital stock of the Company which would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests or any
other action that could jeopardize the tax-free reorganization hereunder;
(s) Pay, discharge or satisfy, in an amount in excess of
$10,000 (in any one case) or $25,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company Financials
(or the notes thereto);
(t) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(u) Enter into any strategic alliance or joint marketing
arrangement or agreement;
(v) Hire or terminate employees or encourage employees to
resign other than in the ordinary course of business;
(w) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (v) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, except as contemplated by this Agreement, the Company shall not take any
of the following actions (or permit any of their respective officers, directors,
agents, representatives or affiliates to take any such action), directly or
indirectly, with any of the other parties to this Agreement: (a) solicit,
encourage, initiate or participate in any negotiations or discussions with
***REORGANIZATION AGREEMENT***
-39-
<PAGE>
respect to, any offer or proposal to acquire all, substantially all or a
significant portion of the business, properties or technologies of any of the
other parties or any of their respective subsidiaries or any portion of the
capital stock of any of the other parties or any of their respective
subsidiaries (whether or not outstanding) whether by merger, purchase of assets,
tender offer or otherwise, or effect any such transaction, (b) disclose any
information not customarily disclosed to any person concerning the business,
technologies or properties of any of the other parties or any of their
respective subsidiaries or afford to any person or entity access to the
Company's properties, technologies, books or records, (c) assist or cooperate
with any person to make any proposal to purchase all or any part of the capital
stock or assets of the other parties or any of their respective subsidiaries, or
(d) enter into any agreement with any person providing for the acquisition of
all or any significant portion of any other party or any of its subsidiaries
(whether by way of merger, purchase of assets, tender offer or otherwise). In
addition to the foregoing, if the Company receives, before the Effective Time or
the termination of this Agreement, any offer, proposal, or request relating to
any of the above, such party shall immediately notify the opposite parties
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request. The parties hereto agree that irreparable damage
would occur in the event that the provisions of this Section 4.2 were not
performed in accordance with their specific terms or were otherwise breached.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FINANCING TRANSACTIONS. After the execution of this Agreement by
all of the parties hereto, Parent shall engage Benchmark or its affiliates to
use their best efforts to identify and introduce to Parent a limited number of
"accredited investors," as such term is defined under Rule 501(a) of Regulation
D under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and may
introduce, either directly or indirectly, the Parent to such other investors as
may be permissible under the Securities Act to purchase Equity Securities for
such purchase price yielding Net Offering Proceeds of up to Fifteen Million
Dollars ($15,000,000), including (without limitation) the funds generated
through the Initial Sale (the "PRIVATE PLACEMENT"). Notwithstanding anything
contained in this Agreement to the contrary, Parent shall retain the sole and
exclusive right to accept or reject any transaction or investor without any
liability to the Company or the GavelNet Stockholders for rejection thereof. The
closing of the sale of Equity Securities yielding Net Offering Proceeds of at
least Eight Million Dollars ($8,000,000), including (without limitation) the
funds generated through the Initial Sale, shall take place immediately before or
contemporaneously with the Closing, as described under Section 6.3 of this
Agreement. After the Closing, up to Six Hundred Thousand Dollars ($600,000) of
the Net Offering Proceeds will be used to repay certain debt obligations of
Parent in the aggregate amount of $2,481,283.39 as of April 30, 2000 arising
from amounts advanced by Silvano DiGenova (the "PARENT ADVANCES"). Subject to
the repayment of the Company Convertible Debt as contemplated under Section
6.3(d) of this Agreement, Parent may use that portion of the Net Offering
Proceeds in excess of Eight Million Dollars ($8,000,000) to repay the remaining
portion of the Parent Advances. "NET OFFERING PROCEEDS" means the remainder of
the gross proceeds generated from the sale of the Equity Securities in the
Private Placement, as reduced by all commissions, fees and expenses paid or
incurred in connection with the Private Placement.
