<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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eMerge INTERACTIVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
DELAWARE 3698 65-0534535
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
</TABLE>
10315 102ND TERRACE
SEBASTIAN, FL 32958
561/589-7331
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHARLES L. ABRAHAM
CHIEF EXECUTIVE OFFICER
eMerge INTERACTIVE, INC.
10315 102ND TERRACE
SEBASTIAN, FL 32958
561/589-7331
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
<TABLE>
<S> <C> <C>
JAMES A. OUNSWORTH, ESQUIRE N. JEFFREY KLAUDER, ESQUIRE PHILIP P. ROSSETTI, ESQUIRE
SAFEGUARD SCIENTIFICS, INC. MORGAN, LEWIS & BOCKIUS LLP HALE AND DORR LLP
800 THE SAFEGUARD BUILDING 1701 MARKET STREET 60 STATE STREET
435 DEVON PARK DRIVE PHILADELPHIA, PA 19103-2921 BOSTON, MA 02109
WAYNE, PA 19087 215/963-5694 617/526-6000
610/293-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Class A Common Stock, par value $.01 per share..... $86,750,000 $24,117
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed.
Underwriters may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not
soliciting offers to buy these securities in any state in which the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1999
SHARES
[LOGO]
eMERGE INTERACTIVE, INC.
CLASS A COMMON STOCK
------------------------
This is an initial public offering of class A common stock of eMerge
Interactive, Inc. We are offering shares of class A common stock
in this offering and several stockholders identified in this prospectus are
selling an additional shares. As part of this offering, we are
offering shares of our class A common stock at the public
offering price to shareholders of Safeguard Scientifics, Inc., one of our
principal stockholders, that owned at least 100 shares of common stock of
Safeguard as of October 20, 1999. Safeguard or its designees will purchase any
shares of our class A common stock that are not purchased by Safeguard
shareholders under the directed share subscription program. Safeguard is an
underwriter with respect to the shares offered by us to the shareholders of
Safeguard. Safeguard is not an underwriter with respect to any other shares
offered by us and is not included in the term underwriter as used elsewhere in
this prospectus. See the section entitled Plan of Distribution -- Directed Share
Subscription Program. We expect the initial public offering price will be
between $ and $ per share.
Prior to this offering, there has been no public market for the class A
common stock. We have applied to list the class A common stock on the Nasdaq
National Market under the symbol EMRG.
------------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
PLEASE SEE THE SECTION ENTITLED RISK FACTORS STARTING ON PAGE 9 TO READ ABOUT
RISKS THAT YOU SHOULD CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR CLASS A
COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
Underwritten Public Offering --------- --------
<S> <C> <C> <C>
Public Offering Price.................................. $ $
Underwriting Discounts................................. $ $
Proceeds to eMerge Interactive......................... $ $
Proceeds to Selling Stockholders....................... $ $
</TABLE>
<TABLE>
<CAPTION>
PER SHARE TOTAL
Directed Share Subscription Program --------- --------
<S> <C> <C> <C>
Public Offering Price.................................. $ $
Management Fee......................................... $ $
Proceeds to eMerge Interactive......................... $ $
</TABLE>
<TABLE>
<CAPTION>
TOTAL
Aggregate Offering Proceeds --------
<S> <C> <C> <C>
Proceeds to eMerge Interactive from Underwritten Public
Offering and Directed Share Subscription Program..... $
</TABLE>
At our request, the underwriters have reserved shares of our
class A common stock for sale at the public offering price to our employees,
directors and other persons with relationships with us. See the section entitled
Plan of Distribution for more information. The underwriters have an option to
purchase additional shares of class A common stock from us at the
initial public offering price to cover any over-allotments of shares.
------------------------
ADAMS, HARKNESS & HILL, INC.
FIRST UNION SECURITIES, INC.
FAC/EQUITIES
PROSPECTUS DATED
<PAGE> 3
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of class A common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our class A common stock.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Forward-Looking Statements.................................. 20
Use of Proceeds............................................. 21
Dividend Policy............................................. 21
Capitalization.............................................. 22
Dilution.................................................... 24
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 33
Management.................................................. 48
Related Party Transactions.................................. 54
Principal and Selling Stockholders.......................... 57
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 64
Plan of Distribution........................................ 66
Legal Matters............................................... 69
Experts..................................................... 69
Additional Information...................................... 70
Index to Financial Statements............................... F-1
</TABLE>
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Until , all dealers that buy, sell or trade in our class A
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to its unsold
allotments or subscriptions.
-------------------------
We maintain a Web site at www.emergeinteractive.com, which includes
information relating to eMerge Interactive. Information contained on our Web
site does not constitute a part of this prospectus.
Cyberstockyard(TM) and NutriCharge(TM) are trademarks of eMerge
Interactive. This prospectus also contains trademarks and tradenames of other
companies.
<PAGE> 4
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus before making a decision to
invest.
eMerge INTERACTIVE, INC.
OVERVIEW
We are a leading business-to-business electronic commerce company combining
content, community and transaction services to create an online marketplace for
the cattle industry. We offer our comprehensive cattle solution through our
Internet-based information and transaction platform, our Web-enabled private
network, and our direct sales force. Our products and services are designed to
create an efficient market for the purchase and sale of cattle and to improve
quality and productivity in the cattle industry. Our family of integrated Web
sites and Web-enabled private network provide:
- Livestock procurement services consisting of cattle sales and auctions;
- Customer-specific daily feedlot operations analysis, comparative cattle
industry analysis and benchmarking studies;
- Cattle inventory management tools; and
- Livestock health management and quality enhancement products.
THE ONLINE LIVESTOCK OPPORTUNITY
We believe that the production chain of the cattle industry, which includes
cattle producers, feedlots, packers and suppliers, contains inefficiencies that
reduce animal health and value. These inefficiencies, which include excessive
animal transportation and handling, result in additional transaction costs and
reduced beef quality. Further, the lack of integrated management information
systems and limited access to current and accurate data and day-to-day
management tools have resulted in sub-optimal cattle performance.
Due to its functionality, scalability and accessibility, the Internet is
emerging as a single destination for commerce and information related to the
livestock industry. Many of the variables that affect beef quality can be
addressed by the Internet's open architecture, universal accessibility and
ability to provide more timely and comprehensive information. According to
Forrester Research, business-to-business electronic commerce in the United
States is expected to grow from $43.0 billion in 1998 to $1.3 trillion in 2003.
OUR SERVICES
Our suite of complementary products and services is designed to reduce
inefficiencies throughout the cattle production chain and therefore improve
cattle quality and overall productivity. We currently conduct live cattle sales
and auctions over our Web site. Additionally, through our online and Web-enabled
management information solutions we offer customers detailed pricing, operations
and benchmarking data on the cattle industry. Further, our customers can track
and monitor the performance of their cattle, manage their daily business
operations and access our other online products and services designed to enhance
overall cattle quality.
3
<PAGE> 5
OUR SOLUTION
We offer commerce, information and technology to cattle industry
participants. The key features of our solution include:
- Online cattle sales and auction service, which reduce the overall
handling of cattle, thereby reducing costs and improving quality;
- Management information solutions that provide a broad range of data and
analyses to help industry participants improve cattle management. Our
information solutions include general industry information such as
current industry news, commodities pricing and weather updates, as well
as personalized information based upon customers' individual preferences
and geographic location. In addition, we use our proprietary centralized
database to provide our customers with feed performance benchmarking
services, daily business management and monthly market analysis;
- Diagnostic and therapeutic technologies and products designed for
livestock, such as our restorative feed supplement product, NutriCharge;
and
- An online community designed to facilitate the exchange of information
among livestock producers, feedlots and packers, which includes access to
our in-house cattle industry experts.
OUR STRATEGY
Our strategy is to expand upon our position as a leading online
business-to-business solution for livestock-related commerce, content and
community. Key components of our strategy include:
- Leverage our position as a leading provider of online commerce, content
and community in the cattle industry to build demand for our products,
services and solutions;
- Expand community loyalty by offering comprehensive operational and
industry content;
- Leverage our strong customer relationships and industry expertise to
further establish our online marketplace;
- Develop additional products and services to complement our existing
offerings; and
- Expand our suite of offerings to new international markets and other
segments of the livestock industry.
We are a Delaware corporation originally incorporated on September 12, 1994
under the name Enhanced Vision Systems, Inc. On June 11, 1999, we changed our
name to eMerge Interactive, Inc. Our principal executive offices are located at
10315 102nd Terrace, Sebastian, Florida 32958 and our telephone number is
561-589-5310.
4
<PAGE> 6
THE OFFERING
Class A common stock offered by:
eMerge Interactive.......................... shares
The Selling Stockholders.................... shares
Common stock to be outstanding after the
offering......................................... shares
Use of proceeds.................................. For repayment of debt,
working capital and general
corporate purposes,
including sales and
marketing expenditures,
research and development
expenditures and capital
expenditures. See the
section entitled Use of
Proceeds.
Proposed Nasdaq National Market symbol........... EMRG
In addition to the shares of common stock to be outstanding after
this offering, there are:
- 2,012,170 shares of class A common stock issuable upon the exercise of
outstanding options granted under our equity compensation plans as of
October 20, 1999 at a weighted average exercise price of $2.03 per share,
of which options to purchase 577,095 shares of class A common stock were
exercisable at a weighted average exercise price of $1.32 per share;
- 572,300 additional shares of class A common stock available for issuance
under our 1996 and 1999 equity compensation plans as of October 20, 1999;
and
- 911,111 shares of class B common stock issuable on the exercise of a
warrant that will be exercisable upon consummation of this offering at an
exercise price equal to the initial public offering price.
For a description of our equity compensation plans, please see the section
entitled Management -- Equity Compensation.
5
<PAGE> 7
THE DIRECTED SHARE SUBSCRIPTION PROGRAM
As part of this offering, we are offering shares of our class A common
stock to shareholders of Safeguard Scientifics, Inc. that owned at least 100
common shares of Safeguard on October 20, 1999 in a directed share subscription
program. The program is described in greater detail in the section of this
prospectus entitled Plan of Distribution -- Directed Share Subscription Program.
Unless otherwise noted, the information in this prospectus takes into
account the conversion of preferred stock into shares of common stock, which
will automatically occur immediately before this offering is completed. The
outstanding shares of series A preferred stock, series B preferred stock and
series C preferred stock will convert into shares of class A common stock and
the outstanding shares of series D preferred stock will convert into shares of
class B common stock. All shares offered by this prospectus are shares of class
A common stock. The holders of class A common stock are entitled to one vote per
share. Holders of our class B common stock are entitled to two and one-half
votes per share. Unless otherwise indicated, the references to common stock in
this prospectus refer to both our class A and class B common stock.
The references to Safeguard in this prospectus refer to Safeguard
Scientifics, Inc. and its affiliates. The information throughout this prospectus
also assumes that all of the shares offered in the directed share subscription
program are purchased by shareholders of Safeguard Scientifics, Inc. and that
the underwriters will not exercise their over-allotment option.
Please see the section entitled Capitalization for more information
regarding the outstanding shares of eMerge Interactive common stock and options
to purchase eMerge Interactive common stock.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes consolidated statements of operations data
for our business. The pro forma consolidated statements of operations data gives
effect to our acquisition of CIN, LLC and Professional Cattle Consultants,
L.L.C. as if we had consummated these acquisitions at the beginning of each
period. Cyberstockyard, Inc. is not included because the pro forma effects are
not significant. Business activities related to our continuing operations began
in 1997. The historical data for the six months ended June 30, 1998 and 1999 and
the pro forma data for the year ended December 31, 1998 and the six months ended
June 30, 1999 are unaudited.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SIX MONTHS ENDED YEAR ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
----------------- ----------------- 1998 1999
1997 1998 1998 1999 PRO FORMA PRO FORMA
------- ------- ------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue............................. $ -- $ 1,792 $ 664 $ 2,578 $ 2,283 $ 2,745
Cost of revenue..................... -- 2,623 1,037 2,768 2,801 2,840
Operating expenses.................. 1,356 4,769 1,877 5,519 6,266 6,007
Interest expense/other income,
net............................... 141 332 162 289 315 300
Profit (loss) from continuing
operations........................ $(1,497) $(5,932) $(2,412) $(5,998) $(7,099) $(6,402)
======= ======= ======= ======= ======= =======
Profit (loss) from continuing
operations per common
share -- basic and diluted........ $ (4.89) $ (1.70) $ (0.93) $ (1.15) $ (1.74) $ (1.18)
======= ======= ======= ======= ======= =======
Weighted average number of common
shares outstanding -- basic and
diluted........................... 306 3,486 2,607 5,223 4,086 5,403
======= ======= ======= ======= ======= =======
</TABLE>
The following table summarizes our unaudited balance sheet data as of June
30, 1999.
The pro forma consolidated balance sheet data give effect to:
- The issuance of 4,555,556 shares of series D preferred stock, which will
automatically convert into shares of our class B common stock immediately
prior to the consummation of the offering, and a warrant to purchase
911,111 shares of class B common stock at an exercise price equal to the
initial public offering price, for $38.8 million under a securities
purchase agreement dated October 27, 1999, and the application of a
portion of the proceeds from that agreement to repay indebtedness to XL
Vision of approximately $4.5 million; and
- The automatic conversion of all outstanding shares of series A, series B
and series C preferred stock into shares of our class A common stock,
which will occur immediately prior to the consummation of the offering.
The pro forma as adjusted consolidated balance sheet data below give effect
to:
- The events described in the two preceding paragraphs; and
- The sale of shares of class A common stock in this offering and
our application of the estimated net proceeds from the sale of these
shares, as described in the section entitled Use of Proceeds.
7
<PAGE> 9
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................... $ 663 $14,163
Total assets................................... 11,928 25,428
Total indebtedness............................. 8,443 3,943
Total stockholders' equity..................... 777 18,777
</TABLE>
Total indebtedness includes amounts due to XL Vision totaling $8.0 million.
We intend to use a portion of the net proceeds from this offering to pay in full
amounts due to XL Vision and Safeguard. As of September 30, 1999, approximately
$6.0 million was still owed to XL Vision, of which we intend to pay $4.5 million
with the net proceeds from the sale of series D preferred stock and a warrant to
purchase 911,111 shares of class B common stock to Internet Capital Group, Inc.;
the remaining $1.5 million will be paid with a portion of the net proceeds from
this offering. The principal amount owed to Safeguard as of October 20, 1999 was
approximately $7.1 million, and is to be repaid with the net proceeds of this
offering.
8
<PAGE> 10
RISK FACTORS
You should carefully consider the risks described below before investing in
our class A common stock. The risks and uncertainties described below may not be
the only risks that we face. The factors discussed below may harm our business,
financial condition and results of operations and could result in a complete
loss of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY IN OUR CURRENT LINE OF BUSINESS AND FACE
SIGNIFICANT RISKS TYPICAL OF EARLY STAGE COMPANIES, WHICH COULD HARM OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We commenced operations in 1994 and commercially released our initial
product in November 1997. Accordingly, we have only a limited operating history
upon which you can evaluate our business. In addition, our business strategy and
revenue model have changed significantly during the past year. Prior to this
change, we generated revenue primarily from the sale and licensing of our AMIRIS
product, a maritime navigational thermal imaging system. We have sold the AMIRIS
product line and have changed our business strategy to focus on
business-to-business Internet commerce for the livestock industry. We only
recently launched our commercial Web site for the cattle industry in August
1999. Our limited operating history, combined with our recent shift in business
strategy, makes predicting our future results of operations difficult. Our new
business model has not been tested and, accordingly, we cannot be certain that
our business strategy will be successful.
Specific uncertainties relating to our new business model include our
ability to:
- Achieve acceptance of our Web site as a marketplace for electronic
commerce;
- Expand the number of feedlots that utilize our services;
- Develop and upgrade our products and technologies more effectively and
rapidly than our competitors; and
- Successfully implement our sales and marketing strategy.
THE INTERNET LIVESTOCK PRODUCTS AND SERVICES MARKET IS NEW AND UNCERTAIN AND OUR
BUSINESS MAY NOT DEVELOP AS WE ANTICIPATE.
The Internet market for livestock products and services has not yet
developed, and its development is subject to substantial uncertainty. We cannot
assure you that this market will develop as we expect, if at all. Our revenue
model depends on the commercial acceptance of our Internet-based products and
services. We do not know if our target customers will use the Internet as a
means of purchasing products and services. Even if potential customers choose to
purchase livestock products and services over the Internet, they may not choose
our online services to do so. If the market for livestock products and services
over the Internet does not develop as we anticipate, our business and the
results of our operations will be harmed.
WE RECENTLY COMPLETED SIGNIFICANT BUSINESS ACQUISITIONS AND WE MAY MAKE
ACQUISITIONS OF OTHER BUSINESSES AND TECHNOLOGIES IN THE FUTURE, WHICH MAY BE
DIFFICULT TO INTEGRATE INTO OUR BUSINESS AND MAY DISRUPT OR NEGATIVELY IMPACT
OUR BUSINESS.
We recently made, and will continue to make, investments in and
acquisitions of complementary companies, technologies and assets. We acquired
substantially all of the assets of CIN, LLC in February 1999, and Professional
Cattle Consultants, L.L.C. in May 1999.
9
<PAGE> 11
We also acquired all of the issued and outstanding stock of Cyberstockyard, Inc.
in March 1999. If we fail to successfully integrate the operations of these
companies, or any companies acquired in the future, with our business, we may
not be able to operate efficiently or profitably and our business and the
results of our operations would be harmed.
These acquisitions may result in:
- Difficulties in assimilating technologies, products, personnel and
operations;
- Diversion of our management's attention;
- Entering markets in which we have no or limited prior experience;
- Loss of key employees of acquired organizations; and
- Capital requirements in excess of what we anticipate.
In the future, acquiring companies, assets or technologies may also require
us to make cash payments, assume debt, incur large write-offs related to
intangible assets and issue equity, which will dilute ownership interest.
IF OUR ONLINE CATTLE SALES AND AUCTION SERVICES DO NOT ACHIEVE COMMERCIAL
ACCEPTANCE, OUR OPERATING RESULTS WILL BE HARMED.
We will rely on the success of our online cattle sales and auction services
for a substantial portion of our revenue for the foreseeable future. As a
result, our ability to achieve commercial acceptance of our cattle sales and
auction services is critical to our ability to obtain future revenue. Any
failure to successfully gain commercial acceptance of these services would harm
our business and the results of our operations.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO INCUR LOSSES FOR THE
FORESEEABLE FUTURE. IF WE CONTINUE TO INCUR LOSSES, OUR FINANCIAL CONDITION MAY
BE HARMED AND OUR BUSINESS WILL NOT ULTIMATELY BE FINANCIALLY VIABLE.
We have incurred significant net losses since inception. We reported a net
loss of approximately $5.5 million for the year ended December 31, 1997 and
approximately $7.8 million for the year ended December 31, 1998. We expect to
continue to incur significant losses in the future. As of June 30, 1999, we had
accumulated net losses totaling approximately $22.8 million. Our revenue may not
grow or may not even continue at its current level and, as a result, the results
of our operations may be harmed and our business may not be financially viable
in the future. To achieve profitability we must, among other things:
- Gain commercial acceptance of our online cattle sales and auction
services;
- Continue to expand the number of livestock industry participants using
our network;
- Continue to obtain access to data from feedlots to adequately address the
information needs of our customers;
- Respond to competitive developments;
- Increase our brand recognition;
- Successfully introduce new products and services; and
- Continue to upgrade and enhance our technologies to accommodate expanded
product and service offerings and increased customer traffic.
If we are unable to achieve any of these goals, our business may be harmed.
10
<PAGE> 12
A DECLINE IN THE DEMAND FOR BEEF OR A DECLINE IN THE PRICE OF HIGH QUALITY BEEF
RELATIVE TO LOWER QUALITY BEEF COULD HARM OUR BUSINESS.
We currently derive a majority of our revenue from products and services
relating to the sale of cattle. If the demand for beef declines, the demand for
our products and services would likely decline, and our results of operations
would be harmed. Furthermore, sales of NutriCharge are dependent on the price of
high grade beef relative to lower grade beef. The economic benefit to a customer
of using NutriCharge is based on receiving a substantial premium for higher
quality beef over lower grade beef. Because NutriCharge is designed to
counteract the negative effects of animal stress on the quality of beef, if the
price of high quality beef declines relative to that of lower grade beef, our
sales of NutriCharge could decline and our results of operations could be
harmed.
IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY BE HARMED.
We seek to grow by increasing transaction and subscription volume, adding
new products and services and by hiring additional employees. This growth is
likely to place a significant strain on our resources and systems. As we
continue to increase the scope of our operations, we will need an effective
planning and management process to implement our business strategy successfully
and we will need to implement new and improve existing systems, procedures and
controls. We will also need to expand, train and manage our workforce. We cannot
assure you that we will be able to effectively or successfully manage our
growth.
We depend upon XL Vision for accounting, management and administrative
resources. We are currently in the process of establishing our own corporate
infrastructure. If our management team fails to manage this growth effectively,
successfully establish our corporate infrastructure or if there are
unanticipated costs or delays in the improvement and implementation of new and
existing systems, procedures and controls, our business and financial condition
may be harmed.
IF WE ARE UNABLE TO CREATE, DEVELOP, LICENSE AND PROTECT PROPRIETARY CONTENT,
TECHNOLOGIES AND INTELLECTUAL PROPERTY, OUR BUSINESS AND COMPETITIVE POSITION
WILL BE HARMED. ANY LITIGATION RELATING TO OUR INTELLECTUAL PROPERTY COULD BE
COSTLY AND COULD PREVENT US FROM SELLING OUR PRODUCTS AND SERVICES IN THE
FUTURE.
Proprietary rights are important to our success and our competitive
position. We protect our intellectual property through a combination of patent,
copyright, trade secret and trademark law and confidentiality agreements with
third parties. We currently have three pending U.S. patent applications and 31
pending U.S. trademark applications. We cannot guarantee that any of our pending
patent or trademark applications will be approved. Even if they are approved,
the patents or trademarks may be challenged by other parties or invalidated. In
addition, we depend upon our proprietary database of industry and client
information to provide our clients with our information services. Despite our
efforts to protect our proprietary rights, unauthorized parties may copy aspects
of our products and technology or obtain access to our confidential proprietary
database. Other parties may also breach confidentiality agreements and other
protective contracts. We may not become aware of these breaches or have adequate
remedies available. In addition, effective copyright, patent and trademark
protection may be unavailable in certain countries to which we might expand our
operations.
In technology markets generally, there is frequent and substantial
intellectual property litigation. We may be subject to legal proceedings and
claims, including claims that we infringe third-party proprietary rights. While
we are not aware of any patents, copyrights or other rights that would prevent
us from manufacturing and commercializing our products or
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<PAGE> 13
services in the United States and abroad, there can be no assurance that other
parties will not assert infringement claims against us. There also can be no
assurance that former employers of our present and future employees will not
claim that our employees have improperly disclosed confidential or proprietary
information to us. Any of these claims, with or without merit, could subject us
to costly litigation and divert the attention of our personnel.
WE TYPICALLY ASSUME THE OWNERSHIP OF CATTLE SOLD THROUGH OUR INTERNET CATTLE
MARKETPLACE AND ARE SUBJECT TO THE RISK OF LOSS WHILE WE HOLD TITLE.
In the sales transactions conducted through our Internet cattle sales and
auction services network, we typically purchase the cattle from the seller and
then resell the cattle to the buyer. In this process, we assume title to the
cattle for up to 48 hours. As a result, we assume all risk relating to the
cattle during that period, including that the cattle sale may not be completed
as anticipated. Although we review the background and credit history of our
customers, we cannot assure you that we will receive full and timely payment in
each instance. If the buyer does not accept the cattle, we may not be able to
sell the cattle to other buyers on the same terms, and our profitability may be
harmed. If the cattle suffer from health deterioration or weight loss while in
our ownership, the purchasers may assert claims against us. Our business and
financial condition may be harmed if we have to defend any claims or pay any
refunds. If the cattle are destroyed while we have ownership, we may be held
responsible for the loss or may be obligated to purchase additional cattle to
fulfill our delivery commitments. As a result, our business may be harmed.
WE RELY ON TECHNOLOGY LICENSED FROM THE CANADIAN GOVERNMENT, THE LOSS OF WHICH
MAY HARM OUR ABILITY TO SELL OUR NUTRICHARGE PRODUCT.
We incorporate technology licensed exclusively from the Canadian government
under a portfolio of patents relating to animal food science technology into our
NutriCharge product. We may also incorporate some of this technology into future
infrared products that we may develop. The license agreement expires in July
2018. The Canadian government can terminate the license agreement prior to its
expiration if we breach a material term of the license agreement and fail to
cure such breach, commence bankruptcy or insolvency proceedings or assign the
license agreement without the Canadian government's prior written consent. If
the license is terminated, we must return all acquired confidential information,
including all licensed technologies, to the Canadian government and pay all
costs due under the agreement. In such event, it may be impossible to develop or
otherwise obtain rights to equivalent noninfringing technology. Our inability to
maintain this license on commercially favorable terms or to replace the
technology if the license is terminated may harm our ability to sell our
NutriCharge product and future infrared products that may be developed.
WE HAVE SELECTED ARCHER-DANIELS-MIDLAND COMPANY AS OUR CURRENT SINGLE SOURCE OF
SUPPLY FOR THE BASE COMPONENTS OF NUTRICHARGE. IF THIS RELATIONSHIP IS
TERMINATED OR IF ARCHER-DANIELS-MIDLAND COMPANY IS UNABLE TO MEET OUR NEEDS ON A
TIMELY BASIS, WE MAY INCUR SIGNIFICANT COSTS WHILE SEEKING AN ALTERNATIVE SOURCE
OF SUPPLY AND MAY SUFFER DELAYS IN DELIVERING OUR PRODUCTS, WHICH COULD HARM OUR
BUSINESS AND THE RESULTS OF OUR OPERATIONS.
We currently have a toll processing agreement with a division of
Archer-Daniels-Midland Company, or ADM, to provide us with the base components
for NutriCharge. The agreement expires in August 2000, and will be automatically
renewed. If ADM fails to meet its obligations under the agreement and does not
supply us in a timely fashion, we will be delayed in shipping products to our
customers. If ADM terminates our relationship without
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<PAGE> 14
giving us the required 90 days' notice, we could experience a significant delay
in providing NutriCharge as we seek other suppliers. As a result, we may realize
reduced revenue during this period and may lose NutriCharge customers. In
addition, we may incur significant costs while seeking an alternative source of
supply. If we are delayed in delivering or are unable to deliver products to our
customers, our business, financial condition and operating results would be
adversely affected.