***REORGANIZATION AGREEMENT***
-40-
<PAGE>
5.2 INFORMATION STATEMENT; STOCKHOLDER APPROVAL. As promptly as
practicable after the execution of this Agreement, the Company shall prepare,
and Parent shall assist in preparing, an Information Statement (the "INFORMATION
STATEMENT") for distribution to the stockholders of the Company in connection to
the Merger. Parent and the Company shall provide for inclusion in the
Information Statement, such information concerning itself, its operations,
capitalization, technology, share ownership and other material as the other may
reasonably request. Each of Parent and the Company shall use its reasonable best
efforts to cause the Information Statement to be mailed or delivered to the
Company's stockholders at the earliest practicable time. Whenever any event
occurs which should be set forth in an amendment or supplement to the
Information Statement, Parent or the Company, as the case may be, shall promptly
inform the other company of such occurrence. Promptly after the completion of
the Information Statement, the Company will take all action necessary in
accordance with Delaware Law and its certificate of incorporation and bylaws to
solicit consents from its stockholders in favor of the adoption and approval of
this Agreement and the approval of the Merger and will take all other action
necessary or advisable to secure the vote or consent of its stockholders. The
Information Statement and all other materials to be submitted to the
stockholders shall have been subject to review and approval by Parent and
include information regarding the Company, the terms of the Merger and this
Agreement and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger and this Agreement.
5.3 ACCESS TO INFORMATION.
(a) Company will, and will cause the Company's Subsidiary to,
make available for inspection by Parent and its representatives, during normal
business hours and in a manner so as not to interfere with normal business
operations, all of Company's records (including tax records), books of account,
premises, contracts and all other documents in Company's possession or control
that are reasonably requested by Parent and its representatives to inspect and
examine the business and affairs of Company. Company will cause its managerial
employees, counsel and regular independent accountants to be available upon
reasonable advance notice to answer questions of Parent and Parent's
representatives concerning the business and affairs of Company. Parent and its
representatives will treat and hold as confidential any information they receive
from Company in the course of the reviews contemplated by this Section 5.3. No
examination by Parent and its representatives will, however, constitute a waiver
or relinquishment by Parent of its rights to rely on Company's covenants,
representations and warranties made herein or pursuant hereto.
(b) Parent will, and will cause Parent's Subsidiaries to, make
available for inspection by Company and its representatives, during normal
business hours and in a manner so as not to interfere with normal business
operations, those of Parent's records, premises, contracts and documents in
Parent's possession or control that are reasonably requested by Company and its
representatives to evaluate an investment in the Parent Common Stock. Parent
will cause its managerial employees, counsel and regular independent accountants
to be available upon reasonable advance notice to answer questions of Company
and Company's representatives concerning the business and affairs of Parent. No
examination by Company and its representatives will, however, constitute a
waiver or relinquishment by Company of its rights to rely on Parent's covenants,
representations and warranties made herein or pursuant hereto.
***REORGANIZATION AGREEMENT***
-41-
<PAGE>
5.4 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
5.3, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; PROVIDED,
HOWEVER, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession before the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by order of court or
government agency with subpoena powers or (f) which is disclosed in the course
of any litigation between any of the parties hereto.
5.5 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
5.6 PUBLIC DISCLOSURE. Unless otherwise required by law, before the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by both Company and Parent before release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws and the rules and
regulations of the National Association of Securities Dealers, Inc.
5.7 CONSENTS. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Disclosure Schedule) so as to preserve all rights of, and benefits to
the Company thereunder.
5.8 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
***REORGANIZATION AGREEMENT***
-42-
<PAGE>
5.10 NOTIFICATION OF CERTAIN MATTERS.
(a) The Company and Benchmark shall give prompt notice to
Parent of (i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of the
Company or Benchmark, respectively, contained in this Agreement to be untrue or
inaccurate at or before the Effective Time and (ii) any failure of the Company
or Benchmark, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 5.10
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
(b) The Parent shall give prompt notice to the Company of (i)
the occurrence or non-occurrence of any event, the occurrence or non-occurrence
of which is likely to cause any representation or warranty of the Parent
contained in this Agreement to be untrue or inaccurate at or before the
Effective Time and (ii) any failure of the Parent to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this
Section 5.10 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.12 CONTINUATION OF CERTAIN BENEFITS; TERMINATION OF CERTAIN BENEFITS.
(a) CONTINUATION OF 401(k) PLAN. The Parent hereby agrees to
sponsor and maintain the Company's 401(k) plan for twelve months from the
Closing. As soon as practical after the Closing, the Company's 401(k) plan shall
be terminated and all Company participants as of Closing in such plan shall be
admitted to the Parent's 401(k) plan.
(b) TERMINATION OF SEVERANCE PLANS. The Company and its
Affiliates, as applicable, each agrees to terminate any and all group severance,
separation or salary continuation plans, programs or arrangements that are
covered and filed under ERISA immediately before Closing. The Parent shall
receive from the Company evidence that the Company's and each Affiliate's (as
applicable) plan(s) has been terminated pursuant to resolution of each such
entity's Board of Directors (the form and substance of which resolutions shall
be subject to review and approval of the Parent), effective as of the day
immediately preceding the Closing Date.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or before the Closing of the following
conditions:
***REORGANIZATION AGREEMENT***
-43-
<PAGE>
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the stockholders of the Company by the
requisite vote under applicable law and the Company's certificate of
incorporation.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) ISSUANCE EXEMPT FROM REGISTRATION. Parent shall been
advised by its legal counsel, Pillsbury Madison & Sutro LLP, that the issuance
and sale of the Parent Common Stock to the former shareholders of the Company
shall be exempt from the registration requirements of the Securities Act of 1933
pursuant to one or more exemption. It is contemplated that the issuance and sale
will be exempt pursuant to Rule 506 of Regulation D. If such exemption is not
available, the parties agree to submit this Agreement for approval at a fairness
hearing before the California Department of Corporations (pursuant to Section
3(a)(10) of the Securities Act) and agree to make any change required by the
Department of Corporation; PROVIDED, HOWEVER, if the issuance of the Parent
Common Stock in the Merger is not approved in such fairness hearing and is not
otherwise exempt from registration under the Securities Act, then the parties
shall use their reasonable efforts to register the issuance of such shares
pursuant to a Registration Statement on Form S-4, subject to the satisfaction of
the following two conditions: (i) that the GavelNet Stockholders (and each of
them) shall enter into lock-up agreements pursuant to which they agree not to
sell, transfer or otherwise dispose of their shares for a period of one year
after the date on which such shares shall have been issued; and (ii) the
GavelNet Stockholders pay for fifty percent (50%) of all costs and expenses
associated with such registration.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or before
the Closing of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Effective Time, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or before
the Effective Time, and the Company shall have received a certificate to such
effect signed by a duly authorized officer of Parent.
***REORGANIZATION AGREEMENT***
-44-
<PAGE>
(c) THIRD PARTY CONSENTS. The Company shall have been
furnished with evidence satisfactory to it that Parent has obtained the
consents, approvals and waivers set forth in Section 6.2(c) of the Disclosure
Schedule.
(d) REGISTRATION RIGHTS. The GavelNet Stockholders and Parent
shall have entered into a registration rights agreement in the form attached to
this Agreement as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT").
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
condition (financial or otherwise) or results of operations of Parent since the
date hereof.
(f) DUE DILIGENCE. The Company shall have completed its due
diligence review on Parent to its reasonable satisfaction. The Company shall
have received a certificate from Parent to the effect that Parent has completed
its due diligence review on the Company to Parent's reasonable satisfaction,
which shall be signed by a duly authorized officer of the Company.