WE DEPEND ON OUR KEY EMPLOYEES FOR OUR SUCCESS. THE LOSS OF ANY OF THESE PERSONS
COULD HARM OUR ABILITY TO COMPETE.
Our success depends on the continued services of our key senior management,
technical and sales personnel. The loss of the services of any of these persons
could harm our business, including our ability to compete effectively. Our
performance also depends on our ability to attract, retain and motivate key
officers and employees. We may be unable to retain our employees or to attract,
assimilate and retain other qualified employees with relevant livestock and
electronic commerce industry skills in the future. If we fail to attract, retain
and motivate qualified employees, our business will be harmed.
WE MAY FACE COSTLY PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
AWARDS AGAINST US OR IMPAIR OUR ABILITY TO MARKET AND SELL OUR PRODUCTS AND
SERVICES.
We may face product liability claims in connection with the sale and use of
our current and future products and services. We do not maintain product
liability insurance. A successful product liability claim brought against us
could harm our financial condition and reputation in the industry. Even if
unsuccessful, a product liability claim could result in costly litigation and
divert management's attention and resources.
WE EXPECT OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE. IF WE FAIL TO MEET THE
EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF OUR
COMMON STOCK COULD DECLINE.
We expect that our revenue and operating results will vary in the future as
a result of a number of factors, many of which are beyond our control.
Therefore, you should not rely on period-to-period comparisons of results of
operations as an indication of our future performance. Our operating results in
the future may not follow any prior trends. You should not rely on our
historical results as an indication of future results. The factors that affect
our quarterly operating results include:
- Demand for our products and services;
- Our ability to retain existing customers and attract new customers;
- Product and price competition;
- Our ability to develop and market new and enhanced products and services
on a timely basis;
- The introduction of new or enhanced Web sites, products and services by
us or our competitors;
- Continued purchases by our existing customers; and
- Significant downturns in our targeted markets.
As a result of these factors, our annual or quarterly results of operations
may not meet the expectations of securities analysts and investors, which could
cause the price of our common stock to decline.
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<PAGE> 15
OUR QUARTERLY RESULTS COULD FLUCTUATE AS A RESULT OF SEASONAL FLUCTUATIONS IN
THE CATTLE INDUSTRY.
The cattle industry has historically experienced, and may continue to
experience, seasonal fluctuations. These seasonal patterns may cause quarterly
fluctuations in our operating results. In particular, a disproportionate number
of cattle are placed on feed during the third and fourth quarter of each
calendar year. Due to our limited operating history and the recent changes in
our business as a result of acquisitions, it is difficult to predict the effect
that this seasonal pattern will have on our revenue and quarterly operating
results.
FAILURE OF OUR COMPUTER SYSTEMS TO PROPERLY RECOGNIZE THE YEAR 2000 COULD
DISRUPT THE OPERATION OF OUR BUSINESS AND TECHNICAL SYSTEMS.
Many currently installed computer systems are not capable of accepting four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, prior to January 1, 2000, computer systems and software used by many
companies may need to be modified or upgraded to process information correctly
or risk system failure or miscalculations causing disruptions of normal business
activities. Based on our assessment to date, we believe our software and
products are year 2000 compliant; that is, they are capable of accurately
distinguishing 21st century dates from 20th century dates.
However, we face the risk that systems which we depend on to conduct our
operations are not year 2000 compliant and we are currently attempting to
identify specific areas of risk for remediation. Our potential areas of exposure
include products purchased from other parties, computers, software, telephone
systems and other equipment used internally. If our remedial efforts are not
successful or if distributors, suppliers and other parties with which we conduct
business do not successfully address such issues, we could be unable to deliver
services to our customers, and our business, operating results and financial
position could be materially and adversely affected.
OUR SECURITY SYSTEMS AND BACK-UP MECHANISMS ARE UNPROVEN, AND THEREFORE ARE
VULNERABLE TO DAMAGE OR INTERRUPTION WHICH WOULD HARM OUR ABILITY TO RELIABLY
SERVICE OUR CUSTOMERS.
Our systems and operations are vulnerable to damage or interruption from a
number of sources, including fire, flood, power loss, earthquakes,
telecommunications failures, system failures, Internet brownouts, computer
viruses, electronic break-ins and similar disruptions. We have experienced minor
system interruptions in the past and may experience them again in the future.
Any substantial interruptions could result in the loss of data and could impair
our ability to provide our products and services to customers and to generate
revenues. Presently, we do not have a formal disaster recovery plan in effect.
We are currently evaluating our business interruption insurance to determine
whether we have sufficient coverage to compensate us for losses that may occur
if any of our Internet-based services are interrupted.
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<PAGE> 16
RISKS RELATED TO THE INTERNET
IF ELECTRONIC COMMERCE DOES NOT CONTINUE TO GROW AS EXPECTED, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL BE HARMED.
Our long-term success depends on widespread market acceptance of the
Internet and online commercial services as a medium for commerce. A number of
factors could prevent such acceptance, including:
- The early stage of the Internet;
- The lack of continued development of the Internet's technological
infrastructure; and
- Consumer concern about the security of electronic commerce transactions.
If the Internet commerce market does not grow or grows more slowly than
anticipated, our business, financial condition and results of operations will be
harmed.
IF THE INTERNET OR OUR WEB SITES AND SYSTEMS CANNOT SUPPORT THE GROWTH IN
ELECTRONIC COMMERCE, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WILL BE HARMED.
If the Internet fails to evolve to support growth in electronic commerce,
our business, financial condition and results of operations will be harmed.
Specifically, we would be harmed if:
- The network infrastructure necessary to sustain substantial growth in
usage of the Internet is not adequately developed and cannot process a
growing number of transactions; and
- The availability of telecommunication services is insufficient or
telecommunication services do not evolve promptly to support real-time
interactions with customers.
We may also need to devote substantial resources to updating our Web sites
and online services to support the growth of online commerce. If we fail to
adapt our products and services, we may be incompatible with new technologies or
be unable to accommodate new users.
RISKS ASSOCIATED WITH THE SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT OUR ELECTRONIC COMMERCE
BUSINESS.
We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers and proprietary data,
may prevent many potential customers from engaging in online transactions. We
intend to use authentication technology, which requires passwords and other
information to prevent unauthorized persons from accessing a customer's
information, or encryption, which transforms information into a code designed to
be unreadable by third parties, to protect confidential information. In
addition, despite the measures we intend to take, our infrastructure is
potentially vulnerable to physical or electronic break-ins, viruses or similar
problems. If our security measures are circumvented, proprietary information
could be misappropriated or our operations could be interrupted. Security
breaches that result in access to confidential information could expose us to a
risk of loss or liability. If we do not adequately address these concerns or
face any claims in connection with a breach of security, our business, financial
condition and operating results could be harmed.
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<PAGE> 17
WE COULD FACE LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED THROUGH
OUR WEB SITES, WHICH COULD RESULT IN HIGH LITIGATION OR INSURANCE COSTS.
As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute on our Web sites. Claims have been successfully
brought against online services. Although we carry general liability insurance,
our insurance may not cover claims of these types or may not be adequate to
cover us for all liability that may be imposed. Any imposition of liability
could negatively impact our reputation and result in increased insurance costs.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD RESULT IN ADDITIONAL BURDENS
TO DOING BUSINESS ON THE INTERNET.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws including those governing intellectual property,
privacy, libel and taxation apply to the Internet.
In 1998, the Internet Tax Freedom Act placed a three-year moratorium on
state and local taxes on Internet access, except for taxes imposed prior to
October 1, 1998, and on taxes which discriminate against online commerce.
However, Congress may not renew this legislation in 2001 and state and local
governments would be able to impose Internet-specific taxes on goods purchased
electronically, in addition to taxes that are otherwise imposed on sales
transactions.
In addition, laws and regulations that apply to Internet communications,
commerce and advertising are becoming more prevalent. These regulations could
increase the costs of communicating on the Web and adversely affect the demand
for our products and services and thereby harm our business, results of
operations and financial conditions. A number of laws and regulations may also
be adopted covering e-commerce issues such as user privacy, pricing, content,
copyrights, distribution, antitrust matters, taxation and quality of products
and services. Several telecommunications carriers have asked the Federal
Communications Commission to regulate telecommunications connections to the
Internet, which could result in higher costs of doing business over the
Internet. Legislation of these kinds could hinder growth in the use of the
Internet generally and decrease the acceptance of the Internet as a
communications and commercial medium.
Due to the global nature of the Internet, it is possible that governments
of foreign countries might attempt to regulate our transmissions or levy sales
or other taxes relating to our activities and we may incur significant costs to
comply with foreign laws. Furthermore, the European Union recently adopted a
directive addressing data privacy that may result in limits on the collection
and use of user information. In addition, the growth and development of the
market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet. Our
business, results of operations and financial condition could be harmed by the
adoption or modification of laws or regulations relating to the Internet.
THERE IS INTENSE COMPETITION FOR INTERNET PRODUCTS AND SERVICES, WHICH COULD
REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE.
Competition for Internet products and services and electronic commerce is
intense. We expect that competition will continue to intensify. Barriers to
entry are minimal, and competitors can launch new Web sites at a relatively low
cost. Our competitors may develop Internet products or services that are
superior to, or have greater market acceptance, than
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<PAGE> 18
our solutions. If we are unable to compete successfully against our competitors,
our business, financial condition and operating results will be harmed.
RISKS RELATED TO THE OFFERING
INTERNET CAPITAL GROUP, SAFEGUARD AND XL VISION WILL BE ABLE TO CONTROL MATTERS
REQUIRING STOCKHOLDER APPROVAL AND MAY VOTE AGAINST MATTERS THAT YOU VOTE IN
FAVOR OF OR MAY VOTE IN FAVOR OF MATTERS THAT YOU VOTE AGAINST.
Internet Capital Group and Safeguard are affiliated entities and Safeguard
and XL Vision are affiliated entities. Following the closing of this offering,
Internet Capital Group, Safeguard and XL Vision together will have the power to
vote approximately % of the aggregate number of votes to which the holders
of our common stock are entitled. In addition, Safeguard and Internet Capital
Group are parties to a joint venture agreement under which they have agreed to
use their best efforts to vote together on matters submitted to stockholders for
approval. As a result, these stockholders will be able to control all matters
requiring stockholder approval. These stockholders may have interests that
differ from yours. Matters that typically require stockholder approval include:
- Election of directors;
- Approval of a merger or consolidation; and
- Approval of a sale of all or substantially all of our assets.
Currently, one member of our board of directors is an officer of Safeguard
and a director of both Internet Capital Group and XL Vision, one member of our
board of directors is an executive officer of Safeguard, one member of our board
of directors is the Chief Executive Officer and the Chairman of the Board of XL
Vision, one member of our board of directors is a director of XL Vision and
Safeguard and one member of our board of directors is an executive officer of
Internet Capital Group. In addition, Internet Capital Group has the right to
elect another director to our board. Under the joint venture agreement,
Safeguard and Internet Capital Group have agreed to vote for two designees of
Safeguard and two designees of Internet Capital Group in all future elections of
directors. Safeguard, XL Vision and Internet Capital Group will therefore have
the ability to significantly influence our management.
The concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which could reduce the market price of our common
stock.
WE WILL HAVE BROAD DISCRETION IN USE OF THE PROCEEDS FROM THIS OFFERING AND
THEREFORE MAY USE THE PROCEEDS FOR PURPOSES NOT CURRENTLY CONTEMPLATED BY US AND
FOR WHICH YOU DO NOT AGREE, SUCH AS ACQUISITIONS.
Our primary purpose for this offering is to create a public market for our
common stock. We plan to use the proceeds from this offering to repay
outstanding debt relating to a recent acquisition and for working capital and
general corporate purposes. We may also use the proceeds in future strategic
acquisitions of, or investments in, businesses that offer products, services and
technologies that further our ability to provide products and services to
businesses or increase our ability to sell our products and offer services to
new markets. Until the need arises to use the proceeds from this offering, we
plan to invest the net proceeds in investment grade, interest-bearing
securities. We will have broad discretion in how we use the proceeds of this
offering and you will not have the opportunity to evaluate the economic,
financial or other information on which we base our decisions on how to use the
proceeds.
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<PAGE> 19
THE SALE OF OUTSTANDING SHARES IN THE MARKET BY OUR EXISTING STOCKHOLDERS IN THE
FUTURE MAY ADVERSELY AFFECT OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market following the offering, then the market price of our common stock
could fall. Of the shares that will be outstanding on the
consummation of this offering:
- The shares offered through this prospectus will be freely tradable in the
public market;
- Approximately additional shares may be sold after the
expiration of 180-day lock-up agreements; and
- Approximately additional shares may be sold on the
exercise of stock options or warrants after the expiration of the 180-day
lock-up agreements.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE THAT COULD NEGATIVELY
IMPACT THE VALUE OF YOUR INVESTMENT.
Prior to this offering, there has been no public market for our common
stock. Accordingly, the market price of our common stock, like the market for
Internet-related and technology companies in general, could be highly volatile.
The initial public offering price for our shares will be determined by us and
the representatives of the underwriters and may not be indicative of the price
that will prevail in the public market after our shares begin trading.
The price at which our common stock will trade after this offering is
likely to be highly volatile and may fluctuate substantially due to factors such
as:
- Actual or anticipated variations in quarterly operating results;
- Announcements of technological innovations;
- Conditions or trends in the cattle industry;
- New sales formats of new products or services;
- Changes in or failure by us to meet financial estimates of securities
analysts;
- Conditions or trends in the Internet industry;
- Announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
- Capital commitments;
- Additions or departures of key personnel; and
- Sales of common stock.
In addition, the U.S. stock markets have from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the common stock of technology companies, particularly Internet companies.
In the past, these broad market fluctuations have been unrelated or
disproportionate to the operating performance of these companies. Any
significant fluctuations in the future might result in a material decline in the
market price of our common stock. In the past, following periods of volatility
in the market price of a particular company's securities, securities class
action litigation has often been brought against that company. We may become
involved in this type of litigation in the future. Litigation is often expensive
and diverts the attention and resources of management, which could harm our
business and operating results.
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<PAGE> 20
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing our common stock in
this offering will, therefore, incur immediate dilution of $ in net
tangible book value per share of our common stock. This dilution figure deducts
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us from the initial public offering price. Investors will
incur additional dilution upon the exercise of outstanding stock options.
OUR UNDESIGNATED PREFERRED STOCK MAY DETER POTENTIAL ACQUISITION BIDS FOR OUR
BUSINESS, INCLUDING BIDS THAT MAY BE BENEFICIAL TO OUR STOCKHOLDERS.
Although our outstanding preferred stock will convert to common stock when
this offering is consummated, and we do not currently plan to issue any shares
of preferred stock, our board of directors may issue up to 15,000,000 shares of
preferred stock in one or more series. The board of directors can fix the number
of shares of each class and the voting rights, preferences, limitations and
special rights, if any, without any further vote or action by our stockholders.
The issuance of shares of preferred stock without further action by our
stockholders may delay or prevent a change in control transaction. The issuance
of preferred stock may result in the loss of voting control to others. As a
result, the market price of our common stock and the voting and any other rights
of the holders of our common stock may be harmed.
DELAWARE LAW MAY DETER POTENTIAL ACQUISITION BIDS FOR OUR BUSINESS, INCLUDING
BIDS WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS.
Delaware law may deter potential bids for our business. We are subject to
the anti-takeover provisions of the Delaware General Corporation Law, which
regulates corporate acquisitions. Delaware law prevents us from engaging in a
business combination with any interested stockholder for three years following
the date that the stockholder became an interested stockholder. For purposes of
Delaware law, a business combination includes a merger or consolidation
involving us and the interested stockholder and the sale of more than 10% of our
assets. In general, Delaware law defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of a
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. Under Delaware law, a Delaware corporation
may opt out of the anti-takeover provisions. We do not intend to opt out of
these anti-takeover provisions.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address electronic
commerce strategy, acquisition and expansion strategy, development of services,
use of proceeds, projected capital expenditures, liquidity, development of
additional revenue sources, development and maintenance of strategic alliances,
market acceptance of the Internet, technological advancement, ability to develop
brand identification and global expansion. These statements may be found in the
sections of this prospectus entitled Prospectus Summary, Risk Factors, Use of
Proceeds, Management's Discussion and Analysis of Financial Condition and
Results of Operations, Business and in this prospectus generally. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including all the risks discussed in
Risk Factors and elsewhere in this prospectus.
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USE OF PROCEEDS
We expect to receive approximately $ million in net proceeds from the
sale of the shares of class A common stock in this offering, assuming
an initial public offering price of $ per share, underwriters' discount of
$ and our offering expenses of $ . We expect to receive
approximately $ million in net proceeds if the underwriters' over-allotment
option is exercised in full. We will not receive any proceeds from the sale of
class A common stock by the selling stockholders.
The primary purpose of this offering is to obtain additional capital,
create a public market for the common stock and facilitate future access to
public markets.
We intend to use a portion of the net proceeds from this offering to pay in
full amounts due to XL Vision and Safeguard. As of September 30, 1999,
approximately $6.0 million was owed to XL Vision, of which we intend to pay $4.5
million with the net proceeds from the sale of series D preferred stock and a
warrant to purchase 911,111 shares of class B common stock to Internet Capital
Group, Inc.; the remaining $1.5 million will be paid with a portion of the net
proceeds from this offering. As of October 20, 1999, approximately $7.1 million
of principal was owed to Safeguard, which we intend to repay with the proceeds
of this offering.
In addition, we intend to use the net proceeds of this offering for payment
of a $1.4 million debt related to a 19% investment in Turnkey Computer Systems,
Inc., which is due and payable upon consummation of this offering. We also
intend to use the proceeds from this offering for working capital and other
general corporate purposes, including:
- Increased domestic and international sales and marketing expenditures;
- Increased research and development expenditures; and
- Capital expenditures made in the ordinary course of business.
We may also use a portion of the net proceeds to acquire additional
businesses, products and technologies or to establish joint ventures that we
believe will complement our current or future business. However, we have no
specific plans, agreements or commitments, oral or written, to do so. We are not
currently engaged in any negotiations for any acquisition or joint venture. The
amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue growth,
if any, the amount of cash we generate from operations and the progress of our
product development efforts. As a result, we will retain broad discretion in the
allocation of the net proceeds of this offering. Pending the uses described
above, we will invest the net proceeds in short-term interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not anticipate paying any cash dividends in the
future.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. We
present capitalization:
- On an actual basis;
- On a pro forma basis to give effect to:
- The issuance of 4,555,556 shares of series D preferred stock and a
warrant to purchase 911,111 shares of class B common stock for $38.8
million in cash and a note receivable under a securities purchase
agreement with Internet Capital Group Inc. dated October 27, 1999
and the application of a portion of the proceeds therefrom to repay
indebtedness to XL Vision of approximately $4.5 million; and
- The automatic conversion of all outstanding shares of series A,
series B and series C preferred stock into shares of class A common
stock and all outstanding shares of series D preferred stock into
shares of class B common stock, which will occur immediately prior
to the consummation of the offering; and
- On a pro forma as adjusted basis to give effect to:
- The events described in the two preceding paragraphs; and
- The sale of the shares of class A common stock in this
offering and application of the estimated net proceeds from the sale
of these shares, as described in the section entitled Use of
Proceeds, at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and
our estimated offering expenses.
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This table should be read in conjunction with the section entitled
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total indebtedness.................................. $ 8,443 $ 3,943 $
-------- -------- --------
Stockholders' equity:
Preferred stock, par value $0.01 per share,
15,000,000 shares authorized:
Series A preferred stock, 6,500,000 shares
designated; 6,443,606 shares issued and
outstanding actual and no shares issued and
outstanding pro forma or pro forma as
adjusted..................................... 64 -- --
Series B junior preferred stock, 2,400,000
shares designated; 2,400,000 shares issued
and outstanding actual and no shares issued
and outstanding pro forma or pro forma as
adjusted..................................... 24 -- --
Series C preferred stock, 1,300,000 shares
designated; 1,100,000 shares issued and
outstanding actual; no shares issued and
outstanding pro forma or pro forma as
adjusted..................................... 11 -- --
Series D preferred stock, 4,555,556 shares
designated; no shares issued and outstanding
actual, pro forma or pro forma as adjusted... -- -- --
Common stock, par value $0.01 per share,
100,000,000 shares authorized:
Class A common stock, 92,711,110 shares
designated; 5,563,780 shares issued and
outstanding actual; 15,507,386 shares issued
and outstanding pro forma; ________ shares
issued and outstanding pro forma as
adjusted..................................... 56 155
Class B common stock, 7,288,890 shares
designated; no shares issued and outstanding
actual; 4,555,556 shares issued and
outstanding pro forma and pro forma as
adjusted..................................... -- 46 46
Additional paid-in capital........................ 23,458 62,227
Accumulated deficit............................... (22,768) (22,768) (22,768)
Note receivable from Internet Capital Group,
Inc. .......................................... -- (20,815) (20,815)
Unearned compensation............................. (68) (68) (68)
-------- -------- --------
Total stockholders' equity................... 777 18,777
-------- -------- --------
Total capitalization...................... $ 9,220 $ 22,720 $
======== ======== ========
</TABLE>
This table does not include the following:
- 1,954,920 shares of class A common stock issuable upon the exercise of
outstanding options granted under our equity compensation plans as of
June 30, 1999 at a weighted average exercise price of $1.74 per share, of
which options to purchase 398,095 shares of class A common stock were
exercisable at a weighted average exercise price of $1.39 per share;
- 672,800 additional shares of class A common stock available for issuance
under our 1996 and 1999 equity compensation plans as of June 30, 1999;
- 911,111 shares of common stock issuable on the exercise of a warrant that
will be exercisable upon consummation of this offering at an exercise
price equal to the initial public offering price; and
- 50,000 shares of class A common stock issued in connection with our
investment in Turnkey Computer Systems, Inc. on August 16, 1999.
23
<PAGE> 25
DILUTION
As of June 30, 1999, our net tangible book value on a pro forma basis
giving effect to the issuance of 4,555,556 shares of series D preferred stock
and a warrant to purchase 911,111 shares of class B common stock for an
aggregate of $18.0 million in cash and a note receivable on October 27, 1999 and
the automatic conversion of our preferred stock into shares of our common stock,
which will automatically occur immediately prior to the consummation of this
offering, was approximately $12.2 million or $0.61 per share of common stock.
Net tangible book value per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities. As of June 30, 1999, our
net tangible book value, on a pro forma basis as adjusted for the sale of the
shares of our class A common stock, based on an assumed initial public
offering price of $ per share, and after deducting the underwriting
discounts and commissions and our estimated offering expenses, would have been
approximately $ per share. This represents an immediate increase of $
per share to existing stockholders and an immediate dilution of $ share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma net tangible book value per share at June 30,
1999....................................................... $0.61
Increase in pro forma net tangible book value per share
attributable to new investors.........................
-----
Pro forma net tangible book value per share after the
offering.................................................
-----
Dilution per share to new investors........................ $
=====
</TABLE>
The following summarizes on a pro forma basis as of June 30, 1999 the
differences between the total consideration paid and the average price per share
paid by the existing stockholders and the new investors with respect to the
number of shares of common stock purchased from us based on an assumed initial
public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
---------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 20,062,942 $42,275,211 $2.11
New investors..............
---------- -------- ----------- --------
Total.................
========== ======== =========== ========
</TABLE>
The total consideration does not include the non-cash portion of the
consideration for the series D preferred stock and warrant described above.
The information set forth above does not include the following:
- 1,954,920 shares of class A common stock issuable upon the exercise of
outstanding options granted under our equity compensation plans as of
June 30, 1999 at a weighted average exercise price of $1.74 per share, of
which options to purchase 398,095 shares of class A common stock were
exercisable at a weighted average exercise price of $1.39 per share;
- 672,800 additional shares of class A common stock available for issuance
under our 1996 and 1999 equity compensation plans as of June 30, 1999;
- 911,111 shares of common stock issuable on the exercise of a warrant that
will be exercisable upon consummation of this offering at an exercise
price equal to the initial public offering price; and
- 50,000 shares of class A common stock issued in connection with our
investment in Turnkey Computer Systems, Inc. on August 16, 1999.
24
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the years
ended December 31, 1997 and 1998 are derived from our consolidated financial
statements which have been audited by KPMG LLP, independent certified public
accountants, and are included elsewhere in this prospectus. All business
activities from inception through 1996 related to the transportation business
segment which was disposed of in January 1999. As a result, we have not included
operations data for the years ended December 31, 1994, 1995 and 1996.
We prepared the unaudited pro forma consolidated financial information for
the year ended December 31, 1998 and for six months ended June 30, 1999 by
combining the historical results of two of the three companies we acquired, CIN,
LLC and Professional Cattle Consultants, L.L.C., with our historical results
using the purchase method of accounting. Cyberstockyard, Inc. is not included
because the pro forma effects are not significant. This is described in the
notes accompanying the pro forma consolidated financial information included
elsewhere in this prospectus. We have presented this information to give you a
better picture of what our business might have looked like if we had owned CIN,
LLC and Professional Cattle Consultants, L.L.C. during the periods presented.
These companies may have performed differently if they had actually been
combined with our operations. You should not rely on the unaudited pro forma
information as being indicative of the historical results that we would have had
or the future results that we will experience after the acquisitions.
You should read the selected consolidated financial data together with our
historical and pro forma consolidated financial statements and notes thereto and
the section of the prospectus entitled Management's Discussion and Analysis of
Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED SIX MONTHS
DECEMBER 31, JUNE 30, DECEMBER 31, ENDED
----------------- ----------------- 1998 JUNE 30, 1999
1997 1998 1998 1999 PRO FORMA PRO FORMA
------- ------- ------- ------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue...................................... $ -- $ 1,792 $ 664 $ 2,578 $ 2,283 $ 2,745
Cost of revenue.............................. -- 2,623 1,037 2,768 2,801 2,840
Operating expenses:
Selling, general and administrative........ 628 3,660 1,331 4,069 4,815 4,521
Research and development................... 728 1,109 546 1,450 1,451 1,486
Total operating expenses................. 1,356 4,769 1,877 5,519 6,266 6,007
Interest expense/other income, net........... 141 332 162 289 315 300
Profit (loss) from continuing operations..... $(1,497) $(5,932) $(2,412) $(5,998) $(7,099) $(6,402)
======= ======= ======= ======= ======= =======
Profit (loss) per common share from
continuing operations -- basic and
diluted.................................... $ (4.89) $ (1.70) $ (0.93) $ (1.15) $ (1.74) $ (1.18)
======= ======= ======= ======= ======= =======
Weighted average number of common shares
outstanding -- basic and diluted........... 306 3,486 2,607 5,223 4,086 5,403
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
----- ------- ------- ------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash.................................................. $ -- $ -- $ 2 $ -- $ -- $ 663
Total assets.......................................... -- 6 260 2,165 6,602 11,928
Total indebtedness.................................... 411 1,747 3,636 8,040 5,572 8,443
Total stockholders' equity (deficit).................. (411) (1,742) (3,457) (6,875) 3 777
</TABLE>
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
information included elsewhere in this prospectus. The following discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from the results contemplated by these
forward-looking statements as a result of many factors, including those
discussed below and elsewhere in this prospectus.