(g) LISTING OF PARENT COMMON STOCK. From the date hereof
through the Outside Date, Parent shall maintain the listing of its Common Stock
on the Nasdaq OTC Electronic Bulletin Board.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or before the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and Benchmark contained in this Agreement shall be
true and correct in all material respects on and as of the Effective Time,
except for changes contemplated by this Agreement (including the Disclosure
Schedule) and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date), with the same force and effect as if made on and as of the Effective
Time, except, in all such cases, for such breaches, inaccuracies or omissions of
such representations and warranties which have neither had nor reasonably would
be expected to have a Material Adverse Effect on the Company or Parent; and
Parent and Merger Sub shall have received a certificate to such effect signed on
behalf of the Company by a duly authorized officer of the Company;
(b) INVESTMENT. The Company shall have generated Net Offering
Proceeds of at least Eight Million Dollars ($8,000,000) from the sale of Equity
Securities in the Private Placement (at a weighted average price of no less than
One Dollars ($1.00) per share or per unit price) within the Ninety (90) day
period after the date on which the parties hereto execute this Agreement, under
the terms and parameters set forth under Section 5.1 of this Agreement (the
"MINIMUM FINANCING CONDITION"). Notwithstanding anything contained or implied in
this Agreement to the contrary, Parent shall have no obligation whatsoever with
respect to the consummation of the financing transactions contemplated under
Section 5.1 of this Agreement or the satisfaction of the Minimum Financing
Condition, and Parent shall not be liable if (for any reason whatsoever) the
financing transactions contemplated under Section 5.1 are not consummated or if
the Minimum Financing Condition is not satisfied.
***REORGANIZATION AGREEMENT***
-45-
<PAGE>
(c) EMPLOYMENT AGREEMENTS. Certain employees of the Company
who are accepting employment with Parent after the Effective Time shall have
executed and delivered to Parent an Employment Agreement in substantially the
form of EXHIBIT D and all of the Employment Agreements shall be in full force
and effect.
(d) RESTRUCTURE OF COMPANY CONVERTIBLE DEBT. Holders of the
Company Convertible Debt shall have agreed in writing that the Company
Convertible Debt shall be restructured as follows:
(1) if the Company satisfies the Minimum Financing
Condition (within the 90-day period following execution of this Agreement), then
50.0% of that portion of the Net Offering Proceeds that exceeds Eight Million
Dollars ($8,000,000) shall be used to repay the Company Convertible Debt and the
Unpaid Portion of the Company Convertible Debt (if any) shall be converted at
the Subsequent Closing into the Adjusted Number of Converted Debt Parent Shares
and distributed PRO RATA to the holders of the Company Convertible Debt; and
(2) if the Net Offering Proceeds do not exceed Eight
Million Dollars ($8,000,000) (for any reason whatsoever), then at the Subsequent
Closing the entire Company Convertible Debt shall be converted into the
Converted Debt Parent Shares at a rate of One (1) share for each One Dollar
($1.00) of the Company Convertible Debt and distributed PRO RATA to the holders
of the Company Convertible Debt.
(e) AGREEMENTS AND COVENANTS. The Company shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or before the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by a duly authorized officer of the Company.
(f) DUE DILIGENCE. The Parent shall have completed its due
diligence review on the Company and received all requested documents in
connection with such review, including (without limitation) the financial
statements of the Company that are described elsewhere in this Agreement,
together with the satisfactory opinion of Company Independent Auditor (with
respect to the 1999 financial statements referenced elsewhere in this
Agreement). Parent shall have received a certificate from the Company to the
effect that Company has completed its due diligence review of Parent to the
Company's reasonable satisfaction, which (certificate) shall be signed by a duly
authorized officer of the Company.
(g) THIRD PARTY CONSENTS. Parent shall have been furnished
with evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Section 2.6 of the Disclosure Schedule.
(h) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible assets)
condition (financial or otherwise) or results of operations of the Company since
the date hereof.
***REORGANIZATION AGREEMENT***
-46-
<PAGE>
(i) DISSENTERS. Holders of more than 5.0% of the outstanding
shares of Company Capital Stock shall not have exercised, nor shall they have
any continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(j) CAPITALIZATION. All shares of Converted Company Preferred
Stock shall have been converted into shares of Company Common Stock before the
Closing, as contemplated under Section 1.6(h)(iii) and Section 1.6(a) of this
Agreement.
(k) EXEMPTION FROM REGISTRATION. The offer, sale and issuance
of the shares of Parent Common Stock under this Agreement are exempt from
registration under the Securities Act.