OVERVIEW
eMerge Interactive, Inc. is a leading business-to-business electronic
commerce company combining content, community and transaction services to create
an online marketplace for the cattle industry. We offer our comprehensive cattle
solution through our Internet-based information and transaction platform, our
Web-enabled private network, and our direct sales force. Our products and
services are designed to create an efficient market for the purchase and sale of
cattle and to improve quality and productivity in the cattle industry. Our
revenue is derived from sales of cattle through Cyberstockyard, NutriCharge,
equine imaging systems and our management information solutions service.
We were incorporated in 1994 as a subsidiary of XL Vision, Inc. to develop
and commercialize infrared technology applications. XL Vision is a private
company that incubates imaging-related technology companies. Our initial focus
was on the transportation market in which we sold our navigational infrared
imaging system, the AMIRIS system. In 1997, we expanded our infrared
applications with the development of an equine imaging system used by
veterinarians primarily for the early detection of health problems in horses. In
July 1997, we also completed our first round of private financing and began our
direct relationship with Safeguard. Safeguard, XL Vision's largest stockholder,
was the largest single purchaser of our series A preferred stock.
To expand our product base, in July 1998, we licensed a portfolio of
patents from a division of the Canadian government relating to the application
of infrared technology to the animal science field and a restorative feed
supplement called NutriCharge.
In order to focus on the cattle industry, we discontinued production of the
AMIRIS system. In January 1999, we entered into a license agreement with Sperry
Marine, Inc., a subsidiary of Litton Industries, Inc., which granted them the
right to become the sole producer of the AMIRIS system. In connection with this
license, we will receive a royalty of 8% of sales of the AMIRIS system up to a
maximum royalty of $4.3 million over a four year period or up to a maximum
royalty of $5.0 million if $4.3 million is not received within four years. Upon
receipt of the maximum amount, we will transfer all rights, title and interest
to the licensed intellectual property to Sperry. Results from this line of
business and the related loss on disposal have been segregated from continuing
operations and included in discontinued operations in our financial statements.
In October 1999, we signed a securities purchase agreement with Internet Capital
Group, an affiliate of Safeguard, under which Internet Capital Group will become
one of our principal stockholders. Internet Capital Group is an Internet holding
company that invests in business-to-business electronic commerce companies.
ACQUISITIONS
In February 1999, we purchased substantially all of the tangible and
intangible assets of CIN, LLC. These assets included the Feedlot Information
System, a proprietary, patent pending, information system for cattle feedlots.
The purchase price for the assets consisted of 600,000 shares of our class A
common stock valued at $720,000, the assumption of up to $600,000 of
liabilities, a cash payment due in October 1999 of $383,000, and an agreement to
26
<PAGE> 28
pay the first $350,000 from Internet sales of third-party products over the Web
site. In addition, as part of this agreement, we agreed to assume a $177,000
liability related to employee bonuses and an outstanding research grant
obligation.
In March 1999, we acquired 100% of the common stock of Cyberstockyard, Inc.
for 200,000 shares of our class A common stock valued at $450,000. Through this
acquisition, we obtained Cyberstockyard.com, our online cattle sales and auction
services, and related software applications. Cyberstockyard.com has been
integrated into our suite of products and services. During the three months
ended June 30, 1999, we began executing cattle sales utilizing
Cyberstockyard.com.
In May 1999, we purchased substantially all of the tangible and intangible
assets of Professional Cattle Consultants, L.L.C., a leading cattle industry
information resource and database for $1.8 million in cash and the assumption of
approximately $30,000 in liabilities. In June 1999, we began selling comparative
analysis and market information for the feedlot industry with the assets
acquired from Professional Cattle Consultants, L.L.C.
We have presented pro forma results of operations as if the acquisition of
CIN, LLC and Professional Cattle Consultants, L.L.C. had occurred on January 1
of each period. Cyberstockyard, Inc. is not included because the pro forma
effects are not significant. The pro forma loss from continuing operations for
the year ended December 31, 1998 was $7.1 million compared to the actual net
loss of $5.9 million. The increase in the net loss results primarily from the
net losses of the acquired companies and the pro forma amortization of the
intangible assets associated with these acquisitions. The pro forma loss from
continuing operations for the six months ended June 30, 1999 was $6.4 million
compared to the actual loss from continuing operations of $6.0 million. The
increase in the loss is primarily related to the losses of the companies
acquired and the pro forma amortization of the intangible assets associated with
the acquisitions.
As a result of these acquisitions, the products and services we currently
offer and their related costs are substantially different from our historical
products and services and therefore our historical financial results should not
be considered indicative of future performance.
We have incurred significant net losses since our inception. At June 30,
1999, we had an accumulated deficit of $22.8 million. The net losses and
accumulated deficit resulted from our lack of substantial revenues, the costs of
the significant personnel infrastructure and other costs incurred for the
development and marketing of our initial products. We may never achieve
significant revenue or profitability, or if we achieve significant revenue or
profitability they may not be sustained.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
We recognize revenue in accordance with the terms of the sale or contract,
generally as products are shipped or services are provided. We bear inventory
risk until the sale of our products and credit risk until full payment is
received from our customers. In cattle sales transactions, we purchase cattle
from the seller, take title at shipment and own as inventory until delivered to
and accepted by the buyer, typically a 24 to 48 hour period. We act as a
principal in purchasing cattle from our suppliers and selling them to our
customers so that we recognize revenue equal to the amount paid by our customers
for the cattle. Gross profit on sale transactions is determined by the fee that
we add to the purchase price of the cattle before we sell them.
Revenue increased 288% from $664,000 for the six months ended June 30, 1998
to $2.6 million for the six months ended June 30, 1999. This increase is due
primarily to the
27
<PAGE> 29
initiation of cattle sales as a result of our acquisition of Cyberstockyard,
Inc. in March 1999 and increased sales of our equine imaging systems, which we
began selling in March 1998. The remainder of the increase resulted from our
initial sales of NutriCharge and the sale of subscriptions to our comparative
feedlot analysis and market information service.
Cost of revenue consists primarily of the direct cost to acquire cattle,
NutriCharge and equine imaging systems components and indirect costs such as
manufacturing overhead, support personnel and site operations. Our gross loss
decreased from $373,000 for the six months ended June 30, 1998 to a gross loss
of $190,000 for the six months ended June 30, 1999. The decrease in gross loss
is due primarily to an increase in revenue.
Selling, general and administrative expenses increased 206% from $1.3
million for the six months ended June 30, 1998 to $4.1 million for the six
months ended June 30, 1999.
Our sales and marketing expenses consist primarily of salaries and related
costs, commissions for sales and marketing personnel, advertising, travel and
entertainment, trade shows and consulting fees. Our sales and marketing expenses
increased 256% from $723,000 for the six months ended June 30, 1998 to $2.6
million for the six months ended June 30, 1999 due primarily to the increased
staffing, related costs, advertising, and consulting costs to effect our
business strategy. We expect these costs to continue to increase significantly
as we continue to pursue additional sales and marketing opportunities.
Our general and administrative expenses consist primarily of salaries and
related costs for executives and administrative and professional service fees,
including administrative support fees to XL Vision and Safeguard. General and
administrative expenses increased 147% from $608,000 for the six months ended
June 30, 1998 to $1.5 million for the six months ended June 30, 1999. The
increase in expenses was primarily due to increases in the number of personnel
required to support and grow our business. We expect these expenses to continue
to increase as additional personnel are hired and additional expenses are
incurred to support future growth.
Our research and development expenses consist of salaries and related
costs, payments to outside consultants, material costs for prototype systems
and, to a lesser extent, depreciation on equipment used for development. Our
expenses increased 165% from $546,000 for the six months ended June 30, 1998 to
$1.5 million for the six months ended June 30, 1999 due to increased development
costs associated with our integration and expansion of the products acquired
through acquisitions in this period. We expect these costs to increase
significantly as we plan to invest heavily to develop and commercialize new
products, expand our offerings and adapt our technologies to new markets.
Interest expense/other income, net increased 78% from $162,000 for the six
months ended June 30, 1998 to $289,000 for the six months ended June 30, 1999.
This increase was primarily due to a higher average level of borrowing.
Due to the losses incurred, we did not have any income tax expense in the
first six months of 1998 or the first six months of 1999. As of June 30, 1999,
we had approximately $20 million of federal income tax loss carry forwards that
can be used to offset future taxable income.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Substantially all of our 1998 revenue of $1.8 million was from the sale of
equine imaging systems that we began selling in March of 1998. There was no
revenue from equine imaging systems sales in 1997.
28
<PAGE> 30
Our gross loss of $831,000 in 1998 was due primarily to a substantial
increase in manufacturing overhead as we built our manufacturing infrastructure.
There was no manufacturing activity related to the production of equine imaging
systems in 1997.
Selling, general and administrative expenses increased 483% from $628,000
in 1997 to $3.7 million in 1998.
Our sales and marketing expenses increased 527% from $344,000 in 1997 to
$2.2 million in 1998. The increase in these expenses was due primarily to
increased staffing and related costs, advertising, travel, trade shows and
consulting fees in these areas to effect our business strategy.
Our general and administrative expenses increased 430% from $284,000 in
1997 to $1.5 million in 1998. The increase in these expenses from 1997 to 1998
was primarily due to increases in the number of personnel and related support
costs to expand and grow our business and increased administrative support fees
to XL Vision and Safeguard.
Our research and development expenses increased 52% from $728,000 in 1997
to $1.1 million in 1998. This increase was driven primarily by increased
staffing of research and development personnel, related costs, and depreciation
of development equipment costs necessary to further develop our products.
Interest expense/other income, net increased 134% from $141,000 in 1997 to
$332,000 in 1998. This increase was primarily due to a higher average level of
borrowing.
Due to the losses incurred, we did not have any income tax expense in 1997
or 1998.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
There was no business activity in 1996 related to our equine imaging
systems. All sales, cost of goods sold, general and administrative expenses,
sales and marketing expenses and research and development expenses in 1996
related to our transportation segment which has been reported as a discontinued
operation.
Selling, general and administrative expenses were $628,000 in 1997.
There was no revenue from sales of equine imaging systems or manufacturing
activity related to equine imaging systems in 1997. All general and
administrative expenses, sales and marketing expenses and research expenses
during 1997 related to our initial activities associated with equine imaging
systems.
Sales and marketing expenses of $344,000 in 1997 were principally for
salaries and related costs of personnel shifted from the transportation business
segment to support the equine imaging system operations. Additionally we
initiated spending for costs such as advertising, travel, trade shows and
consulting fees.
General and administrative expenses of $284,000 in 1997 were principally
for salaries and related costs for executives and administrative and
professional service fees including administrative support fees to XL Vision
shifted from the transportation operations to support the equine imaging system
operations.
Research and development expenses of $728,000 in 1997 were principally for
salaries and related costs of personnel shifted from the transportation business
segment to support the equine imaging system development. Additionally, we
initiated spending costs to develop prototype equine imaging systems.
Interest expense/other income, net was $141,000 in 1997.
Due to the losses incurred, we did not have any income tax expense in 1997.
29
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data for the quarters ended March 31, 1998, June 30, 1998, September
30, 1998, December 31, 1998, March 31, 1999 and June 30, 1999. The information
for each quarter has been prepared on substantially the same basis as the
audited statements included in other parts of this prospectus and, in the
opinion of management, include all adjustments, consisting of only normal
recurring adjustments necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future, and the results of the interim
periods are not indicative of results of any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA
Revenue.......................... $ 323 $ 342 $ 442 $ 685 $ 605 $ 1,973
Cost of revenue.................. 459 578 649 937 540 2,228
Operating expenses............... 930 948 1,237 1,654 1,962 3,557
Interest expense/other income,
net............................ 77 85 85 85 127 162
Profit (loss) from continuing
operations..................... $(1,143) $(1,269) $(1,529) $(1,991) $(2,024) $(3,974)
======= ======= ======= ======= ======= =======
Profit (loss) from continuing
operations per common share --
basic and diluted.............. $ (0.44) $ (0.49) $ (0.38) $ (0.43) $ (0.41) $ (0.73)
======= ======= ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our operating and investing cash requirements
principally through private equity financings and through borrowings from XL
Vision. As of October 27, 1999, we have raised approximately $27.6 million from
the sale of our common stock and preferred stock, not including $18.0 million,
which we expect to receive in cash, and $20.8 million, which we expect to
receive one year from the date the series D preferred stock and warrant purchase
is completed. At June 30, 1999, we had approximately $663,000 in cash and
indebtedness to XL Vision and its affiliates of $8.4 million. We plan to repay
$4.5 million of this outstanding debt balance from the cash proceeds of the sale
of our series D preferred stock upon completion of the series D preferred stock
and warrant purchase, which is expected to occur in November 1999.
We have had significant negative cash flows from operating activities for
each fiscal and quarterly period to date. Net cash used in operating activities
was $1.7 million in 1996, $6.0 million in 1997, $8.9 million in 1998 and $3.0
million for the six months ended June 30, 1999. Cash used in operating
activities from inception through June 30, 1999 consisted mostly of net
operating losses offset by increases in accrued liabilities.
Net cash used in investing activities was $157,000 in 1996, $507,000 in
1997, $892,000 in 1998, and $4.5 million for the six months ended June 30, 1999.
Net cash used in investing activities in these periods consisted mostly of
business acquisitions.
Net cash provided by financing activities was $1.9 million in 1996, $6.5
million in 1997, $9.8 million in 1998 and $8.2 million for the six months ended
June 30, 1999. Cash provided by financing activities consisted primarily of the
sale of our stock and borrowings from XL Vision.
30
<PAGE> 32
In December 1998, XL Vision agreed to cancel $7.5 million of indebtedness,
and convert $4.8 million of indebtedness into 2,400,000 shares of our series B
preferred stock.
In May 1999, we raised $5.5 million through the issuance of 1,000,000
shares of our series C preferred stock to Safeguard and 100,000 shares of series
C preferred stock to individuals.
In July 1999, we obtained a revolving credit line from Safeguard evidenced
by a promissory note for working capital advances associated with our cattle
sales operations of up to $3.0 million. Amounts borrowed under the promissory
note bear interest at the prime lending rate plus 1% and are payable on November
30, 1999.
In August 1999, we entered into an agreement to acquire a 19% interest in
the common stock of Turnkey Computer Systems, Inc. for a purchase price of
50,000 shares of our common stock valued at $400,000 and additional cash
payments totaling $1.4 million. The cash payments are due in full upon the
completion of our initial public offering or in periodic payments of $500,000 at
December 31, 1999, $500,000 at December 31, 2000 and $400,000 at December 31,
2001, whichever occurs first.
In August 1999, we signed a demand note with Safeguard in the principal
amount of $2.5 million. The note bears interest at the prime rate plus 1% and is
payable on demand. In September 1999, we signed a demand note with Safeguard in
the principal amount of $2.0 million. The note bears interest at the prime rate
plus 1% and is payable on demand. In October 1999, we signed a demand note with
Safeguard in the principal amount of $2.5 million. The note bears interest at
the prime rate plus 1% and is payable on demand. In October, we cancelled these
outstanding notes in exchange for a note in the amount of $7.1 million. The note
is due in full in one year, when we complete an initial public offering or when
the note issued to us in connection with the series D preferred stock is repaid,
whichever occurs earlier.
In October 1999, we agreed to issue 4,555,556 shares of series D preferred
stock and a warrant to purchase 911,111 shares of class B common stock to
Internet Capital Group for aggregate consideration of $38.8 million, pending
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976. We expect to receive $18.0 million of this amount in
cash and $23.0 million in the form of a non interest-bearing promissory note,
which is due one year from the date the series D preferred stock and warrant
purchase are completed. Interest on the promissory note was imputed at 9.5% and
amounts to $2.2 million over the life of the note. We expect to complete the
series D preferred stock and warrant purchase in November 1999.
We believe that our existing cash balances, together with the proceeds from
the sale of series D preferred stock and the warrant to purchase class B common
stock, the revolving line of credit and the net proceeds from this offering will
be sufficient to meet our working capital and capital expenditures needs for the
foreseeable future.
YEAR 2000 COMPLIANCE
We may realize exposure and risk if the systems on which we are dependent
to conduct our operations are not year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software,
telephone systems and other equipment used internally. All new programs are
being tested and validated for year 2000 compliance. We expect to resolve any
year 2000 compliance issues primarily through normal upgrades of our software
or, when necessary, through replacement of existing software with year 2000
compliant applications.
The cost of these upgrades or replacements is included in our capital
expenditure budget and is less than $25,000. However, such upgrades and
replacements may not be
31
<PAGE> 33
completed on schedule or within estimated costs or may not successfully address
our year 2000 compliance issues. As of June 30, 1999, we have received
certification from our critical vendors and suppliers that they are either year
2000 compliant or, if they are not presently compliant, that they are taking the
necessary steps and have provided a description of their plan to become year
2000 compliant before January 1, 2000. Our contingency plans related to vendors
and suppliers include maintaining adequate safety stocks and developing
alternative sources of supply.
In the event that our production and operational facilities that support
our Web sites are not year 2000 compliant, portions of our Web sites may become
unavailable. We believe that we can quickly address any difficulties that may
arise. In the event that our web-hosting facilities are not year 2000 compliant,
our Web sites would be unavailable and we would not be able to deliver services
to our users. Our contingency plans include having sufficient numbers of
technical employees and consultants available in the event of a failure related
to production and operational facilities. If our present efforts to address the
year 2000 compliance issues are not successful, or if suppliers and other third
parties with which we conduct business do not successfully address such issues,
our business, operating results, financial position and cash flows could be
materially and adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, Accounting for Derivatives and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. The
adoption of SFAS No. 133 is not expected to have a material impact on our
results of operations, financial position or cash flows.
In June 1999, the FASB issued SFAS No. 137 which amended the implementation
date for SFAS No. 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000.
MARKET RISK
We had no derivative securities as of June 30, 1999. We are exposed to
changes in interest rates as a result of our borrowings from XL Vision and
Safeguard, which are based on the prime lending rate.
A 10% increase in interest rates related to our borrowings would not have a
material effect on our results of operations over the next fiscal year or the
fair value of our borrowings.
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<PAGE> 34
BUSINESS
OVERVIEW
eMerge Interactive, Inc. is a leading business-to-business electronic
commerce company combining content, community and transaction services to create
an online marketplace for the cattle industry. We offer our comprehensive cattle
solution through our Internet-based information and transaction platform, our
Web-enabled private network, and our direct sales force. Our products and
services are designed to create an efficient market for the purchase and sale of
cattle and to improve quality and productivity in the cattle industry. Our
family of integrated Web sites and our Web-enabled private network provide:
- Livestock procurement services consisting of cattle sales and auctions;
- Customer-specific daily feedlot operations analysis, comparative cattle
industry analysis and benchmarking studies;
- Cattle inventory management tools; and
- Livestock health management and quality enhancement products.
INDUSTRY BACKGROUND
BEEF INDUSTRY
According to the National Cattlemen's Beef Association, based on U.S.
Department of Agriculture statistics, the cattle industry is the largest segment
of the American agricultural economy, accounting for approximately $36 billion
in reported sales of live cattle in 1997. On an annual basis, the U.S. beef
production industry spends approximately $600 million in medication and $6
billion in feed. At the retail level, the cattle industry generates
approximately $54 billion in sales of beef and related by-products annually.
Furthermore, worldwide cattle production is three times greater than U.S.
production.
[PRODUCERS, FEEDLOTS, PACKERS GRAPHIC]
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INDUSTRY PARTICIPANTS
The U.S. beef production chain can be classified into three primary
segments: producers, feedlots, and packers.
Producers
There are approximately one million producers comprised of ranchers and
small farm owners who breed and raise cattle. Most of the producers are
independently owned and are dispersed throughout the United States. Each year
these producers market approximately 35 million head of cattle that are
eventually harvested for food, of which approximately 27 million are processed
through feedlots. These cattle, raised in an average herd size of approximately
35 head for 12-18 months, are aggregated into larger herds and sold to
centralized feedlots to increase their weight and value.
Feedlots
Feedlots manage the health and growth of the cattle through an aggressive
regimen of feeding, which is designed to prepare the cattle for harvest. There
are approximately 700 major feedlot operations concentrated in 10 Midwestern
states. These feedlots can manage from 4,000 to 115,000 head of cattle at any
given time. Feedlots typically purchase cattle weighing 300 to 900 pounds and
are then generally fed for a period of 110 to 250 days. After reaching a weight
of approximately 900 to 1,400 pounds, the animal is typically sold to a packer
for harvesting.
Packers
Packers usually hold the cattle for 2 to 24 hours before harvesting and
fabricating them for sale and eventual consumption. In addition to processing
beef, packers inspect beef for cleanliness in preparation for quality grading.
There are currently 64 major beef packing operations in the United States, which
in total process approximately 35 million head of cattle into roughly 25 billion
pounds of beef annually. Approximately 82% of the beef processed in the United
States is processed by beef packing operations owned by IBP, Inc., Cargill,
ConAgra, Inc., and Farmland Industries, Inc.
LIMITATIONS OF THE CURRENT SYSTEM
The current cattle production chain contains a number of inefficiencies
that reduce livestock quality and increase cost. These inefficiencies include
multiple transaction costs, exposure to stress and disease, and the loss of
important feeding and medication information.
INEFFICIENCIES IN THE CATTLE SALES PROCESS CREATE TRANSACTION COSTS
As cattle move through the beef production chain, from an individual
producer's ranch to a feedlot to a meat packing facility, the cattle may be
bought, sold and transported three or four times. Due to the highly fragmented
nature of the cattle producer segment, the majority of cattle are sold through
traditional livestock sales and auctions, which bring together regional buyers
and sellers. The cattle are then sold either directly to feedlots or sold once
again to larger buyers and then onto feedlots. Typically, cattle sales and
auctions are hosted at sale barns, where livestock brokers act as agents in the
buying and selling of animals. The livestock broker is paid a fee or commission
each time an individual lot of cattle is bought or sold. As a result of the
geographic dispersion of producers and sale barns, many buyers are forced to
purchase cattle from livestock brokers without having the opportunity to
visually survey the cattle. In addition, this current method of exchange does
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not facilitate access to real-time price information or a geographically broad
marketplace for the product.
REPETITIVE TRANSPORTATION CREATES ANIMAL STRESS, REDUCING BEEF QUALITY AND
PROFITABILITY
The combination of the method of exchange used in traditional cattle sales
and auctions and the fragmentation of the producer segment of the industry
results in the repetitive transportation and handling of cattle. As cattle are
moved from one environment to another throughout the production chain, they are
commingled multiple times and can be exposed to contagious diseases. In
addition, the transportation, handling and commingling of cattle often results
in a predictable stress response, which may cause significant health
deterioration. However, because there is currently no convenient or
cost-effective method available to measure an animal's stress level, stress is
not assessed today as a meaningful measure of health. Stress and exposure to
disease often result in sub-optimal performance at the feedlot and reduced beef
quality. It is estimated that sick animals yield approximately $60 per head less
than comparable healthy animals which represents a significant loss based on an
average price of $450 per head.
THE LACK OF CURRENT AND ACCURATE INFORMATION IMPACTS ANIMAL PERFORMANCE
Currently, the industry collects and analyzes information on cattle that go
through the beef production process inconsistently and in a manual and
time-consuming manner. Due to the nature of data collection and dissemination,
cattle industry participants are unable to exchange critical information in an
efficient and timely manner to optimize performance and beef quality. We believe
that businesses in the cattle industry have not maximized the use of information
to effectively address health, quality and performance issues.
Producers
Few cattle producers receive data related to the feed performance and
quality grades of their animals, making herd management difficult.
Animal-specific health and medication information is rarely passed on to
subsequent buyers at or prior to the feedlot, often resulting in unnecessary
additional medication.
Feedlots
Most information currently used in livestock management is gathered at the
feedlot. As a general practice, information is collected manually on a daily
basis and subsequently entered into multiple information systems that are
typically not integrated. Given the time-intensive nature of aggregating data
under the current process, it is difficult to collect, analyze and interpret
this data in a meaningful way. Historically, feedlots collect and share
industry-wide information for benchmarking and performance purposes by
submitting reports to data warehouse services that aggregate and disseminate the
combined results in monthly reports. Although these data warehouse services are
valuable as general strategic and analytical tools, they are less effective in
daily decision-making.
Packers
Packers collect critical carcass and quality information such as weight,
dimension, yield and meat quality grade at the end of the cattle production
chain. However, in 1997, only 47.5% of cattle harvested were purchased based on
these measures. Therefore, feedlots receive carcass and quality data on less
than half of harvested cattle. The remaining harvested cattle are sold to
packers based strictly on live weight, and consequently very little health and
quality data is provided to feedlots or producers on these cattle.
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We believe improved information flow between and within the three main
groups of industry participants can significantly enhance product quality. There
is currently no network or method for compiling and communicating information
rapidly throughout all stages of the cattle production chain. Product
performance information gathered by packers and feedlots will help refine and
improve handling practices earlier in the production chain. Information about
production techniques and product genetics disseminated by producers and
feedlots will minimize redundant medical treatments and enable more accurate
brand differentiation at the retail level. Finally, information linking
handling, feeding and medication techniques and the ensuing performance results,
gathered and disseminated on a daily basis by feedlots, can help the entire
segment rapidly adopt best practices.
THE ONLINE CATTLE MANAGEMENT OPPORTUNITY
We believe that the cattle industry is well-suited for Internet commerce
and information sharing due to the industry's size and fragmentation and the
inefficiencies associated with the current cattle production chain. The
Internet's widespread and growing acceptance make it an optimal platform for
business-to-business interaction. Many of the variables that affect cattle
performance can be addressed by the Internet's open architecture, universal
accessibility and ability to provide more timely and comprehensive information.
We believe the Internet can create a more efficient marketplace for the exchange
of cattle by directly connecting buyers and sellers and providing information
related to the cattle for sale. According to the Gallup and Agricultural
Publisher's Survey, it is estimated that over 22% of large producers in the beef
industry today are using the Internet for primary information in the conduct of
their daily business, and this figure is expected to increase to over 55% by the
year 2001.