(l) PREMISES LEASE. The Company's real property lease shall
have been terminated or converted into a sublease arrangement under terms that
are satisfactory to Parent.
(m) FINANCIAL SUPPORT AGREEMENT. Parent and the Company shall
have entered into the Financial Support Agreement and the Company shall not be
in default of any material term thereof; provided, however, Parent shall not be
obligated to execute and deliver the Financial Support Agreement unless and
until it has received the Minimum Financing Requirement and has received from
the Company a valid and binding promissory note and first priority security
interest.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Company, Benchmark, the Parent and the
Merger Sub in this Agreement or in any instrument delivered pursuant to this
Agreement (each as modified by the Disclosure Schedule) shall survive the Merger
and continue until the 11:59 p.m. California time (i) on the date which is three
years following the date of the last sale of GavelNet securities with respect to
all matters relating to violations of securities laws and (ii) one year
following the date of this Agreement with respect to all other matters (in each
case, the "EXPIRATION DATE").
7.2 INDEMNITY.
(a) As soon as practicable after the Effective Time, 20.0% of
the Aggregate Number of Parent Shares (after adding back the Converted Debt
Parent Shares) to be issued under Section 1.6(a) (the "ESCROW SHARES") will be
registered in the name of, and deposited with the Escrow Agent, such deposit to
constitute the Escrow Fund and to be governed by the terms set forth in the
Escrow Agreement attached as EXHIBIT E (the "ESCROW AGREEMENT"). The Escrow Fund
will be available to compensate Parent pursuant to the indemnification
obligations of the Company, its Subsidiary, the GavelNet Stockholders and
Benchmark.
***REORGANIZATION AGREEMENT***
-47-
<PAGE>
(b) Each of the GavelNet Stockholders severally (but not
jointly) and the Company hereby agrees to indemnify and hold Parent and its
Subsidiaries, directors, officers and agents harmless against and in respect of
any loss, cost, expense, claim, liability, deficiency, judgment or damage
(hereinafter, individually, a "LOSS", and collectively, "LOSSES") incurred by
the Parent, its Subsidiaries, officers, directors or agents as a result of any
material inaccuracy in or material breach of a representation or warranty of any
of the Company or Benchmark contained in this Agreement, or any instrument
delivered by the GavelNet Stockholders at the Closing or any material failure by
the Company to perform or comply with any covenant contained in this Agreement.
The GavelNet Stockholders shall not have any right of contribution from the
Company with respect to any Loss claimed after Closing by Company.
(c) Each of the Company and Benchmark agrees to jointly and
severally indemnify and hold Parent and its Subsidiaries, directors, officers
and agents harmless against and in respect of any Loss incurred by Parent, its
Subsidiaries, officers, directors or agents as a results of any material
inaccuracy in or material breach of any of the representations or warranties of
the Company or Benchmark that are set forth in Sections 2.2(a)(i) and (ii), 2.4,
2.5 and 2.6 of this Agreement (and no others). Benchmark shall not have any
right of contribution from the Company with respect to any Loss claimed after
Closing by Company.
(d) The Parent and the Merger Sub hereby agree to jointly and
severally indemnify and hold the GavelNet Stockholders, the Company, and its
officers, directors, agents and attorneys harmless against and in respect of any
Loss incurred by the GavelNet Stockholders, the Company, its Subsidiaries,
officers, directors, or agents as a result of any material inaccuracy in or
material breach of a representation or warranty of Parent contained in this
Agreement or any instrument delivered by Company at the Closing or any material
failure by Company to perform or comply with any covenant contained in this
Agreement.
(e) EXPIRATION OF INDEMNIFICATION. The indemnification
obligations under this Section 7.2 shall terminate on the Expiration Date, but
shall not terminate as to any Loss (or a potential claim by an appropriate
party) asserted in good faith before such date in accordance with Section 7.2(f)
below.