THE eMerge INTERACTIVE SOLUTION
We combine content, community and commerce to create an online marketplace
for the cattle industry. We offer our comprehensive cattle solution through our
Internet-based information and transaction platform, our Web-enabled private
network, and our direct sales force. Our products and services are designed to
create an efficient market for the purchase and sale of cattle and to improve
quality and productivity in the cattle industry. We believe our solution
provides the following benefits throughout the cattle production chain.
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BENEFITS TO CATTLE INDUSTRY PARTICIPANTS
<TABLE>
<CAPTION>
PRODUCER FEEDLOT PACKER
-------- ------- ------
<S> <C> <C> <C>
ONLINE CATTLE SALES AND AUCTION MARKETPLACE
- ------------------------------------------------------
Broader Access to Buyers and Sellers.................. -- --
Reduced Transportation and Transaction Costs.......... -- --
Convenience and Ease of Use........................... -- --
Healthier Cattle...................................... -- -- --
Cattle Source Information............................. -- -- --
Access to Additional Products and Services............ -- --
Quality Certification................................. -- -- --
PROPRIETARY INFORMATION SERVICES AND MANAGEMENT TOOLS
- ------------------------------------------------------
Performance Information............................... --
Detailed Operational Comparisons...................... --
Historical Best Practices............................. -- -- --
Analytical and Consulting Feedback.................... -- -- --
Comprehensive Content................................. -- --
</TABLE>
THE EMERGE ONLINE CATTLE MARKETPLACE
Through our Cyberstockyard.com Web site, we enable cattle producers and
feedlot operators to participate in daily online sales and auctions of cattle.
We believe that because online procurement results in fewer cattle shipments and
less handling, transaction costs are reduced and animals arrive at their
destination healthier and less stressed, thereby increasing the value of the
animals. We also believe that online cattle procurement creates a powerful
medium for obtaining access to national market pricing that eventually reduces
the amount of commission fees paid by the cattle industry as a whole, and
thereby reduces the cost to produce cattle. Through this comprehensive online
marketplace, we also have the ability to sell additional products and services
that are designed to improve productivity within the livestock industry. For
example, to help our customers reduce the effects of pre-harvest stress in their
cattle, we offer NutriCharge, our proprietary restorative feed supplement.
PROPRIETARY INFORMATION SERVICES AND MANAGEMENT TOOLS
We provide the cattle industry with Web-enabled software applications and
management tools designed for the more efficient and profitable production of
cattle. Through our integrated suite of Web sites, users can access a broad
range of database services and information related to the cattle industry,
including general industry news, regional weather, commodity prices and industry
analyses and proprietary data. We provide our customers with monthly detailed
pricing, operations and benchmarking data on the cattle industry. Further,
through our information system, we collect and analyze cattle data, such as
feeding and medication history from a number of our customer's disparate
systems. These analyses are compiled into daily reports, which customers access
through their information systems and use to improve their daily management
decisions.
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As part of our comprehensive solution, we also provide an online community
for the cattle industry where users can actively communicate with our staff of
industry experts. We believe this proactive approach can improve overall meat
quality and reduce health-related losses of cattle.
OUR BUSINESS STRATEGY
Our objective is to expand upon our position as a leading provider of
business-to-business electronic commerce products, services and solutions for
the livestock industry. Our business strategy includes the following key
elements:
LEVERAGE OUR LEADING MARKET POSITION TO BUILD BRAND AWARENESS AND FURTHER
ESTABLISH OUR ONLINE MARKETPLACE
We seek to combine our industry expertise with the first Internet-enabled
cattle information and commerce platform to attract industry participants to our
growing online marketplace. By offering industry participants tools to make
better informed purchasing decisions, improve cattle health, and operate more
efficiently, we believe that we will be able to bring users to our Web sites and
build loyalty and future demand for our products, services and solutions. We
seek to increase the supply of cattle offered through our online marketplace by
continuing to build relationships with cattle producers and to stimulate demand
for our marketplace and information services by nurturing relationships with
feedlots. We believe that by attracting additional industry participants to our
marketplace, we will enhance the value of our online community.
DRIVE COMMUNITY LOYALTY THROUGH THE USE OF MANAGEMENT INFORMATION TOOLS AND
PROPRIETARY CONTENT
By providing an online, comprehensive source of cattle-related news,
industry data and management tools, we intend to increase our customers' daily
usage of the eMerge Interactive marketplace. Our electronic commerce marketplace
is prominently featured throughout our integrated Web sites that provide
information and management tools to our customers. We believe our May 1999
acquisition of Professional Cattle Consultants, L.L.C., serving over 90
feedlots, provides us with a strong customer base and the credibility to develop
a trading community and marketplace. Also, our Feedlot Information System, which
is designed to be the principal management system for daily feedlot operations,
will continuously expose feedlot managers to our online marketplace.
LEVERAGE OUR STRONG CUSTOMER RELATIONSHIPS AND INDUSTRY EXPERTISE TO EXPAND OUR
ONLINE COMMUNITY
Historically, relationships among industry participants have played a key
role in conducting business within the cattle industry. We believe that we have
strong existing customer relationships with key cattle producers, feedlots and
packers. Through our acquisition strategy and human resources strategy, we have
acquired companies and hired individuals with long-standing expertise and
relationships in the cattle industry. Our industry experts and advisers consist
of veterinarians, cattle buyers, nutritionalists, data analysts, cattle
producers and former feedlot managers. We seek to leverage our current customer
base, existing relationships and industry expertise to attract additional
industry participants. We also seek to market and sell additional products and
services to our existing customers.
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DEVELOP NEW PRODUCTS AND SERVICES
We intend to increase revenue through offering additional products and
services that complement our existing offerings. We seek to obtain new products
and services through strategic acquisitions of technologies or businesses,
internal development and strategic relationships. We currently have strategic
relationships for the development of proprietary technology with the U.S.
Department of Agriculture, Iowa State University, and the Canadian government.
We also intend to invest in the research and development of new data collection
systems to increase our proprietary electronic commerce offerings to the
livestock industry. For example, we are developing infrared imaging solutions
for use in identification of stress in live animals and fluorescence imaging for
use in improving food safety through the detection of fecal contamination on
beef.
EXPAND INTO NEW MARKET SEGMENTS
Expand Internationally
We believe the international appeal of the Internet and the global demand
for cattle products and services present opportunities to expand our
comprehensive cattle solution globally. We intend to expand beyond the United
States through strategic acquisitions or by expanding our capabilities and sales
personnel into the international market. We believe opportunities exist to apply
our solution in other regions of North and South America, Asia/Pacific and
Europe.
Extend Our Products and Services to the Retail Segment of the Beef Industry
As part of our comprehensive solution, we are developing the capability to
track and manage health and performance information related to individual
animals from birth to harvest. The ability to trace the progress of individual
cattle from the producer through the feedlot, and through grading at the packer
should enable industry participants to improve health and feed management
practices, lowering costs and ultimately improving product quality. In addition,
this capacity to track individual cattle from producer through packer will allow
our customers to verify the source, history and quality of their beef, thereby
enabling them to develop a variety of brands of beef for retail purposes.
Expand into other Markets Within the Livestock Industry
We intend to expand our products and services into other market segments
within the livestock industry. In particular, we believe that opportunities may
exist to apply our integrated electronic commerce and information solution to
the swine and dairy markets.
THE eMerge INTERACTIVE EXPERIENCE
We offer our customers a comprehensive set of Internet-based business
solutions designed to address the needs of the livestock industry. Our products
and services can be accessed through our family of integrated Web sites. These
sites include:
- CattleInfoNet.com, our platform for our comprehensive solution;
- Cyberstockyard.com, our online cattle sales and auction site; and
- PCC-online.com, our cattle industry-specific information Web site.
In addition, through our Web-enabled private network, Feedlot Information
System, we offer our feedlot customers specific daily feedlot operations
analysis and management tools.
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THE eMerge MARKETPLACE
<TABLE>
<S> <C>
----------------------------------------------------------------------------------
CATTLEINFONET.COM
- Industry news
- Regional weather
- Commodity pricing*
- Expert corner
- Reports online
- Links to industry information
----------------------------------------------------------------------------------
ONLINE MARKETPLACE MANAGEMENT INFORMATION SOLUTIONS
Cyberstockyard.com Feedlot Information System
- Cattle sales - Feedlot specific content
- Cattle auctions - Daily performance data
- Order fulfillment - Web-enabled with graphical user
eMerge Online Store interface
- eMerge branded products - Analytical services
- Health products * Professional Cattle Consultants
- General store * - Regional feedlot benchmarking data
Specialized Database Services
Advanced Commodities Content *
Advanced Weather Services *
----------------------------------------------------------------------------------
</TABLE>
* Expected to be offered in December 1999
CATTLEINFONET.COM
CattleInfoNet.com is our industry-specific Web site that serves as the
platform for our comprehensive solution to cattle industry participants. This
site features content to facilitate cattle management, including industry news,
weather and commodities pricing. Also, through this site, our customers can
access Cyberstockyard.com to purchase or sell cattle, and PCC-online.com, our
information resource and database. In addition, our customers can use this Web
site to purchase our NutriCharge product.
CYBERSTOCKYARD.COM
Cyberstockyard.com is our cattle sales and auction service Web site.
Through Cyberstockyard.com, our customers utilize our online listing of cattle
to obtain access to inventory and national market pricing data in an efficient
and effective manner. In addition, our customers can access scheduled online
video cattle auctions. We transmit inventory lists with detailed product
descriptions to our customers by both e-mail and facsimile and periodically post
schedules for live video auctions on the Web site.
Cattle Sales
We have developed a detailed posting and transaction process to ensure that
adequate information is provided to the purchaser prior to the transaction. We
verify the identity of a purchaser through use of a secure password system and
verify credit-worthiness of each participant prior to enabling access to our
system. Our expert livestock brokers in the field
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certify all cattle offered for sale through Cyberstockyard.com. We provide a
detailed description of each lot of cattle, which can be accessed by a purchaser
online. We update our inventory of cattle for sale daily and customers can
review our full inventory listings. In addition, customers can post
descriptions, quantity and pricing criteria for cattle they would like to
purchase and our system will automatically search for a match. If a match is
found, the customer is notified immediately online. If no match is found, the
customer can choose to have our system perform a daily search for a match as new
inventory is added to our system. Notification of a match is sent to the
customer by email or facsimile. Our livestock brokers and online producers also
have access to these postings and may respond with potential matches. After
identifying particular cattle to purchase, our customers complete the
transaction through e-mail or the telephone. Once cattle have been purchased, we
manage the shipment logistics through our sales and customer service
organization.
Cattle Auctions
In addition to our online cattle sales, we offer cattle for sale through
our online video auctions. Although not necessary to facilitate cattle sales
transactions, video is available to customers who have installed our satellite
dish system. We offer a mock auction to help our customers get acquainted with
the auction process. We have developed a system that allows participants to
automatically bid in set increments up to a predetermined limit. Once a bid is
accepted, the purchaser is notified online. Our customer service team then
follows-up by telephone and e-mail with specific shipment logistics regarding
the cattle.
MANAGEMENT INFORMATION SOLUTIONS
The Feedlot Information System
The Feedlot Information System, our Web-enabled private network, provides
feedlot customers daily information services. This secure application resides on
our customers' operating systems. Our system integrates information contained in
their disparate legacy systems into our database daily to create relevant
customer-specific analyses and graphical presentations. Customers' information
is automatically integrated into our database, analyzed and available for use on
the following day. The analyses created includes information and performance
data designed to assist in the effective daily management of a feedlot business.
These analyses include:
- Feed consumption data;
- Feed-to-gain ratios; and
- A comprehensive summary of health results.
The Feedlot Information System also enables our customers to compare their
performance against other regional and national feedlot data and provides useful
proprietary content for business management decisions. Our customers can use our
system to manage their feedlot operations on a real-time basis using numerous
performance variables and individual parameters. Customers can also access data
and product performance results posted by practicing veterinarians to further
refine their business practices. All of our Internet applications are easily
accessible from our Web-based Feedlot Information System. In addition, our staff
provides valuable analysis and interpretation of the information contained in
the database.
Professional Cattle Consultants
Through PCC-online.com, our Professional Cattle Consultants service, we
provide our customers access to services that are based on our confidential and
proprietary database of
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cattle industry information. This database has been compiled over the last 26
years from over 90 different feedlots representing over 20% of the total cattle
processed annually through U.S. feedlots. As part of their subscription, our
customers submit information to our analysts twice per month to update our
database. Each month these customers receive our Cattle Gram, a marketing report
that analyzes and reports cattle market related information, and our newsletter,
a feed performance report containing compiled data relating to over 100
different feed performance parameters. In our newsletter, we provide national,
regional and customer-specific analyses. Customers may use a password to view
these reports online or receive them via e-mail or mail.
Specialized Database Services
We offer specialized database management and Internet-based networking
services that target specific customer requirements, including individual animal
tracking through the entire production chain. We can also provide customized
data management and formatting services designed to enable suppliers to better
understand product performance in the field. Our analysts are available to
assist customers in understanding how to derive the most value from the
information being acquired.
STRESS MANAGEMENT PRODUCTS AND SERVICES
As part of our comprehensive solution, we offer our proprietary NutriCharge
restorative feed supplement for sale to our customers through our Web sites and
direct sales force. NutriCharge is designed to reduce the effects of stress on
the animals caused by transportation, handling and commingling, which can result
in a loss of product quality. In addition, we offer educational materials and
services to assist our customers to reduce handling of animals and therefore
reduce stress.
EQUINE IMAGING SYSTEMS
We have developed our infrared imaging thermography system and image
management software for use in the equine industry. Infrared thermography is a
non-invasive diagnostic imaging technique that is used to detect surface
temperature differences. Our system is used by veterinarians to detect heat as
one of the first indicators of inflammation or injury in horses and exotic
animals and is lightweight, portable and has a high degree of resolution and
sensitivity.
STRATEGIC RELATIONSHIPS AND PARTNERS
We have entered into agreements for the development of technology with a
division of the Canadian government. Under our license agreement, we license
patents and technology related to NutriCharge and our Animal Science Tracker
infrared camera, which is currently under development. This agreement also gives
us and the Canadian government, through the Lacombe Research Centre, the right
to collaborate with the other on any project which relates to the license.
Please see the section entitled Intellectual Property for a description of the
license.
We have entered into a Research Support Agreement with another division of
the Canadian government, the Lethbridge Research Centre, under which we provide
one of our infrared imaging systems and technical support in exchange for a
right of first refusal to license any resulting technology on potential
applications of infrared thermography to livestock.
We have entered into a cooperative research and development agreement with
the USDA Agricultural Research Service and Iowa State University of Science and
Technology, in which we have been granted exclusive rights and responsibilities
for product development
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and commercialization of technology developed and patented by them for the
detection of small, diluted quantities of mammalian fecal matter on animal
carcasses. When commercialized, we believe that this technology may reduce
safety inspection and processing costs at packing plants while reducing e-coli
contamination risks.
In August 1999, we entered into an agreement to acquire 19% of the common
stock of Turnkey Computer Systems, Inc., the leading provider of
administrative/accounting legacy systems to feedlots, for 50,000 shares of our
class A common stock valued at $400,000 and future cash payments of $1.4
million. In connection with this investment, we became Turnkey's exclusive
online provider of cattle and feed sales.
BUSINESS ACQUISITIONS
CIN, LLC
In February 1999, we purchased substantially all of the assets of CIN, LLC,
a company which developed, marketed, licensed and distributed software programs
for use in animal food sciences markets. In connection with this acquisition, we
issued 600,000 shares of our class A common stock valued at $720,000, the
assumption of up to $600,000 of liabilities, a cash payment due in October 1999
of $383,000, and an agreement to pay the first $350,000 from Internet sales of
third-party products over the Web site. In addition, as part of this agreement,
we agreed to assume a $177,000 liability related to employee bonuses and an
outstanding research grant obligation.
CYBERSTOCKYARD, INC.
In March 1999, we purchased all of the outstanding stock of Cyberstockyard,
Inc., a company selling cattle and other products through auction software over
the Internet. Cyberstockyard, Inc. was purchased for 200,000 shares of our class
A common stock valued at $450,000.
PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
In May 1999, we purchased substantially all of the assets of Professional
Cattle Consultants, L.L.C. for $1.8 million in cash and the assumption of
approximately $30,000 in liabilities. The primary asset of Professional Cattle
Consultants, L.L.C. was a proprietary database of cattle and market information
and analysis. For the past 26 years, Professional Cattle Consultants, L.L.C. has
collected a variety of performance and other data from its subscribers' feedlot
operations and provided subscribers with periodic analyses of certain
performance characteristics of their feedlot operations and comparative analysis
related to the performance of feedlots within their regions.
RESEARCH AND DEVELOPMENT
We intend to continue to devote significant time and resources to enhance
our current core technology to improve our existing products, expand our product
line and enter into other market segments. Approximately $1.1 million during the
period ended December 31, 1998 and approximately $1.5 million for the six months
ended June 30, 1999 were related to research and development. As of September
30, 1999, we had 36 employees dedicated to product development. We intend to
continue to invest in research and development and focus on the recruitment of
experienced scientists and engineers. Our current research and development
activities are primarily focused on the development of information technologies
to complement our products and services for the animal sciences industry.
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SALES AND MARKETING
SALES
Our sales organization is structured around a direct sales team and an
electronic commerce sales team. We have a staff of 13 account managers who are
responsible for sales of products and services through our electronic commerce
platform to feedlot and packer customers in given geographic territories. We
have a staff of cattle buying representatives who, along with independent buyer
representatives with whom we have entered into relationships, are responsible
for obtaining inventory for livestock sales from producers. We are assembling a
dedicated team to increase advertising revenue and to add third party products
to our electronic commerce offering.
MARKETING
We seek to establish broad customer awareness of our technologies, products
and services within the industries we serve. Our marketing efforts include
direct advertising through trade journals and press releases coordinated by our
communications and public relations firm. We also participate in professional
societies and university programs and have developed strategic marketing
relationships with industry professionals and academic institutions. Much of the
initial interest in our products and services has been created through the
extensive network of relationships we have in the cattle industry as well as
through our sales organization. We are developing an international marketing
effort to promote our products and services worldwide.
OUR CUSTOMERS
Our initial customer focus is the 300 largest feedlots in the United
States. These feedlots manage 20.1 million head of cattle annually, accounting
for 74% of cattle processed through feedlots in the United States. Currently,
our products and services reach 159 of those feedlots, which account for 33% of
the total cattle harvested in the U.S. We also offer our products and services
to participants throughout the cattle production chain.
CUSTOMER SERVICE
Our current customer service organization consists of four individuals who
are responsible for delivering service to our customers. Currently our order
entry, e-commerce transactions and hardware and software support functions are
conducted at our Sebastian, Florida facility. Our current field support
organization is based in Meade, Kansas. We have a dedicated toll free number for
customer calls, which is staffed from 8:00 a.m. to 8:00 p.m. EST.
INFRASTRUCTURE AND TECHNOLOGY INFORMATION SYSTEMS
SYSTEM ARCHITECTURE
Our Web sites use multiple front-end servers and a master database located
at our Sebastian, Florida facility. We have implemented scalable Web site
management, search, customer interaction, transaction processing and fulfillment
services and systems. Our Web site and extranet provide customization,
interactivity and performance required for business-to-business electronic
commerce. We utilize applications for:
- Accepting and validating customer orders;
- Placing and managing orders with suppliers and manufacturers;
- Notifying and updating customer order status; and
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- Management of shipment of products.
All data communication between remotely located computers uses secure
socket layer, or SSL, encryption technology. This allows the transfer of a local
database from a feedlot to our main database which uses a Sun Enterprise 4500
server.
DATA COLLECTION
The data collection system for our Feedlot Information System gathers
information from the accounting, feedbunk and hospital systems at the feedlot.
This information is compared to a local database, and the changes and additions
are encrypted and transmitted securely to our main database storage along with
any orders that are being processed in the off-line batch mode. Once received,
we add the data to our master database for statistical analysis and generate
reports for individual site locations. The results are encrypted and sent back
to the individual feedlots. All confirmations of placed orders are sent back to
the feedlot that generated the order. Professional Cattle Consultants data is
collected on a monthly basis using a variety of interfaces with feedlot software
vendors. Data is transmitted electronically or by hard copy. This information is
then imported into the Professional Cattle Consultants architecture where it is
stored and utilized as necessary.
DATA DISSEMINATION
The data that is sent back to the feedlots includes video data for
Cyberstockyard and daily content and statistical data for our management
information solutions. This information is then stored in our local databases,
which function as a backup for off-line operation. Professional Cattle
Consultants provides information back to feedlots on a monthly basis either
through electronic mail, a password-protected Internet site, or in hard copy
form. Surveys are available only in hard copy form.
DATA DISPLAY AT THE FEEDLOT
Our system uses a standard browser to connect to the CattleInfoNet.com Web
site. A secure login is required for full access to Cyberstockyard.com,
PCC-online.com and the Feedlot Information System. When logged on, the system
downloads display applets, written in Java, to the user's system to display
relevant information. The user can view auction videos and bid on cattle in
real-time.
INTELLECTUAL PROPERTY
Our ability to protect and utilize our intellectual property rights is
important to our continued success. We have filed applications to register
Cyberstockyard and NutriCharge as trademarks of eMerge Interactive with the U.S.
Patent and Trademark Office. We currently have three patent applications that
are pending before the U.S. Patent and Trademark Office relating to:
- Early detection of inflammation using our infrared imaging camera;
- Feedlot information systems and methods; and
- The cattle transaction process.
The majority of our intellectual property rights are licensed to us by
third parties. For example, our U.S. patents and corresponding international
patent applications related to our NutriCharge products and infrared animal
screening methods are licensed to us by the Canadian government under a master
license agreement dated July 29, 1998. The master license provides us with an
exclusive worldwide license to develop and sell products and services that
utilize the inventions contained in the patents. The license continues until
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<PAGE> 47
July 2018 and may be renewed after that time unless the license is terminated by
the Canadian government upon our breach of and failure to cure a fundamental
term of the license agreement, our commencement of bankruptcy or insolvency
proceedings, or the assignment of the license agreement without Canada's prior
written consent. In exchange for the license, we must pay the Canadian
government a royalty on revenues we receive from the sale of products and
services related to the license. Our obligation to pay this royalty begins July
29, 2000. Under the master license, we must achieve milestones in order to
maintain the master license. To date we are achieving all required milestones.
Our U.S. patents relating to technology for detecting fecal contamination
on meat carcasses during and after slaughter are licensed to us by the Iowa
State University Research Foundation and the USDA under a license agreement
entered into August 1999. The license provides us with an exclusive worldwide
license until the patents expire on a country by country basis to develop and
sell products and services that utilize the inventions contained in the patents.
In exchange for the license, we are obligated to pay Iowa State University a
royalty on revenues we receive from the sale of products and services related to
the license.
We believe our commercial success depends on our ability to protect our
proprietary technology and enforce our rights in the technology we license to
other parties. We currently rely on a combination of patents, copyrights and
trade secrets to protect our proprietary technology. We are not aware of any
patents held by others that would prevent us from manufacturing and
commercializing our technology in the United States and abroad.
PURCHASE AND LICENSE AGREEMENT
In January 1999, we granted a license to Sperry Marine, Inc., a subsidiary
of Litton Industries, Inc., to design, manufacture and assemble infrared marine
systems for worldwide sale. The license is exclusive and nontransferable and
applies to infrared technology that is unrelated to our products and markets.
Although we have not received any royalties to date, under the agreement, we
will receive a royalty of 8% of system sales up to a maximum royalty of $4.3
million over a four year period or up to a maximum royalty of $5.0 million if
$4.3 million is not received within four years. Upon receipt of the maximum
amount, we will transfer all rights, title and interests to the licensed
intellectual property. In connection with this license agreement, we also
entered into an asset purchase agreement with Sperry for the purchase of our
inventory relating to the infrared systems for approximately $1.9 million.
COMPETITION
In the cattle sales and auction services market, we compete against
traditional cattle auction services, as well as video cattle auction providers
and other online cattle auction services. Currently, the majority of cattle and
calf sales transactions occur through auctions held at traditional sale barns.
These sale barn operations are highly fragmented and vary in size. We believe
that the primary competitive factors in the cattle sales and auction services
market include:
- Availability and quality of inventory;
- Pricing;
- Reliability of service;
- Efficiency;
- Brand awareness;
- Customer service; and
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- Convenience and ease of use.
We believe that we compete favorably based on these factors, particularly
due to our access to inventory, our focus on ensuring quality and reliability,
the brand awareness developed through our comprehensive solution and the
convenience and ease of use of our Web site.
We compete against other companies in the information services segment,
including established cattle and livestock information services. We also face
competition from cattle industry product manufacturers who use information
technology to promote the effectiveness of their products. These services are
often provided in connection with the sale of products to industry participants.
In addition, providers of software to feedlots also offer information services
to their feedlot customers. We believe that the primary competitive factors in
the information services market include:
- Breadth of available data;
- Quality of analyses;
- Timeliness of information;
- Brand recognition;
- Value-added consulting services; and
- Convenience and ease of use.
We believe that we compete favorably based on these factors particularly
due to the size and quality of our proprietary database, the timeliness of our
service offerings, the expertise of our professionals and the convenience and
ease of use of our Web sites.
Our current competitors may include large companies that have substantially
greater market presence, brand-name recognition and financial resources than we
do. Some of our smaller competitors may also enjoy greater recognition and close
relationships within a particular community.
EMPLOYEES
As of September 30, 1999, we employed a total of 99 persons, including 36
persons in product development and engineering, 35 persons in marketing and
sales, 18 persons in production and 10 persons in administration. We are not
subject to any collective bargaining agreements and we believe that our
relationship with our employees is good.
FACILITIES
Our corporate facilities located in Sebastian, Florida, occupy
approximately 17,000 square feet. We lease our facilities from XL Vision, which
leases the entire facility from XL Realty, Inc., a subsidiary of Safeguard, at
fair market value. We currently do not have a written lease agreement. We
believe that this space is adequate to support our needs for the foreseeable
future.
We also maintain offices in Meade, Kansas, Denver, Colorado and
Weatherford, Oklahoma.
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MANAGEMENT
This table sets forth information with respect to our executive officers
and directors as of October 27, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Charles L. Abraham................... 44 Chief Executive Officer and Director
T. Michael Janney.................... 50 Chief Financial Officer and Treasurer
Scott L. Mathews..................... 42 Chief Operating Officer
Marvin L. Slosman.................... 35 Executive Vice President, Sales and Marketing
John S. Scott, Ph.D.................. 48 Chairman of the Board
Douglas A. Alexander................. 38 Director
E. Michael Forgash................... 41 Director
Thomas C. Lynch...................... 57 Director
Christopher Moller, Ph.D............. 46 Director
John W. Poduska, Sr., Ph.D........... 62 Director
KEY EMPLOYEES WITH SIGNIFICANT INDUSTRY
EXPERTISE
J. Tom Brink......................... 38 Director, Analytical Services
Scott Crain, D.V.M................... 41 Executive Vice President, Professional
Services
Jim Gibb, Ph.D....................... 47 Director, Advanced Technologies
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
Charles L. Abraham has served as Chief Executive Officer and as a member of
the board of directors of eMerge Interactive since July 1998. From July 1997
until July 1998, Mr. Abraham was Vice President and General Manager with the
Home Care Division of Nellcor Puritan Bennett Incorporated. Prior to July 1997,
Mr. Abraham held several positions with General Electric Medical Systems,
including Global Business Manager of the Global Vascular X-ray business located
in Paris, France.
T. Michael Janney has served as Chief Financial Officer and Treasurer of
eMerge Interactive since November 1998. From March 1993 until October 1998, Mr.
Janney was Senior Vice President and Chief Financial Officer of Datamax
Corporation, a privately held company that designs, develops, manufactures and
sells bar code printers worldwide.
Scott L. Mathews has served as Chief Operating Officer of eMerge
Interactive since April 1999. From May 1996 until April 1999, Mr. Mathews was
Vice President and General Manager for Key Technology, Inc., a manufacturer of
machine vision and material handling products for the food processing and
pharmaceutical industries. From 1982 until 1996, Mr. Mathews held several
positions with General Electric Medical Systems, including General Manager of
the Global Positron Emission Tomography business located in Waukesha, Wisconsin
and Uppsala, Sweden.
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<PAGE> 50
Marvin L. Slosman has served as the Executive Vice President, Sales and
Marketing of eMerge Interactive since August 1998. From April 1996 until July
1998, Mr. Slosman was a Division Manager for Cordis, Johnson and Johnson. From
1989 until 1996, Mr. Slosman held several positions with General Electric
Corporation, including Vice President at GE Capital TMS and as well as a number
of positions with GE Medical Systems. Mr. Slosman currently serves on the board
of directors of ReMar, Inc.
John S. Scott, Ph.D. has served as Chairman of the Board of eMerge
Interactive since September 1994 and has served as Chief Executive Officer and
Chairman of the Board of XL Vision, Inc. since its inception in May 1993. From
August 1991 until July 1993, Dr. Scott was President of Lenzar Electro-Optics,
Inc., a manufacturer of imaging devices. Dr. Scott also currently serves as
Chairman of the Board of ChromaVision Medical Systems, Inc. and Who?Vision
Systems, Inc.
Douglas A. Alexander has served as a member of the board of directors of
eMerge Interactive since April 1999. Mr. Alexander is Chairman of the Board of
VerticalNet, Inc., a managing director of Internet Capital Group, Inc. and
serves as a director of Arbinet Communications, Inc., Blackboard Inc.,
ComputerJob.com, Inc., Deja.com, Inc., LinkShare Corporation, SageMaker, Inc.
and Star-Cite! Solutions, Inc. Mr. Alexander co-founded Reality Online, Inc., a
company that developed financial planning tools and online services aimed at the
individual investor, and continued to serve as its President and Chief Executive
Officer after its acquisition by Reuters Group PLC until September 1997.
E. Michael Forgash has served as a member of the board of directors of
eMerge Interactive since March 1999 and has held the position of Vice President
at Safeguard Scientifics, Inc. since January 1998. From June 1996 until December
1997, Mr. Forgash was President and Chief Executive Officer of Creative
Multimedia, an interactive marketing agency that consulted, designed and
delivered Web solutions for businesses. Mr. Forgash also served as President of
Continental Healthcare Systems, Inc., a leading supplier of departmental
healthcare information systems and consulting in the United States and England.
Mr. Forgash currently serves as a director of Internet Capital Group, Inc., US
Interactive, Inc., Who?Vision Systems, Inc. and XL Vision, Inc.
Thomas C. Lynch has served as a member of the board of directors of eMerge
Interactive since June 1997 and currently serves as the President, Chief
Operating Officer and a member of the board of directors of CompuCom, Inc. From
November 1995 until October 1998, Mr. Lynch held the position of Senior Vice
President at Safeguard Scientifics, Inc. From September 1994 until October 1995,
Mr. Lynch was Director of the Navy Staff, where he was responsible for
coordinating Navy defense issues. Prior to August 1994, Mr. Lynch held several
positions in the United States Navy, including Superintendent of the U.S. Naval
Academy.
Christopher Moller, Ph.D. has served as a member of the board of directors
of eMerge Interactive since June 1997 and is currently Managing Director of TL
Ventures, a company which manages a series of private equity funds. Since 1994,
Dr. Moller has served as Managing Director of Technology Leaders III and
Technology Leaders II Management L.P. Dr. Moller is a director of Who?Vision
Systems, Inc., Adolor Corporation and OraPharma, Inc. Dr. Moller serves on the
medical advisory board of Lankenau Research Institute.
John W. Poduska, Sr., Ph.D. has served as a member of the board of
directors of eMerge Interactive since January 1997. Since 1992, Dr. Poduska, Sr.
has served as the Chairman of Advanced Visual Systems Inc., a provider of
visualization software. From December 1989 to December 1991, Dr. Poduska was
President and Chief Executive Officer of Stardent Computer Inc., a computer
manufacturer. Dr. Poduska is also a member of the board of directors of
Safeguard Scientifics, Inc., Cambridge Technology Partners, Inc., Union Pacific
Resources Group Inc. and XL Vision, Inc.
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<PAGE> 51
KEY EMPLOYEES WITH SIGNIFICANT INDUSTRY EXPERIENCE
J. Tom Brink has served as the Director, Analytical Services of eMerge
Interactive since April 1999. Mr Brink focuses on marketing methods, feedlot and
grid value and cow production costs, and has conducted extensive research on
cattle markets and price cycles. His articles have been featured in many key
industry publications. From November 1996 to April 1999, Mr. Brink served as the
Executive Director of the American Gelbvieh Association, a leading
breedvalue-based marketer of fed cattle and the largest breed-coordinated
alliance in the United States. Prior to November 1996, Mr. Brink was the
Director of Research of Cattle-Fax.
Scott Crain, D.V.M. has served as the Executive Vice President,
Professional Services of eMerge Interactive since March 1999. Dr. Crain also
maintains a veterinary feedlot practice. In 1995, Dr. Crain founded CIN, LLC, a
company that established an information system for the beef industry, and served
as its President and Chief Executive Officer until that company was acquired by
eMerge Interactive in 1999.
Jim Gibb, Ph.D. has served as the Director, Advanced Technologies for
eMerge Interactive since June 1999. Dr. Gibb identifies opportunities to
implement and integrate new technology into eMerge Interactive's informations
system. From May 1996 until June 1999, he served as the Vice President at the
Center for Quality of the National Cattlemen's Beef Association. He has also
served as an Assistant Professor of Beef Cattle Management at the University of
Illinois, Vice President of Education and Research for the American Polled
Hereford Association, Executive Director of the American Gelbvieh Association.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. Our
audit committee consists of Douglas A. Alexander, Christopher Moller, Ph.D. and
John W. Poduska, Sr., Ph.D. The audit committee reviews the scope and result of
the audit and other services provided by our independent auditors and reviews
and evaluates our audit and internal control functions.
Our compensation committee consists of John S. Scott, Ph.D., E. Michael
Forgash and Thomas C. Lynch. The compensation committee evaluates and approves
the compensation and benefits for our executive officers and administers our
equity compensation plans and makes recommendations to the board of directors
regarding such matters.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of eMerge Interactive and administering various incentive compensation
and benefit plans. During the 1998 fiscal year, our compensation committee
consisted of Dr. Scott and Messrs. E. Scott Blackwell and Lynch. Dr. Scott is
the Chief Executive Officer and Chairman of the Board of XL Vision. Mr.
Blackwell is an executive officer of XL Vision. At the end of fiscal 1998, we
owed XL Vision $8.0 million.
DIRECTOR COMPENSATION
We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. We do not pay our
directors cash compensation for attending meetings of the board of directors and
committee meetings. Directors are eligible to receive options to purchase common
stock under our equity compensation plan. In each of October 1997 and March
1999, we granted Dr. Poduska options to purchase 25,000 shares of our common
stock under our 1996 Equity
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Compensation Plan at an exercise price of $1.00 and $2.00 per share,
respectively. In April 1999, we granted Mr. Alexander options to purchase 80,000
shares of our common stock under our 1996 Equity Compensation Plan at an
exercise price of $3.00 per share.
EXECUTIVE COMPENSATION
The table below sets forth information concerning the compensation we paid
to our chief executive officer and a former executive officer who was paid
compensation greater than $100,000 in 1998. In 1998, we did not pay any of our
other executive officers salary and bonus exceeding $100,000. Mr. Abraham joined
eMerge Interactive in April 1998 and is paid a base salary of $175,000 per year
and a bonus of $70,000 per year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS COMPENSATION
- --------------------------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles L. Abraham......... 1998 $ 86,159 $35,000 600,000 $41,601
Chief Executive Officer
Ottmar Dippold............. 1998 100,968 -- -- --
Former President and
Chief Operating Officer
</TABLE>
The following table sets forth information regarding options granted in
1998 to the executive officers named in the Summary Compensation Table above.
Mr. Dippold was not granted any stock options during 1998. The potential
realizable value is calculated based on an assumed initial public offering price
of $ per share.
OPTION GRANTS DURING LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES PRICE APPRECIATED FOR
UNDERLYING PERCENTAGE OF OPTION TERM
OPTIONS TOTAL OPTIONS EXERCISE EXPIRATION ---------------------
NAME GRANTED(#) GRANTED PRICE($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Abraham... 400,000 30.0% $1.00 7/1/08
100,000 7.6% $1.00 7/1/08
100,000 7.6% $1.00 10/30/08
</TABLE>
The following table sets forth information concerning year end option
values for fiscal 1998 for the executive officers named in the Summary
Compensation Table above. There were no option exercises by these officers in
fiscal 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
------------------------------ ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles L. Abraham........... 150,000 450,000
Ottmar Dippold............... 12,500 37,500
</TABLE>
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EMPLOYMENT, CHANGE OF CONTROL AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Charles L. Abraham holds the position of Chief Executive Officer and
receives an annual salary of $175,000 per year, and a bonus of up to $70,000 per
year based on performance objectives established by the board of directors. Mr.
Abraham will receive continued salary and benefits for a period of six months if
we terminate his employment without cause. Mr. Abraham also holds options to
purchase 600,000 shares of common stock at $1.00 per share, of which 25% or
150,000 shares, vest at the grant date with the remaining options vesting in
three annual installments of 25% each. If we experience a change of control,
100% of the options will automatically vest.
Marvin L. Slosman holds the position of Executive Vice President, Sales and
Marketing and receives an annual salary of $140,000 and a bonus of up to $56,000
based on the achievement of annual objectives. Mr. Slosman will receive
continued salary and benefits for a period of six months if we terminate his
employment without cause. Mr. Slosman also holds options to purchase 125,000
shares of common stock at $1.00 per share and 25,000 shares of common stock at
$3.00 per share. These options vested 25% on the day of grant with the remaining
options vesting in three annual installments of 25% each. If we experience a
change of control, 100% of the options will automatically vest.
T. Michael Janney holds the position of Chief Financial Officer and
receives an annual salary of $135,000 and a bonus of up to $33,750 based on the
achievement of annual objectives. Mr. Janney will receive continued salary and
benefits for a period of six months if we terminate his employment without
cause. Mr. Janney also holds options to purchase 125,000 shares of common stock
at $1.00 per share and 25,000 shares of common stock at $3.00 per share. These
options vested 25% on the day of grant with the remaining options vesting in
three annual installments of 25% each. If we experience a change of control,
100% of the options will automatically vest.
Scott L. Mathews holds the position of Chief Operating Officer and receives
an annual salary of $160,000 and a bonus of up to $64,000 based on the
achievement of annual objectives. Mr. Mathews will receive continued salary and
benefits for a period of six months if we terminate his employment without
cause. Mr. Mathews also holds options to purchase 180,000 shares of our common
stock at $3.00 per share. These options vest 25% on the day of grant with the
remaining options vesting in three annual installments of 25% each. If we
experience a change of control, 100% of the options will automatically vest.
EQUITY COMPENSATION
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
Our Amended and Restated 1996 Equity Compensation Plan was approved by our
stockholders on January 26, 1996. The aggregate number of shares of common stock
available for awards under the 1996 plan was 1,735,000 shares. No more than
500,000 shares in the aggregate may be granted to any individual in any calendar
year. As of October 20, 1999, there were 1,584,470 shares issuable upon the
exercise of outstanding options granted under the 1996 plan.
1999 EQUITY COMPENSATION PLAN
Our 1999 Equity Compensation Plan was approved by our stockholders on May
10, 1999. The aggregate number of shares of common stock available for awards
under the 1999 plan is 1,000,000 shares. No more than 500,000 shares in the
aggregate may be granted to any individual in any calendar year. As of October
20, 1999, there were 427,700 shares issuable upon the exercise of outstanding
options granted under the 1999 plan.
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GENERAL
The 1996 and 1999 equity compensation plans provide for grants of incentive
stock options, nonqualified stock options, stock appreciation rights, restricted
stock and performance units to our designated employees, advisors and
consultants, and to non-employee directors. The compensation committee of the
board of directors administers and interprets the plans. The compensation
committee consists of two or more persons appointed by the board of directors
from among its members, each of whom must be a non-employee director as defined
by Rule 16b-3 under the Securities Exchange Act of 1934, and an outside director
as defined by section 162(m) of the Internal Revenue Code of 1986 and related
Treasury Regulations.
ELIGIBILITY FOR PARTICIPATION
Grants may be made to any of our employees or to employees of any of our
subsidiaries, to any non-employee member of the board of directors or, under the
1999 plan, to individuals to whom an offer of employment has been extended. Key
consultants and advisers who perform services for us or any of our subsidiaries
are eligible if they render bona fide services, not as part of the offer or sale
of securities in a capital-raising transaction.
401(k) PLAN
We have adopted a tax qualified employee savings and retirement plan, the
401(k) plan, for eligible employees. We make matching contributions on behalf of
all participants who have elected to make deferrals to the 401(k) plan. Any
contributions to the 401(k) plan by us or by the participants are paid to a
trustee. The 401(k) plan, and the accompanying trust, is intended to qualify
under Section 401(k) of the Internal Revenue Code, so that contributions and
income earned, if any, are not taxable to employees until withdrawn. The
contributions made by us vest in increments according to a vesting schedule. At
the direction of each participant, the trustee invests the contributions made to
the 401(k) plan in any number of investment options.
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RELATED PARTY TRANSACTIONS
EQUITY AND DEBT FINANCING AGREEMENTS AND LICENSE AGREEMENT WITH XL VISION
From our inception in September 1994 through June 1999, we have funded our
operating and investing cash requirements principally through private placements
of common stock and preferred stock and from borrowings from XL Vision.
In July 1997, we signed a subordinated purchase money note with XL Vision
for $4.4 million. The note bears interest at an annual rate of 7% and is due in
full when we complete an initial public offering or sell all of our assets or
stock.
In December 1998, we issued 2,400,000 shares of series B junior preferred
stock to XL Vision, one of our significant stockholders, at a purchase price of
$2.00 per share in exchange for canceling debt of $4.8 million. XL Vision also
canceled $7.5 million of debt as a contribution of debt to equity. The
registration rights agreement executed in connection with the series A preferred
stock extends to the series B junior preferred stock. See the section entitled
Description of Capital Stock for a description of the registration rights
agreement. The shares of series A preferred stock convert into shares of class A
common stock immediately prior to completion of this offering.
In January 1999, we signed a revolving promissory note with XL Vision for
up to $3.0 million. The revolving promissory note bears interest at the prime
lending rate plus 1% and is due in full when we complete an initial public
offering or sell all of our assets or stock.
In February 1999, we signed a license agreement with XL Vision, granting XL
Vision a license to use our software for the limited purpose of evaluating
whether the software could provide the basis for a new company that would
operate in the agricultural industry. If XL Vision forms a new company, we will
negotiate a long-term license agreement. In addition, XL Vision is obligated to
give us at least 25% of the new company. We are obligated to transfer all
amounts up to 25% of the company to Lost Pelican, LLC, formerly CIN, LLC. The
license agreement terminates on November 30, 1999.
EQUITY AND DEBT FINANCING AGREEMENTS WITH AFFILIATES OF SAFEGUARD SCIENTIFICS,
INC.
In April 1999, we signed two promissory notes, totaling $1.1 million with
Safeguard Delaware, Inc., a wholly-owned subsidiary of Safeguard Scientifics,
Inc. and the sole general partner of Safeguard XL Capital and Safeguard 99
Capital L.P., two of our significant stockholders. Safeguard Scientifics, Inc.
owns a majority of the outstanding shares of preferred stock of XL Vision. These
promissory notes were paid in full with the proceeds of the sale of our series C
preferred stock.
In May 1999, we issued 1,000,000 shares of series C preferred stock to
Safeguard 99 Capital L.P., an affiliate of Safeguard Scientifics, Inc., at a
price of $5.00 per share. The registration rights agreement executed in
connection with the series A preferred stock extends to the series C preferred
stock. The shares of series A preferred stock convert into shares of class A
common stock immediately prior to completion of this offering.
In July 1999, we signed a revolving promissory note with Safeguard
Delaware, Inc. for up to $3.0 million. At September 30, 1999, $3.0 million had
been advanced by Safeguard. The revolving promissory note bears interest at the
prime lending rate plus 1%. In October 1999, we amended the note to extend the
maturity date until November 30, 1999.
In August 1999, we signed a demand note with Safeguard Delaware, Inc. in
the principal amount of $2.5 million. The note bears interest at the prime rate
plus 1% and is payable on demand. In September 1999, we signed a demand note
with Safeguard Delaware, Inc. in the principal amount of $2.0 million. The note
bears interest at the prime
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rate plus 1% and is payable on demand. In October 1999, we signed a demand note
with Safeguard Delaware, Inc. in the principal amount of $2.5 million. The note
bears interest at the prime rate plus 1% and is payable on demand. In October
1999, we cancelled these outstanding notes in exchange for a note in the amount
of $7.1 million. The note bears interest at the prime rate plus 1% and is due in
full in one year, when we complete an initial public offering or when Internet
Capital Group repays its note to us, whichever occurs earlier.
ISSUANCE OF PREFERRED STOCK AND A WARRANT TO INTERNET CAPITAL GROUP, INC.
On October 27, 1999, we agreed to issue 4,555,556 shares of series D
preferred stock and a warrant to purchase 911,111 shares of class B common stock
for the aggregate consideration of $38.8 million to Internet Capital Group,
Inc., subject to the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which we expect to occur
in November 1999.
We will receive $18.0 million of the total purchase price in cash and $23.0
million in the form of a promissory note. The note will be due and payable one
year after its issue and does not bear interest. The note is secured by
2,555,556 shares of series D preferred stock. Interest on the promissory note
was imputed at 9.5% and amounts to $2.2 million over the life of the note. In
connection with the issuance of the stock and the warrant, we will grant
Internet Capital Group registration rights that are substantially the same as
those that apply to our series A preferred stock.
The series D preferred stock will automatically convert into shares of
class B common stock immediately prior to completion of this offering. Class B
common stock is entitled to two and one-half votes per share. The warrant
expires three years from the date of issuance, and is exercisable at the initial
public offering price of the class A common stock. The class B common stock
automatically converts into class A common stock upon transfer by Internet
Capital Group to a non-affiliated party.
Douglas A. Alexander, one of our directors, is an executive officer of
Internet Capital Group. E. Michael Forgash, one of our directors, is also a
member of the board of directors of Internet Capital Group. Additionally,
Safeguard Scientifics, Inc. beneficially owns approximately 14.3% of the
outstanding shares of common stock of Internet Capital Group.
Internet Capital Group and Safeguard are parties to a joint venture
agreement under which each has agreed to:
- Use best efforts to agree and vote on a course of action that is in the
best interest of both parties in all matters submitted to the
stockholders for approval;
- Vote its shares for the election of two designees of Safeguard and two
designees of Internet Capital Group in any election of directors of
eMerge Interactive;
- Offer shares of eMerge Interactive stock to the other party at the fair
market price of the shares before offering the shares to any unaffiliated
party, other than in a sale of all of its shares; and
- Discuss its intentions with the other party before selling all of its
shares to an unaffiliated party and use its best efforts to provide the
other party with the opportunity to purchase or participate in the
purchase of the shares.
SERVICE AGREEMENTS WITH XL VISION AND SAFEGUARD SCIENTIFICS
We have contractual service agreements with XL Vision and Safeguard
Scientifics. Under an administrative services agreement dated December 15, 1997,
as amended on August 17, 1999, XL Vision and Safeguard provide us with
management consultation, investor relations,
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<PAGE> 57
financial management, human resource management, legal services, insurance
programs, and administrative services. We pay a fee of 1.5% of the contribution
margin of cattle sales, as defined in the agreement, and 1.5% for all other
sales, up to $300,000 annually, which is divided equally between Safeguard and
XL Vision. The fee is not due until we achieve positive cash flow from
operations. The agreement extends through December 31, 2002 and continues unless
terminated by either party.
Under a direct charge administrative services agreement dated April 14,
1997, XL Vision also provides us with management services on a time and
materials basis. This agreement continues on a month-to-month basis, and may be
terminated at any time by either party.
REAL ESTATE LEASE WITH XL VISION
We currently lease our facilities in Sebastian, Florida from XL Vision,
Inc., which leases the entire facility from XL Realty, Inc., a subsidiary of
Safeguard Scientifics, Inc. We currently do not have a written lease. We lease
our facilities at fair market value.
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<PAGE> 58
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of eMerge Interactive's common stock as of October 27, 1999 by:
- Each person or entity who is known by us to beneficially own more than 5%
of eMerge Interactive's outstanding common stock;
- Each of the executive officers set forth on the summary compensation
table;
- Each director of eMerge Interactive;
- All directors and executive officers as a group; and
- All other selling stockholders.
In addition, we are voluntarily disclosing information for each of our
other executive officers.
A person has beneficial ownership of shares if the individual has the power
to vote or dispose of shares. This power can be exclusive or shared, direct or
indirect. In addition, a person beneficially owns shares underlying options that
are presently exercisable or will become exercisable within 60 days of October
27, 1999 and shares acquirable upon conversion of our preferred stock.
Applicable percentage ownership in the following table is based on 20,119,442
shares of common stock and preferred stock outstanding as of October 27, 1999,
which assumes that the 4,555,556 shares of series D preferred stock issuable
under our securities purchase agreement with Internet Capital Group, Inc. have
been issued and converted into common stock, and shares immediately
following the completion of this offering. To the extent that any shares are
issued upon exercise of options, warrants or other rights to acquire eMerge
Interactive's capital stock that are presently outstanding, granted in the
future or reserved for future issuance under our equity plans, there will be
further dilution to new public investors. Because of the disparate voting rights
between the class A and class B common stock, we have also presented beneficial
ownership as a percent of total voting power in the table below.
The table below assumes that the underwriters have not exercised their
over-allotment option. In addition, the symbol * means that the percentage is
less than one percent.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES OF AFTER THE OFFERING
------------------------------------- CLASS A -------------------------------------
PERCENT OF PERCENT OF COMMON PERCENT OF PERCENT OF
NUMBER OF BENEFICIAL TOTAL VOTING STOCK NUMBER OF BENEFICIAL TOTAL VOTING
NAME OF BENEFICIAL OWNER SHARES OWNERSHIP POWER OFFERED SHARES OWNERSHIP POWER
------------------------ --------- ---------- ------------ --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
Internet Capital Group,
Inc.(1)(10)........................ 6,466,667 30.7% 50.2%
800 The Safeguard Building 435
Devon Park Drive Wayne, PA 19087
XL Vision, Inc.(2)(3).............. 4,846,500 24.1 18.0
10315 102nd Terrace Sebastian, FL
32958
Safeguard XL Capital L.P.(4)(10)... 4,181,315 20.8 15.5
800 The Safeguard Building 435
Devon Park Drive Wayne, PA 19087
XL Partners, L.P.(3)............... 2,446,500 12.2 9.1
10315 102nd Terrace Sebastian, FL
32958
Safeguard 99 Capital
L.P.(4)(5)(10)................... 1,340,000 6.5 4.9
800 The Safeguard Building 435
Devon Park Drive Wayne, PA 19087
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES OF AFTER THE OFFERING
------------------------------------- CLASS A -------------------------------------
PERCENT OF PERCENT OF COMMON PERCENT OF PERCENT OF
NUMBER OF BENEFICIAL TOTAL VOTING STOCK NUMBER OF BENEFICIAL TOTAL VOTING
NAME OF BENEFICIAL OWNER SHARES OWNERSHIP POWER OFFERED SHARES OWNERSHIP POWER
------------------------ --------- ---------- ------------ --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Biegert Family Trust(6)........ 1,000,000 5.0 3.7
c/o Judith Ackland P.O. Box 197
Shickley, NE 68436
NAMED EXECUTIVE OFFICERS AND
DIRECTORS:
Charles L. Abraham(9).............. 300,000 1.5 *
Ottmar Dippold..................... 22,500 * *
John S. Scott, Ph.D.(11)........... 20,000 * *
Douglas A. Alexander............... -- * *
E. Michael Forgash................. -- * *
Thomas C. Lynch.................... -- * *
Christopher Moller, Ph.D........... -- * *
John W. Poduska, Ph.D. (9)......... 52,750 * *
OTHER EXECUTIVE OFFICERS:
T. Michael Janney (9).............. 37,500 * *
Scott L. Mathews (9)............... 45,000 * *
Marvin L. Slosman (9).............. 68,750 * *
All directors and executive
officers as a group (10
persons)......................... 524,000 2.6 1.9
SELLING STOCKHOLDERS:
Technology Leaders II(7)........... 856,000 4.3 3.2
Technology Leaders I(8)............ 803,250 4.0 3.0
Scott Calhoun...................... 50,000 * *
Richard Stanley, D.V.M.(9)......... 29,270 * *
</TABLE>
- -------------------------
(1) The share numbers for Internet Capital Group represent 4,555,556 shares of
class B common stock and a warrant to purchase 911,111 shares of class B
common stock that will be acquired under a securities purchase agreement
dated October 27, 1999. Holders of class B common stock are entitled to two
and one-half votes per share. These numbers also include 1,000,000 shares
of class A common stock that will be acquired from J Technologies, LLC
under a securities purchase agreement on October 27, 1999.