(f) PROCEDURE FOR INDEMNIFICATION. In the event that either
party shall incur or suffer any Losses in respect of which indemnification may
be sought by such party pursuant to the provisions of this Article VII, the
indemnified party shall assert a claim for indemnification by written notice (a
"NOTICE") to Parent, the Company, or Benchmark, as the case may be, briefly
stating (i) that the party delivering the Notice has paid or accrued Losses and
(ii) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or accrued, or the basis
for such anticipated liability, and the nature of the misrepresentation, breach
of warranty or covenant to which such item is related. The indemnified party
shall provide the other party on request with all information and documentation
reasonably necessary to support and verify any Losses which the indemnified
party believes give rise to a claim for indemnification hereunder and shall give
reasonable access to all books, records and personnel in the possession or under
the control of that party which would have bearing on such claim.
(i) PAYMENT. The indemnifying party may meet its
indemnification obligations by, at their option, either making payment to the
indemnified party in cash by wire transfer of the amount owed or delivering
shares of Parent Common Stock, duly endorsed or with stock powers attached which
have been endorsed in blank.
***REORGANIZATION AGREEMENT***
-48-
<PAGE>
(g) CALCULATION OF PARENT COMMON STOCK. For the purposes of
determining the number of shares of Parent Common Stock to be delivered to
Company in satisfaction of an indemnification obligation under Section 7.2
hereof (to the extent payment is made in Parent Common Stock), the price per
share shall be equal to the Fair Market Value (defined below) at the Effective
Time. "Fair Market Value" of a share of Parent Common Stock as of a particular
date means: (i) the average of the closing prices over the ten (10) day period
ending immediately before the applicable date of valuation, if the Parent Common
Stock is traded in the over-the-counter market (including trading on the Nasdaq
OTC Bulletin Board); (ii) the average of the closing prices of the Parent Common
Stock over the five (5) business days ending immediately before the applicable
date of valuation, if the Parent Common Stock is traded on a securities exchange
or the Nasdaq National Market or Nasdaq Small Cap Market; and (iii) as
determined in good faith by Parent's Board of Directors upon a review of
relevant factors, if no active public market exists for the Parent Common Stock.
(h) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In the event of any dispute among the parties in
connection with this Agreement, including without limitation, disputes over a
claim pursuant to this Section 7.2 or any disputes under the state or federal
securities laws in connection with this Agreement, the GavelNet Stockholders and
the Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the GavelNet
Stockholders and Parent should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(ii) If no such agreement can be reached after good
faith negotiation (or in any event after 60 days from the date of the Notice),
either Parent or the GavelNet Stockholders may demand arbitration of the matter
unless the amount of the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in either such event
the matter shall be settled by arbitration conducted by three arbitrators.
Parent and the GavelNet Stockholders shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator. The arbitrators
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgment of the arbitrators, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the same
extent as a court of law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision of a
majority of the three arbitrators as to the validity and amount of any claim in
such Notice shall be binding and conclusive upon the parties to this Agreement.
Such decision shall be written and shall be supported by written findings of
fact and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrators. The arbitrators shall not be empowered to award
punitive damages.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Newport Beach, California under the rules then in
effect of the American Arbitration Association. The arbitrators shall determine
how all expenses relating to the arbitration shall be paid, including without
limitation, the respective expenses of each party, the fees of each arbitrator
and the administrative fee of the American Arbitration Association.
***REORGANIZATION AGREEMENT***
-49-
<PAGE>
(i) THIRD-PARTY CLAIMS.
(i) Promptly after receipt by an indemnified party of
notice of the commencement of any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard before or
otherwise involving any court, governmental agency or entity or arbitrator (a
"PROCEEDING") against it, such indemnified party will, if a claim is to be made
against an indemnifying party under this Section 7.2, give notice to the
indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnified party's failure to give such notice.