(2) The share numbers for XL Vision, Inc. include 500,000 shares that are
subject to an option to holders of its 6% convertible subordinated notes.
The options become exercisable when we complete an initial public offering,
subject to restrictions.
(3) XL Vision, Inc. is the sole general partner of XL Partners, L.P. Therefore,
the share numbers for XL Vision include 2,446,500 shares owned by XL
Partners, L.P.
(4) Safeguard Delaware, Inc. holds approximately a 91.6% general partnership
interest in Safeguard XL Capital L.P. and an 89.8% general partnership
interest in Safeguard 99 Capital L.P. Safeguard Delaware, Inc., a
wholly-owned subsidiary of Safeguard Scientifics, Inc., is the sole general
partner of Safeguard XL Capital L.P. and Safeguard 99 Capital L.P.
Safeguard Delaware, Inc. has sole authority and responsibility for all
investments, voting and disposition decisions regarding such shares. The
limited partnership interests are held by executives and employees of
Safeguard, subject to vesting. These numbers exclude any shares that may be
purchased by Safeguard Scientifics, Inc. that have not been purchased by
its shareholders in the directed share subscription program.
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<PAGE> 60
(5) The share numbers for Safeguard 99 Capital L.P. include options to acquire
340,000 shares of our stock that are currently owned by XL Vision. These
options become exercisable when we complete an initial public offering,
subject to restrictions.
(6) We have a proxy to vote the 1,000,000 shares owned by the Biegert Trust
until the completion of the series D preferred stock and warrant purchase
by Internet Capital Group.
(7) Technology Leaders II Management L.P., a limited partnership, is the sole
general partner of Technology Leaders II L.P. and a co-general partner of
Technology Leaders II Offshore C.V. Technology Leaders II L.P. and
Technology Leaders II Offshore C.V. are venture capital funds that are
required by their governing documents to make all investment, voting and
disposition actions in tandem. Technology Leaders II L.P. and Technology
Leaders II Offshore C.V. are referred to as Technology Leaders II.
Technology Leaders II Management L.P. has sole authority and responsibility
for all investment, voting and disposition decisions for Technology Leaders
II. The general partners of Technology Leaders II Management, L.P. are (i)
Technology Leaders Management, Inc., a wholly-owned subsidiary of
Safeguard, (ii) Robert E. Keith, Jr., Gary J. Anderson, M.D., Mark J.
DeNino and Christopher Moller, Ph.D., a director of eMerge Interactive, and
(iii) four other corporations (the TLA Corporations) owned by natural
persons, one of whom is a director of Safeguard. Technology Leaders II
Management L.P. is managed by an executive committee, by whose decisions
the general partners have agreed to be bound, which consists of nine voting
members including (i) Warren V. Musser, who is a designee of Technology
Leaders Management, Inc., (ii) Mr. Keith, Dr. Anderson, Mr. DeNino, Dr.
Moller, individually, and (iii) one designee of each of the TLA
Corporations and (as a non-voting member) Clayton S. Rose. Technology
Leaders Management, Inc. is the administrative manager of Technology
Leaders II, subject to the control and direction of the executive committee
of Technology Leaders II Management L.P. Mr. Keith is Vice Chairman of
Safeguard.
(8) Technology Leaders Management L.P., a limited partnership, is the sole
general partner of Technology Leaders L.P. and a co-general partner of
Technology Leaders Offshore C.V. Technology Leaders L.P. and Technology
Leaders Offshore C.V. are venture capital funds that are required by their
governing documents to make all investment, voting and disposition actions
in tandem. Technology Leaders MI Corp. is wholly-owned by Technology
Leaders Offshore C.V. Technology Leaders L.P. and Technology Leaders
Offshore C.V. are referred to collectively as Technology Leaders I.
Technology Leaders Management L.P. has sole responsibility for all
investment, voting and disposition decisions for Technology Leaders I. The
general partners of Technology Leaders Management L.P. are (i) Technology
Leaders Management, Inc., a wholly-owned subsidiary of Safeguard, (ii)
Technology Leaders Partners I, a general partnership among Technology
Leaders Management, Inc. and the Managing Directors of Technology Leaders
Management, Inc., other than Mark J. DeNino, and (iii) four other
corporations (the TLA Corporations) owned by individuals, one of whom
serves as a director of Safeguard, and three of whom are not currently
otherwise affiliated with Safeguard or eMerge Interactive. Technology
Leaders Management L.P. is managed by an executive committee, by whose
decisions the general partners have agreed to be bound, that consists of
seven voting members including (i) Warren V. Musser, Robert E. Keith, Jr.
and Gary J. Anderson, M.D., each of whom are designees of Technology
Leaders Management, Inc., and (ii) one designee of each of the TLA
Corporations. Clayton S. Rose is a non-voting member of that executive
committee. Technology Leaders Management, Inc. is the administrative
manager of Technology Leaders, subject to the control and direction of the
executive committee of Technology Leaders Management L.P. Mr. Musser is the
chairman and Mr. Keith is president and chief executive
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<PAGE> 61
officer of Technology Leaders Management, Inc. and Mr. Keith, Dr. Anderson,
Mr. DeNino and Christopher Moller, Ph.D., a director of eMerge Interactive,
are the managing directors of Technology Leaders Management, Inc. Mr. Keith
and Dr. Anderson are former officers of Safeguard and Mr. Keith is Vice
Chairman of Safeguard.
(9) Includes options to purchase the following shares of class A common stock:
- 270,000 shares by Mr. Abraham;
- 43,750 shares by Mr. Poduska;
- 37,500 shares by Mr. Janney;
- 45,000 shares by Mr. Mathews
- 68,750 shares by Mr. Slosman; and
- 5,000 shares by Mr. Stanley.
(10) Internet Capital Group and Safeguard are parties to a joint venture
agreement under which they have agreed to use best efforts to agree to vote
together on matters submitted to the stockholders for approval and for two
designees of Safeguard and two designees of Internet Capital Group in any
elections of directors.
(11) John S. Scott, Ph.D. is Chief Executive Officer and Chairman of the Board
of XL Vision, and disclaims beneficial ownership of the 4,846,500 shares
held by XL Vision.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, we will be authorized to issue up to
100,000,000 shares of common stock, $.01 par value per share, consisting of
92,711,110 shares of class A common stock and 7,288,890 shares of class B common
stock, and 15,000,000 shares of preferred stock, $.01 par value per share. All
outstanding shares of preferred stock will automatically convert into common
stock immediately prior to the closing of this offering as follows:
- Shares of series A, series B and series C preferred stock will convert
into shares of class A common stock; and
- Shares of series D preferred stock will convert into shares of class B
common stock.
COMMON STOCK
As of October 27, 1999, there were 20,119,442 shares of common stock
outstanding, assuming the conversion of the shares of preferred stock then
outstanding and assuming the issuance of 4,555,556 shares of series D preferred
stock and their conversion in accordance with a securities purchase agreement
dated October 27, 1999. After giving effect to the sale of the
shares of our class A common stock in this offering, there will be
shares of common stock outstanding.
Holders of class A common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Holders of
class B common stock are entitled to two and one-half votes for each share held
of record. The shares of class A and class B common stock are identical in all
other respects. The election of directors is determined by a plurality of the
votes cast and, except as otherwise required by law, all other matters are
determined by a majority of the votes cast. Our stockholders do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors. Holders of common stock are entitled to receive any dividends
declared by the board of directors out of funds legally available for that
purpose, subject to any preferential dividend rights of outstanding shares of
preferred stock. Upon the liquidation, dissolution or winding up of eMerge
Interactive, the holders of common stock are entitled to receive pro-rated
shares of our net assets after we have paid all debts and other liabilities.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of common
stock may be adversely affected by the rights of the holders of shares of any
class or series of preferred stock which we may designate and issue in the
future.
In the event of a sale or transfer of any shares of class B common stock to
a party that is not affiliated with the original purchaser, the shares will
automatically convert into class A common stock.
PREFERRED STOCK
Under our second amended and restated certificate of incorporation, our
board of directors, without further action by our stockholders, is authorized to
issue up to an aggregate of 15,000,000 shares of preferred stock in one or more
classes or series. Our board of directors may, without stockholder approval,
issue any class or series of preferred stock with dividend rights, dividend
rates, conversion rights, redemption rights, preferences on liquidation or
dissolution, voting rights and any other preferences, which could adversely
affect the voting power of the holders of common stock. Issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions or other corporate purposes, could make it more difficult for a
third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock. Following this
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<PAGE> 63
offering, after the conversion of all outstanding shares of series A, series B,
series C and series D preferred stock into common stock, there will be no shares
of preferred stock outstanding. We have no plans to issue any additional shares
of preferred stock.
REGISTRATION RIGHTS
Some holders of our class A common stock and all holders of preferred stock
have been granted registration rights. Under a registration rights agreement, as
amended, beginning six months after an initial public offering, the holders of
series A, series B, series C and series D preferred stock can, on two occasions,
demand that we register their shares, so long as the shares covered by each
registration have an aggregate market value of more than $5.0 million.
The holders of series A, series B, series C and series D preferred stock
are also entitled to piggyback registration rights, which may be reduced at the
discretion of an underwriter. Piggyback registration rights entitle stockholders
to include shares in a registered public offering initiated by us. We intend to
obtain a waiver of the piggyback registration rights from all of the holders of
series A, series B, series C and series D preferred stock in connection with
this offering, except from those participating as selling stockholders in this
offering.
In a stockholders' agreement, we granted the former stockholders of STS
Agriventures, Ltd. and the partners of NutriCharge piggyback registration rights
for their shares of our common stock. In a stockholders' and registration rights
agreement, we granted CIN, LLC (now Lost Pelican, LLC) piggyback registration
rights for its shares of our class A common stock. In a joinder and correction
to the stockholders' and registration rights agreement, we granted the former
stockholders of Cyberstockyard, Inc. piggyback registration rights for their
shares of our common stock. In a common stock purchase agreement, we granted
Turnkey Computer Systems, Inc. piggyback registration rights for its shares of
our class A common stock, except for in an initial public offering. We intend to
obtain waivers of the piggyback registration rights from these holders of class
A common stock, except from those participating as selling stockholders in this
offering.
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions of our second amended and restated certificate of incorporation
and bylaws could make the acquisition of eMerge Interactive and the removal of
incumbent officers and directors more difficult. These provisions are expected
to discourage coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of eMerge Interactive to negotiate
with us first.
Our board of directors has the authority to issue and to establish the
rights of substantial amounts of preferred stock without stockholder approval,
upon such terms and conditions, and having such rights, privileges and
preferences, as our board of directors may determine. This authority may be used
to create voting impediments, hinder changes in control or to dilute the stock
ownership of holders of common stock seeking to obtain control of eMerge
Interactive. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of any preferred stock that may be
issued in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions, financings and other
corporate transactions, may have the effect of discouraging, delaying or
preventing a change in control.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, or the anti-takeover law, which regulates corporate
acquisitions. The law generally
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<PAGE> 64
prohibits business combinations between a publicly held Delaware corporation and
an interested stockholder.
- An interested stockholder is a person who, together with any affiliates,
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting shares of a corporation.
- A business combination includes mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation.
Section 203 prohibits any business combination that results in a financial
benefit to an interested stockholder for three years following the date the
person became an interested stockholder.
WARRANTS
We have agreed to issue a warrant to Internet Capital Group to purchase up
to 911,111 shares of class B common stock upon the completion of the series D
preferred stock purchase. The warrant will be exercisable upon the earlier of:
- The consummation of this offering;
- The closing date of a round of equity financing of at least $20.0
million; and
- The one year anniversary of the issue date of the warrant.
In the event that the warrant becomes exercisable as a result of this
offering or as a result of a private equity offering, the exercise price will be
equal to the offering price per share. If the warrant becomes exercisable as a
result of the one year anniversary of its issue, the exercise price will be
$9.00 per share. The warrant terminates on the third anniversary of its issue.
The warrant is transferable, but once transferred, it will be exercisable for
shares of class A common stock.
LIMITATION ON LIABILITY
Our second amended and restated certificate of incorporation and bylaws
contain provisions relating to the limitation of liability and indemnification
of directors and officers. Our amended and restated certificate of incorporation
specifies that none of our directors shall be personally liable to us or our
shareholders for monetary damages for a breach of fiduciary duty, except for
liability:
- For any breach of the duty of loyalty;
- For acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
- For the payment of unlawful dividends and other actions prohibited by
Delaware General Corporation Law; and
- For any transaction resulting in receipt of an improper personal benefit
by the director.
Our bylaws require us to indemnify our directors and officers, so long as
their actions are in good faith, are in the best interests of the corporation,
and are not unlawful. Our bylaws also permit us to purchase and maintain
insurance on behalf of our directors, officers and agents. We intend to obtain
directors' and officers' liability insurance to provide our directors and
officers with insurance coverage for losses arising from claims based on
breaches of duty, negligence, error and other wrongful acts.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, LLC, 85 Challenger Road, Overpeck Centre, Ridgefield Park,
New Jersey 07660.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be shares of our common
stock outstanding. Of the shares which will be outstanding after the
offering, the shares sold in this offering and additional
shares that are eligible for resale under Rule 144(k) will be freely tradeable.
RULE 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year, including an affiliate, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- One percent of the then outstanding shares of our common stock
(approximately shares immediately following the offering); or
- The average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale.
After the offering, shares will be held by affiliates. For purposes
of Rule 144, an affiliate of an issuer is a person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, such issuer. Shares held by affiliates are control
securities under Rule 144 and may be sold in the public market upon the
expiration of a one-year holding period under Rule 144, subject to the volume,
manner of sale and other limitations of Rule 144, but may not be sold in
reliance upon Rule 144(k). Shares held by persons deemed not to have been
affiliates of ours at any time during the 90 days preceding a sale and who have
beneficially owned the shares for at least two years are restricted securities
under Rule 144 and can be sold under Rule 144(k) without regard to the volume
limitations, manner of sale provisions or other limitations of Rule 144.
LOCK-UP AGREEMENTS
All officers and directors, and the holders of common stock and options to
purchase common stock who collectively account for shares of our common
stock have agreed, pursuant to lock-up agreements, that they will not offer,
sell, contract to sell, or otherwise dispose of, directly or indirectly, any
shares of common stock or securities convertible or exchangeable for common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Adams, Harkness & Hill, Inc.
RULE 701
We have granted options and issued underlying shares of common stock to our
employees through our equity compensation plans. Under Rule 701, non-affiliated
who purchased shares upon the exercise of options granted under the plans prior
to this offering are entitled to sell their shares 90 days after the date of
this prospectus without having to comply with the holding period, volume
limitations or other restrictions of Rule 144. Rule 701 also permits shares
subject to unexercised options granted under our plans to be sold upon exercise
without having to comply with the provisions of Rule 144. As of ,
1999, approximately shares of common stock and shares of common stock
subject to unexercised options will be eligible for sale under Rule 701 by our
employees.
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STOCK OPTIONS
As of October 20, 1999, there were outstanding options to purchase an
aggregate of 2,012,170 shares of our common stock, at a weighted average
exercise price of $2.03 per share, of which 577,095 were exercisable at a
weighted average of $1.32 per share. The holders of options to purchase a total
of shares exercisable upon the offering have executed lock-up agreements
and agreed to restrict their ability to sell or otherwise dispose of common
stock acquired upon the exercise of options for 180 days after the date of this
prospectus without the prior consent of Adams, Harkness & Hill, Inc.
As of October 20, 1999, we had an additional 572,300 shares of common stock
available for future grant under the 1996 and 1999 equity compensation plans.
Prior to the expiration of the lock-up agreements, we intend to file a
registration statement on Form S-8 to register the shares of common stock that
may be issued pursuant to the options granted under the plans. Therefore, the
shares of common stock that are acquired and offered thereafter pursuant to that
registration statement may be resold in the public market without restriction or
limitation, except in the case of our affiliates, who may only resell such
shares in accordance with the provisions of Rule 144.
WARRANTS
On October 27, 1999, we agreed to issue a warrant to Internet Capital Group
to purchase up to 911,111 shares of class B common stock upon completion of the
series D preferred stock purchase, which we expect to occur in November 1999.
This warrant will be exercisable upon closing of this offering and will expire
on the third anniversary of its issuance. Internet Capital Group has agreed not
to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any of its shares, the warrant, or the shares acquired as a result
of exercising the warrant, for 180 days after the date of this prospectus, other
than through a bona fide pledge of these securities to its creditors.
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PLAN OF DISTRIBUTION
Of the shares offered by this prospectus, shares are
being offered by means of an underwritten public offering and shares
are being offered by means of a directed share subscription program to
shareholders of Safeguard Scientifics, Inc., one of our principal stockholders.
UNDERWRITTEN PUBLIC OFFERING
Subject to the terms and conditions of an executed underwriting agreement,
the underwriters named below, through their representatives Adams, Harkness &
Hill, Inc., First Union Securities, Inc. and FAC/Equities, a division of First
Albany Corporation, have severally agreed to purchase from eMerge Interactive
the following numbers of shares of class A common stock at the public offering
price, less the underwriting discounts and commissions set forth on the cover
page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A
UNDERWRITER COMMON STOCK
- ----------- -----------------
<S> <C>
Adams, Harkness & Hill, Inc. ..............................
First Union Securities, Inc. ..............................
FAC/Equities, a division of First Albany Corporation.......
--------
Total.................................................
========
</TABLE>
Of the shares to be purchased by the underwriters
shares will be purchased from us and shares will be purchased from the
selling stockholders. None of the shares offered by the selling stockholders
will be sold in the directed share subscription program.
The underwriting agreement provides that the underwriters' obligation to
purchase shares of class A common stock depend on the satisfaction of the
conditions contained in the underwriting agreement and that, if any of the
shares of class A common stock are purchased by the underwriters under the
underwriting agreement all of the shares of class A common stock that the
underwriters have agreed to purchase under the underwriting agreement must be
purchased. The conditions to the underwriters' obligations contained in the
underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that all of the shares
offered in the directed share subscription program have been purchased, that
there is no material change in the financial markets and that we deliver to the
underwriters customary closing documents.
The representatives of the underwriters have advised us that the
underwriters propose to offer to the shares of class A common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus, and to dealers, who may include the underwriters, at the public
offering price less a selling concession not in excess of $ per share. The
underwriters may also allow, and dealers may reallow, a concession not in excess
of $ per share to certain brokers and dealers. After the initial offering,
the underwriters may change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to additional
shares of class A common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the class A common stock offered hereby. To the
extent that the underwriters exercise the option, each of the underwriters will
become
66
<PAGE> 68
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of class A common stock as the number of shares of class A
common stock to be purchased by it in the above table bears to . We
will be obligated, pursuant to the option, to sell these shares to the
underwriters to the extent the option is exercised. If any additional shares of
class A common stock are purchased, the underwriters will offer the additional
shares on the same terms as those on which the primary shares are being offered.
We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act of 1933, as
amended.
Each of our officers, directors, stockholders and optionholders have agreed
not to offer, sell, contract to sell or otherwise dispose of, or enter into any
transaction that is designated to, or could be expected to, result in the
disposition of, any class A common stock for a period of 180 days after the
effective date of the registration statement of which this prospectus is a part
without the prior written consent of Adams, Harkness & Hill, Inc. The consent
may be given at any time without public notice. We have entered into a similar
agreement.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of the class A common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the market price of the class A common stock. Specifically, the
underwriters may over-allot shares of the class A common stock in connection
with this offering, thus creating a short position in the class A common stock
for their own account. Additionally, to cover these over-allotments or to
stabilize the market price of the class A common stock, the underwriters may bid
for, and purchase, shares of the class A common stock in the open market.
Finally, the representatives, on behalf of the underwriters, also may reclaim
selling concessions allowed to an underwriter or dealer if the underwriting
syndicate repurchases shares distributed by that underwriter or dealer. Any of
these activities may maintain the market price of the class A common stock at a
level above that which might otherwise prevail in the open market. The
underwriters are not required to engage in these activities and, if commenced,
may end any of these activities at any time.
At our request, the underwriters have reserved approximately
shares of our class A common stock for sale at the initial public offering price
to our employees, directors and certain other persons with relationships to
eMerge Interactive. The number of shares of our class A common stock available
for sale to the general public will be reduced to the extent that such persons
purchase such reserved shares. Any reserved shares which are not so orally
confirmed for purchase within one day of the pricing of the offering will be
offered by the underwriters to the general public on the same basis as the other
shares offered by this prospectus.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our class A
common stock. Consequently, the initial public offering price for our class A
common stock will be determined by negotiation among us and the representatives
of the underwriters. Among the factors to be considered in determining the
public offering price will be:
- Prevailing market conditions;
- Results of our operations in recent periods;
- The present stage of our development;
67
<PAGE> 69
- The market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to us; and
- Estimates of our business potential.
DIRECTED SHARE SUBSCRIPTION PROGRAM
As part of this offering, we are offering shares of our class A
common stock in a directed share subscription program to shareholders of
Safeguard, one of our principal stockholders. Safeguard's shareholders may
subscribe for one share of our class A common stock for every ten shares of
Safeguard common stock held by them, and may not transfer the opportunity to
subscribe to another person except involuntarily by operation of law. Persons
who owned at least 100 shares of Safeguard common stock as of October 20, 1999
are eligible to purchase shares from us under the program. Shareholders who own
less than 100 shares of Safeguard common stock will be ineligible to participate
in the directed share subscription program.
Safeguard or its designees will purchase from us any of the shares offered
by us under the program that are not purchased by the shareholders of Safeguard.
Although these shares were purchased directly from us as part of a registered
offering, Safeguard is one of our affiliates and may only sell these shares in
accordance with Rule 144 restrictions in subsequent registered offerings. In
addition, Safeguard has agreed, subject to limited exceptions, not to offer,
sell or otherwise dispose of any shares of our common stock, including shares
purchased by it in the directed share subscription program, for a period of 180
days after the date of this prospectus other than in connection with this
offering. Sales under the directed share subscription program will close on the
closing of the sale of the other shares offered to the public. It is expected
that sales under the directed share subscription program will be reflected in
each purchaser's book-entry account at the Depository Trust Company, if any,
shortly after the closing of these sales. After the closing of these sales, we
will mail stock certificates to all purchasers who do not maintain book-entry
accounts at the Depository Trust Company. Distribution of share certificates
purchased through the directed share subscription program will be made to the
purchasers as soon as practicable following closing of the sale of the shares to
the public.
Prior to this offering, Safeguard beneficially owned % of our common
stock. After this offering, Safeguard will beneficially own % of our common
stock, assuming that all shares are purchased by shareholders of
Safeguard, and will beneficially own approximately % of our common stock
assuming that none of the shares are purchased by the shareholders of
Safeguard or Safeguard's designees. The purchase price under the program,
whether paid by Safeguard, its shareholders or Safeguard's designees, will be
the same price per share as set forth on the cover page of this prospectus. For
purposes of this prospectus, when we present financial data that reflects this
offering, it is assumed that all shares offered under the directed
share subscription program are sold. The underwriters, as a group, will receive
a percentage management fee on all shares offered through the directed
share subscription program, including any shares actually purchased by Safeguard
or Safeguard's designees. The management fee represents compensation for the
underwriters' role as it relates to due diligence, participation in the drafting
of this prospectus and general coordination of the overall offering. Safeguard
will not receive any compensation from eMerge Interactive or any other person
with respect to this offering, including any underwriting discounts or
commissions.
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<PAGE> 70
The following table shows the per share and total offering price,
management fee to be paid by us to the underwriters and the proceeds before
expenses to us.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price................................ $ $
Management fee....................................... $ $
Proceeds before expenses to eMerge Interactive....... $ $
</TABLE>
The total proceeds before expenses to be received by eMerge Interactive
from both the underwritten public offering and the directed share subscription
program will be $ .
The expenses of the directed share subscription program, exclusive of the
management fee to be paid to the underwriters, are estimated at $ and
are payable by us. The following table details these expenses. All amounts shown
are estimates, with the exception of the Securities and Exchange Commission
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $24,117
NASD filing fee............................................. 9,175
Offering agent fees......................................... 25,000
Miscellaneous...............................................
</TABLE>
Safeguard has consented to being designated an underwriter with respect to
the shares included in the directed share subscription program. Safeguard is not
an underwriter with respect to the other shares offered by this prospectus.
Safeguard is not included in the term underwriter as used in this prospectus.
Safeguard's sole condition to purchase any shares that are not purchased by its
shareholders in the direct shares subscription program is that the conditions to
the underwriter's obligations have been met. This means that Safeguard will be
required to purchase these shares if, and only if, the underwriters are
obligated to purchase shares. Safeguard has not participated in any discussions
or negotiations with the Company and the underwriters regarding the initial
public offering price. Safeguard will not have any right to seek indemnification
from eMerge Interactive regarding its agreement to accept underwriter liability
with respect to the shares included in the directed share subscription program.
LEGAL MATTERS
An opinion as to the validity of the shares of class A common stock offered
hereby will be provided to us by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania. Certain legal matters in connection with this offering are being
passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
Our financial statements as of December 31, 1997 and 1998 and for each of
the years in the three-year period ended December 31, 1998 have been included in
this Prospectus and the Registration Statement in reliance upon the report of
KPMG LLP, independent certified public accountants and upon the authority of
said firm as experts in accounting and auditing.
The financial statements of Lost Pelican, L.L.C. (d/b/a Cattlemen's
Information Network) as of December 31, 1997 and 1998 and for each of the years
in the two-year period ended December 31, 1998 have been included in this
Prospectus and the Registration Statement in
69
<PAGE> 71
reliance upon the report of KPMG LLP, independent certified public accountants
and upon the authority of said firm as experts in accounting and auditing.
The financial statements of QDD Investment Company, L.L.C. (d/b/a
Professional Cattle Consultants, L.L.C.) as of December 31, 1998 and for the
year then ended have been included in this Prospectus and the Registration
Statement in reliance upon the report of KPMG LLP, independent certified public
accountants and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information with respect to eMerge
Interactive and the common stock, reference is made to the registration
statement and the exhibits and schedules thereto. You may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov. Upon
completion of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms, and the Web site of the SEC referred to above.
70
<PAGE> 72
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
eMerge INTERACTIVE, INC.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998, June 30, 1999 (unaudited) and pro forma June 30,
1999 (unaudited).......................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and the six months ended
June 30, 1998 and 1999 (unaudited)........................ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996, 1997 and 1998 and
the six months ended June 30, 1999 (unaudited)............ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998, and the six months ended
June 30, 1998 and 1999 (unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7
PRO FORMA FINANCIAL INFORMATION
eMerge INTERACTIVE, INC.