(ii) If any Proceeding referred to in Section
7.2(h)(i) is brought against an indemnified party and it gives notice to the
indemnifying party of the commencement of such Proceeding, the indemnifying
party will be entitled to participate in such Proceeding and, to the extent that
it wishes (unless the indemnifying party is also a party to such Proceeding and
the indemnified party reasonably determines that joint representation would be
inappropriate), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party (acting in good faith) and, after notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Section 7 for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, (i) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of any law, statute,
ordinance, regulation or ruling or any violation of the rights of any person and
no effect on any other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that are paid in full by
the indemnifying party; and (ii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within thirty days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(iii) Notwithstanding the foregoing, if an
indemnified party reasonably determines that there is a reasonable probability
that a Proceeding may adversely affect it or its affiliates other than as a
result of monetary damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend, compromise, or settle such
Proceeding, but the indemnifying party will not be bound by any determination of
a Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
***REORGANIZATION AGREEMENT***
-50-
<PAGE>
(j) CERTAIN LIMITATIONS. Notwithstanding anything to the
contrary in this Agreement, the indemnifying party will have no liability for
indemnification with respect to the matters described in Section 7.2(a), (b) or
(c), as applicable, until the total of all Losses with respect to such matters
individually or in the aggregate exceeds One Hundred Thousand Dollars
($100,000), in which case the indemnifying party shall be liable to the extent
the amount of such Losses exceeds One Hundred Thousand Dollars ($100,000).
Notwithstanding anything to the contrary in this Agreement, the total liability
of an indemnifying party under this Article VII shall (i) in no event exceed the
Fair Market Value of the Aggregate Number of Parent Shares on the date of the
Effective Time, and (ii) be reduced to the extent of payment to the indemnified
party of applicable insurance proceeds.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time before the
Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has
not occurred by the close of business on the 110th day after the date on which
this Agreement shall have been executed by the parties hereto (provided that the
right to terminate this Agreement under this clause 8.1(b)(i) shall not be
available to any party whose willful failure to fulfill any obligation hereunder
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date); (ii) if the Minimum Financing Condition has not
been satisfied within 90 days after the date of execution of this Agreement;
(iii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; (iv) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental entity that would make consummation of the Merger
illegal, or (v) pursuant to Section 6.1(c);
(c) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of all or a portion of the
business of the Company or (ii) compel Parent or the Company to dispose of or
hold separate all or a portion of the business or assets of the Company or
Parent as a result of the Merger;
(d) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or Benchmark and (i) such breach has not been cured
within five (5) business days after written notice to the Company (provided
that, no cure period shall be required for a breach which by its nature cannot
be cured), and (ii) as a result of such breach the conditions set forth in
Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied;
***REORGANIZATION AGREEMENT***
-51-
<PAGE>
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and (i) such breach has not been cured within
five (5) business days after written notice to Parent (provided that, no cure
period shall be required for a breach which by its nature cannot be cured), and
(ii) as a result of such breach the conditions set forth in Section 6.2(a) or
6.2(b), as the case may be, would not then be satisfied.
(f) by Parent if it is unable to complete (to Parent's
satisfaction) its due diligence review on the Company, or if in the course of
its due diligence review Parent discovers the existence of any material
obligation or other condition not reflected in this Agreement (or the Company
Disclosure Schedule) or on the Current Balance Sheet that has a Material Adverse
Effect (or in the future could have a Material Adverse Effect) on the Company or
the Company's operations or business or the Company's financial condition or
operating results;
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and, except as set forth in Section 8.3 or 8.4, there shall be no liability or
obligation on the part of Parent, Merger Sub or the Company, or their respective
officers, directors or stockholders, provided that each party shall remain
liable for any breaches of this Agreement before its termination; and provided
further that, the provisions of Sections 5.4 and 5.5 and Articles VIII and IX of
this Agreement shall remain in full force and effect and survive any termination
of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
8.4 EXTENSION; WAIVER. At any time before the Closing, Parent, on the
one hand, and the Company and the GavelNet Stockholders, on the other hand, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party 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.
***REORGANIZATION AGREEMENT***
-52-
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Tangible Asset Galleries Inc.
3444 Via Lido
Newport Beach, California 92663
Attention: Chief Financial Officer
Telephone No.: (949) 566-0021
Facsimile No.: (949) 566-9143
with a copy to:
Pillsbury Madison & Sutro LLP
650 Town Center Drive, Suite 700
Costa Mesa, California 92626
Attention: Albert P. Asatoorian, Esq.
Telephone No.: (714) 436-6853
Facsimile No.: (714) 436-2800
(b) if to the Company:
GavelNet.com, Inc.
400 Montgomery Street, 2nd Floor
San Francisco, California 94104
Attention: Michael Haynes
Telephone No.: (415) 544-9899
Facsimile No.: (415) 391-5120
with a copy to:
DeMartino, Finkelstein, Rosen & Virga
1818 N. Street NW, Suite 400
Washington, D.C. 20036-2494
Attention: Ralph V. DeMartino
Telephone No.: (202) 659-0494
Facsimile No.: (202) 659-1290
***REORGANIZATION AGREEMENT***
-53-
<PAGE>
(c) if to Benchmark:
C/O Chris Efird
Benchmark Equity Group
700 Gemini
Houston, Texas 77058
Telephone No.: (281) 488-3883
Facsimile No.: (281) 488-5335
(d) if to the Escrow Agent:
Alpha Tech Stock Transfer
929 E. Stires Lane
Draper, Utah 84020
Attention: Jim Farrell
Telephone No.: (801) 571-5118
Facsimile No.: (801) 571-6112
9.2 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement 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 party, it being understood that all
parties need not sign the same counterpart.
9.4 REPRESENTATIVE. The Company and the GavelNet Stockholders, by
virtue of their approval of this Agreement, will be deemed to have irrevocably
constituted and appointed, Michael R. Haynes ("REPRESENTATIVE"), effective as of
the Effective Time, as their true and lawful agent and attorney-in-fact to enter
into any agreement in connection with the transactions contemplated by this
Agreement or any transaction contemplated by the Escrow Agreement, to exercise
all or any of the powers, authority and discretion conferred on him under either
this Agreement or the Escrow Agreement, to waive any term and condition of any
such agreement, to give and receive notices on their behalf and to be their
exclusive representative with respect to any Action (defined below) arising with
respect to any transaction contemplated by any such agreement, including,
without limitation, the defense, settlement or compromise of any Action for
which Parent or Merger Sub may be entitled to indemnification and the
Representative agrees to act as, and to undertake the duties and
responsibilities of, such agent and attorney-in-fact. The power of attorney is
coupled with an interest and is irrevocable. The Representative will not be
liable for any action taken or not taken by him in connection with his
obligations under this Agreement in the absence of his own gross negligence or
willful misconduct. If the Representative shall be unable or unwilling to serve
in such capacity, his successor, who will serve and exercise the powers of the
Representative hereunder, will be named by those persons holding a majority of
the shares of Seller Capital Stock. For the purposes of this Agreement, "Action"
means any action, complaint, petition, investigation, suit or other proceeding,
whether civil or criminal, in law or in equity, or before any arbitrator or
Governmental Entity.
***REORGANIZATION AGREEMENT***
-54-
<PAGE>
9.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute 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; (b) are 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 as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
9.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement 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 Agreement 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.
9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Orange County, State of California, in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction, venue and such process.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
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.
9.10 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 in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
***REORGANIZATION AGREEMENT***
-55-
<PAGE>
IN WITNESS WHEREOF, each of Parent, Merger Sub, the Company and
Benchmark, have caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
TANGIBLE ASSET GALLERIES, INC. GAVELNET.COM, INC.
By: /s/ Silvano DiGenova By: /s/ Michael R. Haynes
-------------------------------- ---------------------------------
Silvano DiGenova, President & Chief Michael R. Haynes, President and
Executive Officer Chief Operating Officer
TANGIBLE ASSET GALLERIES BENCHMARK EQUITY GROUP, INC.
ACQUISITION CORP.
By: By: /s/ Chris Efird
-------------------------------- ---------------------------------
Name: Name: Chris Efird
-------------------------------- ---------------------------------
Title: Title: Principal
-------------------------------- ---------------------------------
***REORGANIZATION AGREEMENT***
-56-
<PAGE>
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
Exhibit A Form of Financial Support Agreement
Exhibit B Form of Certificate of Merger
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Employment Agreement
Exhibit E Form of Escrow Agreement