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998........... F-21
Unaudited Pro Forma Condensed Combined Statement of
Operations for the six months ended June 30, 1999......... F-22
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements................................................ F-23
LOST PELICAN, L.L.C. (FORMERLY CIN, LLC) D/B/A CATTLEMEN'S
INFORMATION NETWORK
Independent Auditors' Report................................ F-25
Balance Sheets as of December 31, 1997 and 1998 and February
23, 1999.................................................. F-26
Statements of Operations for the years ended December 31,
1997 and 1998, the six months ended June 30, 1998
(unaudited), and for the period January 1, 1999 through
February 23, 1999 (unaudited)............................. F-27
Statements of Members' Equity (Deficit) for the years ended
December 31, 1997 and 1998 and for the period January 1,
1999 through February 23, 1999 (unaudited)................ F-28
Statements of Cash Flows for the years ended December 31,
1997 and 1997, the six months ended June 30, 1998
(unaudited), and for the period January 1, 1999 through
February 23, 1999 (unaudited)............................. F-29
Notes to Financial Statements............................... F-30
QDD INVESTMENT COMPANY, L.L.C. D/B/A PROFESSIONAL CATTLE
CONSULTANTS, L.L.C.
Independent Auditors' Report................................ F-33
Balance Sheets as of December 31, 1998 and May 19, 1999
(unaudited)............................................... F-34
Statements of Operations for the year ended December 31,
1998, the six months ended June 30, 1998 (unaudited) and
for the period January 1, 1999 through May 19, 1999
(unaudited)............................................... F-35
Statements of Members' Equity for the year ended December
31, 1998 and for the period January 1, 1999 through May
19, 1999 (unaudited)...................................... F-36
Statements of Cash Flows for the year ended December 31,
1998, the six months ended June 30, 1998 (unaudited) and
for the period January 1, 1999 through May 19, 1999
(unaudited)............................................... F-37
Notes to Financial Statements............................... F-38
</TABLE>
F-1
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
eMerge Interactive, Inc.:
We have audited the accompanying consolidated balance sheets of eMerge
Interactive, Inc. as of December 31, 1997 and 1998 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of eMerge
Interactive, Inc. at December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Orlando, Florida
April 20, 1999
F-2
<PAGE> 74
eMERGE INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PROFORMA
JUNE 30,
DECEMBER 31, DECEMBER 31, JUNE 30, 1999
1997 1998 1999 (NOTE 1(b))
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 400 $ 268 $ 663,141 $ 663,141
Trade accounts receivable................................. -- 368,421 404,504 404,504
Inventories (note 3)...................................... 635,963 706,557 739,677 739,677
Prepaid expenses.......................................... 33,642 27,837 168,382 168,382
Net assets of discontinued operations (note 12)........... 1,066,804 2,285,341 1,611,014 1,611,014
----------- ------------ ------------ ------------
Total current assets............................... 1,736,809 3,388,424 3,586,718 3,586,718
Property and equipment, net (note 4)........................ 428,140 513,837 1,469,810 1,469,810
Capitalized offering costs.................................. -- -- 254,458 254,458
Intangibles, net (note 5)................................... -- 2,699,828 6,617,279 6,617,279
----------- ------------ ------------ ------------
Total assets....................................... $ 2,164,949 $ 6,602,089 $ 11,928,265 $ 11,928,265
=========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of capital lease obligation with
related party (note 9).................................. $ -- $ 79,852 $ 82,845 $ 82,845
Accounts payable.......................................... 725,369 423,946 721,024 721,024
Accrued liabilities:
Salaries and benefits................................... 175,597 283,103 609,738 609,738
Other................................................... 98,704 319,989 1,376,714 1,376,714
Due to related parties (note 9)........................... 8,040,304 5,187,334 8,097,123 8,097,123
----------- ------------ ------------ ------------
Total current liabilities.......................... 9,039,974 6,294,224 10,887,444 10,887,444
Capital lease obligation with related party, excluding
current installments (note 9)............................. -- 305,018 263,489 263,489
----------- ------------ ------------ ------------
Total liabilities.................................. 9,039,974 6,599,242 11,150,933 11,150,933
----------- ------------ ------------ ------------
Commitments and contingencies (notes 11 and 12)
Stockholders' equity (deficit) (notes 6, 8 and 12):
Preferred stock, $.01 par value, authorized 15,000,000
shares:
Series A preferred stock, (aggregate involuntary
liquidation preference of $6,741,954 in 1997,
$7,386,314 in 1998 and $7,545,198 in 1999), designated
6,500,000 shares, issued and outstanding 6,443,606
shares in 1997, 1998 and 1999. No shares designated,
issued and outstanding pro forma...................... 64,436 64,436 64,436 --
Series B junior preferred stock, (aggregate involuntary
liquidation preference of $-0- in 1997, $4,801,315 in
1998 and $4,919,671 in 1999), designated 2,400,000
shares, issued and outstanding -0-shares in 1997,
2,400,000 shares in 1998 and 1999. No shares
designated, issued and outstanding pro forma.......... -- 24,000 24,000 --
Series C preferred stock, designated 1,300,000 shares,
issued and outstanding -0- shares in 1997 and 1998 and
1,100,000 shares in 1999. No shares designated, issued
and outstanding pro forma............................. -- -- 11,000
Series D preferred stock, designated 4,555,556 shares,
no shares issued and outstanding in 1997, 1998 and
1999. No shares designated, issued and outstanding pro
forma................................................. -- -- -- --
Common stock, $.01 par value, authorized 100,000,000
shares:
Class A common stock, designated 92,711,110 shares,
issued and outstanding 2,606,500 shares in 1997,
4,676,500 shares in 1998 and 5,563,780 shares in 1999
and 15,507,386 shares pro forma....................... 26,065 46,765 55,638 155,074
Class B common stock, 7,288,890 designated; no shares
issued and outstanding in 1997, 1998, 1999 or pro
forma................................................. -- -- -- --
Additional paid-in capital................................ 1,982,986 16,648,286 23,457,819 23,457,819
Accumulated deficit....................................... (8,948,512) (16,780,640) (22,767,944) (22,767,944)
Unearned compensation..................................... -- -- (67,617) (67,617)
----------- ------------ ------------ ------------
Total stockholders' equity (deficit)............... (6,875,025) 2,847 777,332 777,332
----------- ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 2,164,949 $ 6,602,089 $ 11,928,265 $ 11,928,265
=========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 75
eMERGE INTERACTIVE, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................................... $ -- $ -- $ 1,792,471 $ 664,171 $ 2,578,253
Cost of revenue........................... -- -- 2,623,447 1,037,048 2,767,919
----------- ----------- ----------- ----------- -----------
Gross profit (loss).................. -- -- (830,976) (372,877) (189,666)
----------- ----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative
(note 9)............................. -- 627,606 3,659,810 1,330,764 4,068,860
Research and development................ -- 727,753 1,109,382 546,604 1,450,433
----------- ----------- ----------- ----------- -----------
Total operating expenses............. -- 1,355,359 4,769,192 1,877,368 5,519,293
----------- ----------- ----------- ----------- -----------
Profit (loss) from continuing
operations......................... -- (1,355,359) (5,600,168) (2,250,245) (5,708,959)
Interest expense (note 9)................. -- (141,167) (331,594) (162,156) (288,765)
----------- ----------- ----------- ----------- -----------
Profit (loss) from continuing
operations before income taxes..... -- (1,496,526) (5,931,762) (2,412,401) (5,997,724)
Income tax expense (benefit) (note 7)..... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Profit (loss) from continuing
operations......................... -- (1,496,526) (5,931,762) (2,412,401) (5,997,724)
Discontinued operations (note 12):
Income (loss) from operations of
discontinued transportation segment
(note 9)............................. (1,719,492) (3,987,097) (1,808,951) (1,200,370) 10,420
Loss on disposal of transportation
segment.............................. -- -- (91,415) -- --
----------- ----------- ----------- ----------- -----------
Net profit (loss).................... $(1,719,492) $(5,483,623) $(7,832,128) $(3,612,771) $(5,987,304)
=========== =========== =========== =========== ===========
Profit (loss) from continuing operations
per common share -- basic and diluted... $ -- $ (4.89) $ (1.70) $ (0.93) $ (1.15)
=========== =========== =========== =========== ===========
Net profit (loss) per common share --basic
and diluted............................. $ (11.55) $ (17.93) $ (2.25) $ (1.39) $ (1.15)
=========== =========== =========== =========== ===========
Weighted average number of common shares
outstanding -- basic and diluted........ 148,877 305,818 3,485,541 2,606,500 5,223,403
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 76
eMERGE INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES C
------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.................. -- $ -- -- $ -- -- $ --
Issuance of common stock to XL Vision, Inc.,
for cash at $.01 per share................... -- -- -- -- -- --
Issuance of common stock for cash at $.01 per
share........................................ -- -- -- -- -- --
Exercise of stock options for cash at $.01 per
share........................................ -- -- -- -- -- --
Net profit (loss)............................. -- -- -- -- -- --
--------- ------- --------- ------- --------- -------
Balances at December 31, 1996................. -- -- -- -- -- --
Issuance of common stock to XL Vision, Inc.,
for cash at $.01 per share................... -- -- -- -- -- --
Sale of Series A preferred stock for cash at
$1.00 per share (note 6)..................... 6,443,606 64,436 -- -- -- --
Transfer of technology by XL Vision, Inc.
(note 9)..................................... -- -- -- -- -- --
Net profit (loss)............................. -- -- -- -- -- --
--------- ------- --------- ------- --------- -------
Balances at December 31, 1997................. 6,443,606 64,436 -- -- -- --
Contribution of debt to equity by XL Vision,
Inc. (note 9)................................ -- -- -- -- -- --
Issuance of Series B preferred stock in
exchange for contribution of debt to equity
by XL Vision, Inc. at $2.00 per share (notes
6 and 9)..................................... -- -- 2,400,000 24,000 -- --
Issuance of common stock in connection with
Nutri-Charge transaction at $1.00 per share
(note 5)..................................... -- -- -- -- -- --
Contribution of put rights by XL Vision, Inc.
(note 5)..................................... -- -- -- -- -- --
Net profit (loss)............................. -- -- -- -- -- --
--------- ------- --------- ------- --------- -------
Balances at December 31, 1998................. 6,443,606 64,436 2,400,000 24,000 -- --
Exercise of stock options for cash at $1.00
per share (note 8)........................... -- -- -- -- -- --
Issuance of common stock in connection with
CIN transaction at $1.20 per share (note
12).......................................... -- -- -- -- -- --
Issuance of common stock in connection with
Cyberstockyard transaction at $2.25 per share
(note 12).................................... -- -- -- -- -- --
Issuance of Series C preferred stock at $5.00
per share (note 12).......................... -- -- -- -- 1,100,000 11,000
Net profit (loss)............................. -- -- -- -- -- --
Unearned compensation (note 8)................ -- -- -- -- -- --
Amortization of unearned compensation (note
8)........................................... -- -- -- -- -- --
--------- ------- --------- ------- --------- -------
Balances at June 30, 1999..................... 6,443,606 $64,436 2,400,000 $24,000 1,100,000 $11,000
========= ======= ========= ======= ========= =======
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B ADDITIONAL
------------------- --------------- PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
--------- ------- ------ ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.................. 1,000 $ 10 -- $ -- $ 3,816 $(1,745,397) $ --
Issuance of common stock to XL Vision, Inc.,
for cash at $.01 per share................... 199,000 1,990 -- -- -- -- --
Issuance of common stock for cash at $.01 per
share........................................ 140,000 1,400 -- -- -- -- --
Exercise of stock options for cash at $.01 per
share........................................ 20,000 200 -- -- -- -- --
Net profit (loss)............................. -- -- -- -- -- (1,719,492) --
--------- ------- ---- ---- ----------- ------------ --------
Balances at December 31, 1996................. 360,000 3,600 -- -- 3,816 (3,464,889) --
Issuance of common stock to XL Vision, Inc.,
for cash at $.01 per share................... 2,246,500 22,465 -- -- -- -- --
Sale of Series A preferred stock for cash at
$1.00 per share (note 6)..................... -- -- -- -- 6,379,170 -- --
Transfer of technology by XL Vision, Inc.
(note 9)..................................... -- -- -- -- (4,400,000) -- --
Net profit (loss)............................. -- -- -- -- -- (5,483,623) --
--------- ------- ---- ---- ----------- ------------ --------
Balances at December 31, 1997................. 2,606,500 26,065 -- -- 1,982,986 (8,948,512) --
Contribution of debt to equity by XL Vision,
Inc. (note 9)................................ -- -- -- -- 7,500,000 -- --
Issuance of Series B preferred stock in
exchange for contribution of debt to equity
by XL Vision, Inc. at $2.00 per share (notes
6 and 9)..................................... -- -- -- -- 4,776,000 -- --
Issuance of common stock in connection with
Nutri-Charge transaction at $1.00 per share
(note 5)..................................... 2,070,000 20,700 -- -- 2,049,300 -- --
Contribution of put rights by XL Vision, Inc.
(note 5)..................................... -- -- -- -- 340,000 -- --
Net profit (loss)............................. -- -- -- -- -- (7,832,128) --
--------- ------- ---- ---- ----------- ------------ --------
Balances at December 31, 1998................. 4,676,500 46,765 -- -- 16,648,286 (16,780,640) --
Exercise of stock options for cash at $1.00
per share (note 8)........................... 87,280 873 -- -- 86,407 -- --
Issuance of common stock in connection with
CIN transaction at $1.20 per share (note
12).......................................... 600,000 6,000 -- -- 714,000 -- --
Issuance of common stock in connection with
Cyberstockyard transaction at $2.25 per share
(note 12).................................... 200,000 2,000 -- -- 448,000 -- --
Issuance of Series C preferred stock at $5.00
per share (note 12).......................... -- -- -- -- 5,489,000 -- --
Net profit (loss)............................. -- -- -- -- -- (5,987,304) --
Unearned compensation (note 8)................ -- -- -- -- 72,126 -- (72,126)
Amortization of unearned compensation (note
8)........................................... -- -- -- -- -- -- 4,509
--------- ------- ---- ---- ----------- ------------ --------
Balances at June 30, 1999..................... 5,563,780 $55,638 -- $ -- $23,457,819 $(22,767,944) $(67,617)
========= ======= ==== ==== =========== ============ ========
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at December 31, 1995.................. $(1,741,571)
Issuance of common stock to XL Vision, Inc.,
for cash at $.01 per share................... 1,990
Issuance of common stock for cash at $.01 per
share........................................ 1,400
Exercise of stock options for cash at $.01 per
share........................................ 200
Net profit (loss)............................. (1,719,492)
-----------
Balances at December 31, 1996................. (3,457,473)
Issuance of common stock to XL Vision, Inc.,
for cash at $.01 per share................... 22,465
Sale of Series A preferred stock for cash at
$1.00 per share (note 6)..................... 6,443,606
Transfer of technology by XL Vision, Inc.
(note 9)..................................... (4,400,000)
Net profit (loss)............................. (5,483,623)
-----------
Balances at December 31, 1997................. (6,875,025)
Contribution of debt to equity by XL Vision,
Inc. (note 9)................................ 7,500,000
Issuance of Series B preferred stock in
exchange for contribution of debt to equity
by XL Vision, Inc. at $2.00 per share (notes
6 and 9)..................................... 4,800,000
Issuance of common stock in connection with
Nutri-Charge transaction at $1.00 per share
(note 5)..................................... 2,070,000
Contribution of put rights by XL Vision, Inc.
(note 5)..................................... 340,000
Net profit (loss)............................. (7,832,128)
-----------
Balances at December 31, 1998................. 2,847
Exercise of stock options for cash at $1.00
per share (note 8)........................... 87,280
Issuance of common stock in connection with
CIN transaction at $1.20 per share (note
12).......................................... 720,000
Issuance of common stock in connection with
Cyberstockyard transaction at $2.25 per share
(note 12).................................... 450,000
Issuance of Series C preferred stock at $5.00
per share (note 12).......................... 5,500,000
Net profit (loss)............................. (5,987,304)
Unearned compensation (note 8)................ --
Amortization of unearned compensation (note
8)........................................... 4,509
-----------
Balances at June 30, 1999..................... $ 777,332
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 77
eMERGE INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net profit (loss)..................................... $(1,719,492) $(5,483,623) $(7,832,128) $(3,612,771) $(5,987,304)
Adjustments to reconcile net profit (loss) to net cash
used in operating activities:
Depreciation and amortization......................... 1,503 122,486 438,576 107,137 865,290
Amortization of unearned compensation................. -- -- -- -- 4,509
Changes in operating assets and liabilities:
Trade accounts receivable, net.................... -- -- (368,421) (109,505) (36,083)
Inventories....................................... -- (635,963) (70,594) (65,822) (33,120)
Prepaid expenses and other assets................. (1,304) (32,338) 5,805 13,862 (140,545)
Net assets of discontinued operations............. (96,209) (853,501) (1,140,425) (1,117,505) 604,729
Accounts payable.................................. 5,675 719,694 (301,423) (348,956) 297,078
Accrued liabilities............................... 75,542 198,759 328,791 68,442 1,383,360
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities............. (1,734,285) (5,964,486) (8,939,819) (5,065,118) (3,042,086)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................... (56,861) (506,540) (460,290) (389,559) (1,353,819)
Purchase of intangibles............................... (100,000) -- (431,923) -- (3,145,297)
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities............. (156,861) (506,540) (892,213) (389,559) (4,499,116)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings from related parties................... 1,889,101 3,810 9,447,030 5,032,061 2,909,789
Proceeds from capital lease financing with related
party............................................... -- -- 440,832 440,832 --
Payments on capital lease obligations................. -- -- (55,962) (18,363) (38,536)
Offering costs........................................ -- -- -- -- (254,458)
Sale of preferred stock............................... -- 6,443,606 -- -- 5,500,000
Sale of common stock.................................. 3,590 22,465 -- -- 87,280
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities......... 1,892,691 6,469,881 9,831,900 5,454,530 8,204,075
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash................... 1,545 (1,145) (132) (147) 662,873
Cash -- beginning of period............................. -- 1,545 400 400 268
----------- ----------- ----------- ----------- -----------
Cash -- end of period................................... $ 1,545 $ 400 $ 268 $ 253 $ 663,141
=========== =========== =========== =========== ===========
Supplemental disclosures:
Cash paid for interest................................ $ -- $ -- $ 23,594 $ 8,156 $ 13,752
Non-cash investing and financing activities:
Transfer of technology by XL Vision, Inc. (note
9)................................................ $ -- $ 4,400,000 $ -- $ -- $ --
Contribution of debt to equity by XL Vision, Inc.
(note 9).......................................... -- -- 7,500,000 -- --
Issuance of preferred stock in exchange for
contribution of debt to equity by XL Vision, Inc.
(note 9).......................................... -- -- 4,800,000 -- --
Non-cash issuance of Class A common stock in
connection with Nutri-Charge transaction (note
5)................................................ -- -- 2,070,000 -- --
Contribution of put rights by XL Vision, Inc. (note
5)................................................ -- -- 340,000 -- --
Issuance of Class A common stock in connection with
CIN transaction (note 12)......................... -- -- -- -- 720,000
Issuance of Class A common stock with Cyberstockyard
transaction (note 12)............................. -- -- -- -- 450,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 78
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO JUNE 30, 1999 OR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
(1) ORGANIZATION
(a) OVERVIEW
eMerge Interactive, Inc. (the "Company") is a Delaware corporation that was
incorporated on September 12, 1994 as Enhanced Vision Systems, a wholly owned
subsidiary of XL Vision, Inc. ("XL Vision"). The Company's name was changed to
eMerge Vision Systems, Inc. on July 16, 1997 and to eMerge Interactive, Inc. on
June 11, 1999.
The Company was incorporated to develop and commercialize infrared
technology focused on the transportation segment. In 1997, the Company entered a
new business segment, animal sciences, by developing an infrared camera system
for use primarily by veterinarians. The Company further expanded its operations
in 1998 by licensing NutriCharge and infrared technology (see note 5) for
commercialization. In December 1998, the Company's Board of Directors decided to
dispose of the transportation segment. The Company's AMIRIS thermal imaging
system, which was the sole product sold by the transportation segment, was sold
on January 15, 1999.
(b) BASIS OF PRESENTATION
The consolidated financial statements as of December 31, 1998 include the
accounts of eMerge Interactive, Inc. and its wholly-owned subsidiary, STS
Agriventures, Ltd. ("STS"), a Canadian corporation. The consolidated financial
statements as of June 30, 1999 include STS and another wholly-owned subsidiary,
Cyberstockyard, Inc. ("Cyberstockyard").
All significant intercompany balances and transactions have been eliminated
upon consolidation.
The pro forma balance sheet as of June 30, 1999 assumes the conversion of
all preferred stock to Class A common stock upon the Company's planned initial
public offering ("IPO").
(c) MANAGEMENT'S PLANS
As of June 30, 1999, the Company had a working capital deficiency of
$7,300,726 and stockholders' equity of $777,332. Management expects additional
working capital requirements as the Company continues its marketing and
development efforts for its products. Subsequent to June 30, 1999, the Company
obtained additional debt and equity financing (see note 12). Although management
believes that its IPO will be successful, there can be no assurances that it
will be achieved or that the Company will be successful in raising other
financing. The Company anticipates that net proceeds from its planned IPO of
common stock will be sufficient to satisfy its operating cash needs for at least
eighteen months following the IPO. If the Company is unable to obtain sufficient
additional funds, the Company may have to delay, scale back or eliminate some or
all of its marketing and development activities.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REVENUE RECOGNITION
The Company recognizes revenue in accordance with the terms of the sale or
contract, generally as products are shipped or services are provided. The
Company bears both the inventory and credit risk with respect to sales of all of
its products. In cattle sales
F-7
<PAGE> 79
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions, the Company purchases cattle from the seller, takes title at
shipment and records the cattle as inventory until delivered to and accepted by
the buyer, typically a 24 to 48 hour period. In both cattle auction and resale
transactions, the Company acts as a principal in purchasing cattle from
suppliers and sales to customers so that the Company recognizes revenue equal to
the amount paid by customers for the cattle.
(b) INVENTORIES
Inventories are stated at standard cost which approximates the lower of
first-in, first-out cost or market.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Amortization of equipment under capital lease is computed
over the shorter of the lease term or the estimated useful life of the related
assets.
(d) INTANGIBLES
Intangibles are stated at amortized cost. Amortization is computed using
the straight-line method over the estimated useful lives of the assets.
(e) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(f) STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25") and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.
(g) USE OF ESTIMATES
The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent
F-8
<PAGE> 80
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
(h) NET PROFIT (LOSS) PER SHARE
Net profit (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share," by dividing the net profit (loss) allocable to common
stockholders by the weighted average number of shares of common stock
outstanding. The Company's stock options (270,500 at December 31, 1997 and
1,306,000 at December 31, 1998) and convertible preferred stock (6,443,606 at
December 31, 1997 and 8,843,606 at December 31, 1998), have not been used in the
calculation of diluted net profit (loss) per share because to do so would be
anti-dilutive. As such, the numerator and the denominator used in computing both
basic and diluted net profit (loss) per share allocable to common stockholders
are equal.
Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock and common stock
equivalents issued for nominal consideration during the periods presented herein
and through the filing of the registration statement for the IPO are to be
reflected in a manner similar to a stock split or stock dividend for which
retroactive treatment is required in the calculation of net profit (loss) per
share; the Company did not have any such issuances.
(i) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, trade accounts receivable, accounts payable,
accrued liabilities and amounts due to related parties reflected in the
consolidated financial statements approximates fair value due to the short-term
maturity of these instruments.
(j) INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of June 30, 1999 and for the
periods ended June 30, 1998 and 1999 are unaudited but reflect adjustments which
are, in the opinion of management, necessary for the fair presentation of
financial position and results of operations. Operating results for the six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the full year.
(3) INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................... $346,335 $424,130 $369,372
Work-in-process......................... 289,628 282,427 370,305
-------- -------- --------
$635,963 $706,557 $739,677
======== ======== ========
</TABLE>
F-9
<PAGE> 81
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30, ESTIMATED
1997 1998 1999 USEFUL LIVES
-------- -------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Engineering and manufacturing
equipment........................ $258,082 $366,150 $ 537,297 5 years
Office and computer equipment...... 179,315 259,462 1,188,249 3 years
Furniture and fixtures............. 67,282 104,706 108,484 7 years
Leasehold improvements............. 46,865 46,865 80,430 7 years
Automobiles........................ -- -- 54,717 5 years
-------- -------- ----------
551,544 777,183 1,969,177
Less accumulated depreciation and
amortization..................... 123,404 263,346 499,367
-------- -------- ----------
Property and equipment, net........ $428,140 $513,837 $1,469,810
======== ======== ==========
</TABLE>
Assets under capital lease amounted to $-0-, $440,832 and $440,832
(unaudited) as of December 31, 1997, 1998 and June 30, 1999, respectively.
Accumulated amortization for assets under capital lease totaled approximately
$-0-, $152,300 and $217,500 (unaudited) as of December 31, 1997, 1998 and June
30, 1999, respectively.
(5) INTANGIBLES
Intangibles consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30, ESTIMATED
1997 1998 1999 USEFUL LIFE
---- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NutriCharge license................... $ -- $2,273,538 $2,273,538 10 years
Infrared technology license........... -- 568,385 568,385 5 years
Goodwill -- CIN (note 12)............. -- -- 2,076,368 5 years
Non-compete agreement -- CIN (note
12)................................. -- -- 100,000 5 years
Goodwill -- Cyberstockyard (note
12)................................. -- -- 434,981 3 years
Non-compete agreement --
Cyberstockyard (note 12)............ -- -- 100,000 3 years
Goodwill -- PCC -- (note 12).......... -- -- 1,503,948 5 years
Non-compete agreement -- PCC (note
12)................................. 100,000 4 years
---- ---------- ----------
-- 2,841,923 7,157,220
Less accumulated amortization......... -- 142,095 539,941
---- ---------- ----------
Intangibles, net...................... $ -- $2,699,828 $6,617,279
==== ========== ==========
</TABLE>
F-10
<PAGE> 82
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 29, 1998, the Company acquired licenses for NutriCharge and
infrared technology. The purchase price of $2,841,923 (consisting of $300,000 in
cash, 2,070,000 of the Company's Class A common shares valued at $1 per share,
$131,923 in acquisition costs and the estimated fair value of put rights granted
by XL Vision) was allocated to the acquired NutriCharge and infrared technology
licenses based on estimated fair values determined by estimated cash flows from
the underlying licensed product. In connection with the transaction, XL Vision
granted a put right that allows the sellers to require XL Vision to purchase up
to 1,000,000 shares of the Company's Class A common stock at $3.00 per share in
the event certain operating targets related to the licensed product are not met
by years four through seven after the transaction. The put expires at the end of
year seven after the transaction. The fair value of the put was estimated to be
$340,000 and was credited to additional paid-in capital.
(6) EQUITY
COMMON STOCK
As of December 31, 1998, the Company had authorized the issuance of
100,000,000 shares of common stock.
CLASS A -- In 1999, the Company designated 92,711,110 as Class A common
stock
CLASS B -- In 1999, the Company designated 7,288,890 shares as Class B
common stock. Holders of Class B common stock are entitled to two and one-half
votes for each share. The shares of Class A and Class B are identical in all
other respects.
PREFERRED STOCK
As of December 31, 1998, the Company had authorized the issuance of
10,000,000 shares of preferred stock and had designated 6,500,000 as Series A
shares, and 2,400,000 as Series B shares. Each share of preferred stock is
convertible into one share of Class A common stock at the option of the holder
or upon the vote of holders of two-thirds of the respective preferred stock
class outstanding except for Series D shares which is convertible at the
offering price into Class B common stock. Preferred stock is automatically
converted into common stock upon a qualified IPO of at least $10 million with a
Company valuation of at least $30 million or upon a public rights offering of
the Company to shareholders of Safeguard Scientifics, Inc. In 1999, the Company
increased the authorized preferred stock to 15,000,000 shares.
SERIES A -- The Series A shares are entitled to a liquidation preference
before any distribution to common stockholders equal to the greater of (a) $1.00
per share plus an additional $.10 per year (pro rated for partial years) from
July 16, 1997 or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to Class A common stock prior to
liquidation. The holders of Series A preferred stock are entitled to vote as a
separate class to elect two directors to the Board of Directors of the Company.
SERIES B -- Series B shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $2.00 per
share plus an additional $.20 for each year (pro rated for partial years) from
December 31, 1998 or until the date of distribution of available assets or (b)
the amount which would be distributed if all of the preferred stock of the
Company were converted to Class A common stock prior to liquidation. Series B
shares are junior to Series A, C and D shares.
F-11
<PAGE> 83
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SERIES C -- On April 15, 1999, the Company designated 1,100,000 as Series C
shares (unaudited). Series C shares are entitled to a liquidation preference
before any distribution to common stockholders equal to the greater of (a) $5.00
per share plus an additional $.50 for each year (pro rated for partial years)
from April 15, 1999 or until the date of distribution of available assets or (b)
the amount which would be distributed if all of the preferred stock of the
Company were converted to Class A common stock prior to liquidation. Series C
shares are on parity with Series A and D shares except as to voting rights.
SERIES D -- On October 27, 1999, the Company designated 4,555,556 shares as
Series D shares (unaudited). Series D shares are entitled to a liquidation
preference before any distribution to common stockholders equal to the greater
of (a) $10.00 per share plus an additional $1.00 for each year (pro rated for
partial years) from August 24, 1999 or until the date of distribution of
available assets or (b) the amount which would be distributed if all the
preferred stock of the Company were converted to Class B common stock prior to
liquidation. Series D shares are on parity with Series A and C shares except as
to voting rights. Series D stockholders are entitled to two and one-half votes
per share.
(7) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of the
Company's deferred income tax assets and liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......... $3,237,000 $5,967,000
Amortization of acquired technology from
XL Vision (note 9)................... 1,829,000 1,704,000
Research and experimentation tax
credits.............................. 294,000 448,000
Other................................... 125,000 596,000
---------- ----------
5,485,000 8,715,000
Less valuation allowance................ 5,370,000 8,715,000
---------- ----------
Net deferred tax assets.............. 115,000 --
Deferred tax liability:
Imputed interest........................ (115,000) --
---------- ----------
Net deferred tax assets
(liability)........................ $ -- $ --
========== ==========
</TABLE>
The Company has available at December 31, 1998, unused net operating loss
carryforwards of approximately $15,000,000 which may be applied against future
taxable income and expires in years beginning in 2010. The Company also has
approximately $448,000 in research and experimentation credits carryforwards.
The research and experimentation credits, which begin to expire in 2010, can
also be used to offset future regular tax liabilities. A valuation allowance for
deferred tax assets is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
F-12
<PAGE> 84
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the "expected" tax benefit (computed by applying the
federal corporate income tax rate of 34% to the loss before income taxes) and
the actual tax benefit is primarily due to the effect of the valuation
allowance.
(8) STOCK PLAN
In January 1996, the Company adopted an equity compensation plan (the "1996
Plan") pursuant to which the Company's Board of Directors may grant shares of
common stock or options to acquire common stock to certain directors, advisors
and employees. The Plan authorizes grants of shares or options to purchase up to
1,735,000 shares of authorized but unissued common stock. Stock options granted
have a maximum term of ten years and have vesting schedules which are at the
discretion of the Compensation Committee of the Board of Directors and
determined on the effective date of the grant.
A summary of option transactions follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE WEIGHTED REMAINING
PRICES PER AVERAGE CONTRACTUAL
SHARES SHARE EXERCISE PRICE LIFE (IN YEARS)
--------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance outstanding, December 31,
1996.............................. 2,500 $ 1.00 $1.00 4.85
====
Granted........................... 268,000 1.00 1.00
--------- ---------- -----
Balance outstanding, December 31,
1997.............................. 270,500 1.00 1.00 9.64
====
Granted........................... 1,354,000 1.00-2.00 1.05
Canceled.......................... (318,500) 1.00 1.00
--------- ---------- -----
Balance outstanding, December 31,
1998.............................. 1,306,000 1.00-2.00 1.05 9.48
====
Granted (unaudited)............... 743,200 2.00-8.00 2.87
Exercised (unaudited)............. (87,280) 1.00 1.00
Canceled (unaudited).............. (7,000) 1.00-2.00 1.57
--------- ---------- -----
Balance outstanding, June 30, 1999
(unaudited)....................... 1,954,920 $1.00-8.00 $1.74 9.31
========= ========== ===== ====
</TABLE>
At December 31, 1997, 1998 and June 30, 1999, there were 61,375, 331,500
and 398,095 (unaudited) shares exercisable, respectively at weighted average
exercise prices of $1.00, $1.02 and $1.39 (unaudited), respectively.
At December 31, 1997 and 1998 and June 30, 1999, 79,500, 409,000 and
672,800 (unaudited) shares were available for grant, respectively.
F-13
<PAGE> 85
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The per share weighted-average fair value of stock options granted was $0
in 1996, $0 in 1997 and $0.10 in 1998 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Volatility............................................ 0% 0% 0%
Dividend paid......................................... 0% 0% 0%
Risk-free interest rate............................... 6.35% 6.11% 4.73%
Expect life in years.................................. 5.77 6.75 5.57
</TABLE>
No volatility was assumed due to the use of the Minimum Value Method of
computation for options issued by the Company as a private entity as prescribed
by SFAS No. 123.
All stock options granted, except as noted in the paragraph below, have
been granted to directors or employees with an exercise price equal to the fair
value of the common stock at the date of grant. The Company applies APB Opinion
No. 25 for issuances to directors and employees in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements through December 31, 1998.
On March 19, 1999, the Company granted 288,500 stock options with an
exercise price of $2.00 and a fair value of $2.25. The Company recorded $72,126
of unearned compensation at the date of grant and is amortizing the unearned
compensation over the vesting period. Compensation expense amounted to $4,509
for the six months ended June 30, 1999.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss as reported................... $(1,719,492) $(5,483,623) $(7,832,128)
=========== =========== ===========
Pro forma net loss..................... $(1,719,492) $(5,483,623) $(7,964,078)
=========== =========== ===========
Net loss per share, as reported:
Basic and diluted.................... $ (11.55) $ (17.93) $ (2.25)
=========== =========== ===========
Pro forma net loss per share:
Basic and diluted.................... $ (11.55) $ (17.93) $ (2.28)
=========== =========== ===========
</TABLE>
(9) RELATED PARTY TRANSACTIONS
DIRECT CHARGE FEE
Prior to April 1, 1997 personnel, and other services were provided by XL
Vision and the costs were allocated to the Company. Effective April 1, 1997, the
Company entered into a direct charge fee agreement with XL Vision which allows
for cost-based charges based upon actual hours incurred. Costs allocated to or
service fees charged by XL Vision were approximately $468,000 in 1996, $720,000
in 1997, $460,000 in 1998 and $270,000 (unaudited) in 1999. A portion of the
fees in 1998 and all of the costs and fees in 1996 and 1997 were allocated to
the discontinued transportation segment.
F-14
<PAGE> 86
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADMINISTRATIVE SERVICES FEE
Effective December 15, 1997, the Company entered into an agreement which
requires accrual of an administrative services fee based upon a percentage of
gross revenues. The fee for administrative support services, including
management consultation, investor relations, legal services and tax planning, is
payable monthly to XL Vision and Safeguard Scientifics, Inc., the largest
shareholder of XL Vision, based upon an aggregate of 1.5% of gross revenues with
such service fees to be not more than $300,000 annually. Effective August 17,
1999, the agreement was amended such that the administrative services fee is
applied to net contribution margin on cattle sales and gross revenue for all
other sales. The fee is accrued monthly but is only payable in months during
which the Company has achieved positive cash flow from operations. The agreement
extends through December 31, 2002 and continues thereafter unless terminated by
any party. Administrative service fees were approximately $10,300 in 1997,
$37,200 in 1998 and $58,300 (unaudited) in 1999.
TECHNOLOGY FEE
On July 15, 1997, the Company entered into an agreement with XL Vision for
the transfer of certain technology that is used by the Company in the sale of
its products for a $4,400,000 note payable. The transfer was accounted for as a
distribution to XL Vision as it represented amounts paid for an asset to an
entity under common control in excess of the cost of such asset. The note
payable bears interest at 7% per annum. Interest expense was $141,167 in 1997,
$308,000 in 1998 and $275,012 (unaudited) in 1999.
LEASE
The Company leases equipment under a capital lease, effective April 20,
1998, with an affiliated entity, XL Realty, Inc. Future minimum lease payments,
including imputed interest at 7.53%, are $79,852 in 1999, $85,765 in 2000,
$92,684 in 2001, $100,154 in 2002 and $26,415 in 2003. Interest expense was
$23,594 in 1998 and $13,753 (unaudited) in 1999.
The Company has a verbal lease with XL Vision for its facilities. Rent
expense varies based on space occupied by the Company. Rent expense is $ in
1996, in 1997, $ in 1998, and $ (unaudited) in 1999.
F-15
<PAGE> 87
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMOUNTS DUE TO XL VISION, INC.
<TABLE>
<S> <C>
Amounts due to XL Vision consist of:
Balance as of December 31, 1996............................. $ 3,636,494
Allocation of costs and funding of working capital to
the Company........................................... 6,318,405
Technology transfer fee................................ 4,400,000
Interest charges on technology transferred............. 141,167
Proceeds from Series A Preferred Stock................. (6,443,606)
Issuance of Class A common stock....................... (22,465)
-----------
Balance as of December 31, 1997............................. 8,029,995
Allocation of costs and funding of working capital to
the Company........................................... 9,120,441
Interest charges on technology transferred............. 308,000
Contribution of debt to equity......................... (7,500,000)
Contribution of debt to equity in exchange for Series B
Preferred Stock....................................... (4,800,000)
-----------
Balance as of December 31, 1998............................. 5,158,436
Allocation of costs and funding of working capital to
the Company (unaudited)............................... 2,586,320
Interest charges on technology transferred
(unaudited)........................................... 275,012
-----------
Balance as of June 30, 1999 (unaudited)..................... $ 8,019,768
===========
</TABLE>
The average outstanding balance due to XL Vision was approximately
$2,690,900 in 1996, $6,239,600 in 1997, $12,782,400 in 1998 and $7,235,600
(unaudited) in 1999.
AMOUNTS DUE TO SAFEGUARD SCIENTIFICS, INC.
As of December 31, 1997, December 31, 1998 and the six months ended June
30, 1999, the Company owed Safeguard Scientifics, Inc. $10,309, $28,898 and
$77,355 (unaudited), respectively.
(10) SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, which requires the reporting of
segment information using the "management approach" versus the "industry
approach" previously required. The management approach requires the Company to
report certain financial information related to continuing operations that is
provided to the Company's chief operating decision-maker. The Company's chief
operating decision-maker receives revenue and contribution margin (revenue less
direct costs and excluding overhead) by source, and all other statement of
operations data and balance sheet on a consolidated basis. The Company's
reportable segments consist of cattle sales and animal sciences products and
services. While the Company operates entirely in the animal science marketplace,
the contribution margin associated with cattle sales and the related prospects
for this portion of the Company's business differ from the rest of the Company's
product offerings.
F-16
<PAGE> 88
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes revenue and contribution margin information
related to the Company's two operating segments:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDING ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
Revenue:
Cattle........................ $ -- 1,740,955
Animal sciences............... 1,792,471 837,298
---------- ---------
Total................. $1,792,471 2,578,253
========== =========
Direct costs:
Cattle........................ $ -- 1,729,029
Animal sciences............... 900,824 343,880
---------- ---------
$ 900,824 2,072,909
========== =========
Contribution margin:
Cattle........................ $ -- 11,926
Animal sciences............... 891,647 493,418
---------- ---------
Total................. $ 891,647 505,344
========== =========
</TABLE>
The Company's assets, and other statement of operations data are not
allocated to a segment.
(11) COMMITMENTS AND CONTINGENCIES
VOLUNTARY EMPLOYEE SAVINGS 401(k) PLAN
The Company established a voluntary employee savings 401(k) plan in 1997
which is available to all full time employees 21 years or older. The plan
provides for a matching by the Company of the employee's contribution to the
plan for 50% of the first 6% of the employee's annual compensation. The
Company's matching contributions were $6,300 in 1996, $38,195 in 1997, $62,108
in 1998.
ROYALTIES
In connection with the NutriCharge license, the Company is obligated to a
royalty of 5% of gross revenues from the sale of NutriCharge products and
infrared technology related to the Company's Canadian license agreement.
The Company is also obligated to a royalty of 6% of net revenues from
product or services related to technology patented by Iowa State University.
(12) SUBSEQUENT EVENTS
On January 1, 1999, the Company signed a revolving promissory note with XL
Vision for up to $3,000,000. The revolving promissory note bears interest at the
prime rate plus 1% and is due in full when the Company completes an IPO or sells
all of its assets or stock.
F-17
<PAGE> 89
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DISCONTINUED OPERATIONS
In December 1998, the Company's Board of Directors decided to dispose of
its transportation segment. The Company's AMIRIS thermal imaging system, which
was the sole product sold in the transportation segment, was sold on January 15,
1999 to Sperry Marine, Inc. for approximately $1,900,000. The Company received
$200,000 of cash at closing and will receive the balance upon receipt of the
inventory by Sperry Marine, Inc. The Company is entitled to a royalty of 8% of
net AMIRIS system sales, up to a maximum royalty of $4.3 million over a four
year period or up to a maximum royalty of $5.0 million, if $4.3 million is not
received within four years.
Net assets of the discontinued transportation segment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable................... $ 145,500 381,435 1,647,040
Inventory, net........................ 1,076,043 2,020,625 72,008
Property and equipment, net........... 22,650 134,098 81,168
Intangibles, net...................... 94,444 61,108 44,440
Accounts payable...................... (271,833) (80,510) (74,894)
Accrued liabilities including
provision for operating loss during
phase out period of $72,667 in 1998
and $18,748 (unaudited) in 1999..... -- (231,415) (158,748)
---------- --------- ---------
Net assets.......................... $1,066,804 2,285,341 1,611,014
========== ========= =========
</TABLE>
NOTE PAYABLE TO XL VISION, INC.
LICENSE
In February 1999, the Company signed a license agreement with XL Vision,
granting XL Vision a license to use Company software for the limited purpose of
evaluating whether the software could provide the basis for a new company that
would operate in the agricultural industry. The license agreement terminates on
November 30, 1999. If XL Vision forms a new company, the Company will negotiate
a long-term license agreement. In addition, XL Vision is obligated to give the
Company at least 25% of the new company. The Company is obligated to transfer
all amounts up to 25% of the company to Lost Pelican, LLC.
ACQUISITIONS (UNAUDITED AFTER APRIL 20, 1999)
On February 24, 1999, the Company acquired substantially all of the
tangible and intangible assets of CIN, LLC d/b/a/ Cattlemen's Information
Network ("CIN"). Immediately after the closing, CIN changed its name to Lost
Pelican, L.L.C. The purchase price for the assets consisted of 600,000 shares of
the Company's Class A common stock valued at $720,000, the assumption of up to
$600,000 of liabilities, a cash payment due in October 1999 of $383,000, and an
agreement to pay the first $350,000 from Internet sales of third party products
over the Company's Web site. In addition, the Company agreed to assume $177,000
in liabilities related to employee bonuses and an outstanding grant
F-18
<PAGE> 90
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligation. CIN is in the business of selling access to its cattle feedlot
performance measurements database.
On March 29, 1999, the Company acquired 100% of the stock of
Cyberstockyard, Inc. The purchase price consisted of 200,000 shares of the
Company's Class A common stock valued at $450,000 . Cyberstockyard, Inc. is in
the business of selling cattle through its proprietary auction software over the
Internet.
On May 19, 1999, the Company acquired substantially all of the tangible and
intangible assets of PCC, LLC d/b/a Professional Cattle Consultants, L.L.C.
("PCC") for a cash payment of $1,800,000 and an assumption of approximately
$30,000 of liabilities. PCC is in the business of providing comparative analysis
and market information for the feedlot industry. Immediately after the closing,
PCC changed its name to QDD Investment Company, L.L.C.
The aggregate purchase price of the above acquisitions was approximately
$4,606,600, which included related acquisition costs of approximately $97,000,
was allocated as follows:
<TABLE>
<S> <C>
Goodwill....................................... $4,015,300
Non-compete agreements......................... 300,000
Equipment...................................... 358,000
Current assets................................. 28,300
Current liabilities............................ (95,000)
----------
$4,606,600
==========
</TABLE>
Unaudited pro forma information for the Company as if the acquisitions
above had been consummated as of January 1, 1998 and 1999 follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1999
----------- ----------
<S> <C> <C>
Revenue................................... $ 1,047,996 2,800,173
=========== ==========
Net profit (loss)......................... $(4,007,759) (6,402,028)
=========== ==========
Net profit (loss) per common share........ $ (1.18) (1.16)
=========== ==========
</TABLE>
SALE OF SERIES C PREFERRED STOCK (UNAUDITED)
On May 4, 1999, the Company issued 1,100,000 shares of Series C preferred
stock for $5.00 per share.
STOCK PLAN (UNAUDITED)
On May 10, 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"). Under the 1999 Plan, an additional
1,000,000 shares of authorized, unissued shares of common stock of the Company
are reserved for issuance to employees, advisors and for non-employee members of
the Board of Directors. Option terms under the 1999 Plan may not exceed 10
years.
F-19
<PAGE> 91
eMERGE INTERACTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE PAYABLE TO SAFEGUARD DELAWARE, INC. (UNAUDITED)
On July 21, 1999, the Company obtained a $3,000,000 revolving note payable
from Safeguard Delaware, Inc ("Safeguard"). The revolving note payable, as
amended in October 1999, bears interest payable monthly at the prime rate plus
1% and is due November 30, 1999.
In August, September and October 1999, the Company signed demand notes with
interest payable monthly at the prime rate plus 1% with Safeguard for
$2,500,000, $2,000,000 and $2,500,000, respectively. These notes were cancelled
in October 1999, in exchange for a $7,050,000 note due in full on October 25,
2000, the repayment of a promissory note issued concurrently with the sale of
Series D preferred stock or an IPO, whichever is earlier.
INVESTMENT IN TURNKEY COMPUTER SYSTEMS, INC. (UNAUDITED)
On August 16, 1999, the Company acquired 19% of the common stock of Turnkey
Computer Systems, Inc. ("Turnkey") for 50,000 shares of the Company's Class A
common stock valued at $400,000 and $1.4 million in cash payable upon the
earlier of the completion of the Company's IPO or $500,000 at December 31, 1999,
$500,000 at December 31, 2000 and $400,000 at December 31, 2001. In addition,
the common stock purchase agreement with Turnkey contains a put right which
allows Turnkey to have a one time right to put to the Company its 50,000 common
shares with a fixed purchase price of $500,000. The put right can only be
exercised upon a change in control or after December 31, 2001, if the Company
has not completed an IPO.
SALE OF SERIES D PREFERRED STOCK (UNAUDITED)
On October 27, 1999, the Company agreed to issue 4,555,556 shares of Series
D preferred stock and a warrant to acquire 911,111 shares of Class B common
stock for $38,815,000. Series D preferred shares convert into Class B common
stock at the offering price. The warrants are exercisable at the Company's IPO
price. The Company will receive $18,000,000 in cash in November 1999 and a
non-interest bearing, promissory note in the amount of $23,000,000 due on
October 27, 2000. Imputed interest at 9.5% amounts to $2,185,000 over the life
of the note.
F-20
<PAGE> 92
eMERGE INTERACTIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
LOST PELICAN, L.L.C.
eMerge --------------------------------------
INTERACTIVE, PRO FORMA
INC. HISTORICAL ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue......................................... $1,792,471 $ 157,692 $ -- $ 157,692
Cost of revenue................................. 2,623,447 25,736 -- 25,736
---------- --------- --------- ----------
Gross profit (loss)......................... (830,976) 131,956 -- 131,956
---------- --------- --------- ----------
Operating expenses:
Selling, general and administrative........... 3,659,810 231,883 435,274(4a) 667,157
Research and development...................... 1,109,382 341,588 -- 341,588
---------- --------- --------- ----------
Total operating expenses.................... 4,769,192 573,471 435,274 1,008,745
---------- --------- --------- ----------
Profit (loss) from continuing operations.... (5,600,168) (441,515) (435,274) (876,789)
Other income.................................... -- 245 -- 245
Interest expense................................ (331,594) (20,077) -- (20,077)
---------- --------- --------- ----------
Profit (loss) from continuing operations
before income taxes....................... (5,931,762) (461,347) (435,274) (896,621)
Income tax expense (benefit).................... -- -- -- --
---------- --------- --------- ----------
Profit (loss) from continuing operations.... (5,931,762) (461,347) (435,274) (896,621)
========== ========= ========= ==========
Profit (loss) from continuing operations per
common share -- basic and diluted............. $ (1.70)
==========
Weighted average number of common shares
outstanding -- basic and diluted.............. 3,485,541
==========
<CAPTION>
QDD INVESTMENT COMPANY, L.L.C.
-------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA COMBINED
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenue......................................... $332,730 $ -- $332,730 $ 2,282,893
Cost of revenue................................. 152,158 -- 152,158 2,801,341
-------- --------- --------- -----------
Gross profit (loss)......................... 180,572 -- 180,572 (518,448)
-------- --------- --------- -----------
Operating expenses:
Selling, general and administrative........... 162,428 325,790(4b) 488,218 4,815,185
Research and development...................... -- -- -- 1,450,970
-------- --------- --------- -----------
Total operating expenses.................... 162,428 325,790 488,218 6,266,155
-------- --------- --------- -----------
Profit (loss) from continuing operations.... 18,144 (325,790) (307,646) (6,784,603)
Other income.................................... 36,548 -- 36,548 36,793
Interest expense................................ (1,927) 1,927(4c) -- (351,671)
-------- --------- --------- -----------
Profit (loss) from continuing operations
before income taxes....................... 52,765 (323,863) (271,098) (7,099,481)
Income tax expense (benefit).................... -- -- -- --
-------- --------- --------- -----------
Profit (loss) from continuing operations.... 52,765 (323,863) (271,098) (7,099,481)
======== ========= ========= ===========
Profit (loss) from continuing operations per
common share -- basic and diluted............. $ (1.74)
===========
Weighted average number of common shares
outstanding -- basic and diluted.............. 4,085,541(4d)
===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-21
<PAGE> 93
eMERGE INTERACTIVE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
eMerge LOST PELICAN, L.L.C.
INTERACTIVE, ----------------------------------------------
INC. HISTORICAL
------------- -----------------
SIX MONTHS FOR THE PERIOD
ENDED JANUARY 1, 1999-
JUNE 30, FEBRUARY 23, PRO FORMA PRO
1999 1999 ADJUSTMENTS FORMA
------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue.................................. $ 2,578,253 $ 11,758 $ -- $ 11,758
Cost of revenue.......................... 2,767,919 4,176 -- 4,176
----------- --------- -------- ---------
Gross profit (loss).................. (189,666) 7,582 -- 7,582
----------- --------- -------- ---------
Operating expenses:
Selling, general and administrative.... 4,068,860 182,814 65,590(4a) 248,404
Research and development............... 1,450,433 35,596 -- 35,596
----------- --------- -------- ---------
Total operating expenses............. 5,519,293 218,410 65,590 284,000
----------- --------- -------- ---------
Profit (loss) from continuing
operations......................... (5,708,959) (210,828) (65,590) (276,418)
Interest expense......................... (288,765) (11,619) -- (11,619)
----------- --------- -------- ---------
Profit (loss) from continuing
operations before income taxes..... (5,997,724) (222,447) (65,590) (288,037)
Income tax expense (benefit)............. -- -- -- --
----------- --------- -------- ---------
Profit (loss) from continuing
operations......................... $(5,997,724) (222,447) (65,590) (288,037)
=========== ========= ======== =========
Profit (loss) from continuing operations
per common share -- basic and
diluted................................ $ (1.15)
===========
Weighted average number of common shares
outstanding -- basic and diluted....... 5,223,403
===========
<CAPTION>
QDD INVESTMENT COMPANY, L.L.C.
---------------------------------------------
HISTORICAL
----------------
FOR THE PERIOD
JANUARY 1,
1999- PRO FORMA PRO PRO FORMA
MAY 19, 1999 ADJUSTMENTS FORMA COMBINED
---------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenue.................................. $154,901 $ -- $154,901 $ 2,744,912
Cost of revenue.......................... 67,752 -- 67,752 2,839,847
-------- --------- --------- -----------
Gross profit (loss).................. 87,149 -- 87,149 (94,935)
-------- --------- --------- -----------
Operating expenses:
Selling, general and administrative.... 79,683 124,067(4b) 203,750 4,521,014
Research and development............... -- -- -- 1,486,029
-------- --------- --------- -----------
Total operating expenses............. 79,683 124,067 203,750 6,007,043
-------- --------- --------- -----------
Profit (loss) from continuing
operations......................... 7,466 (124,067) (116,601) (6,101,978)
Interest expense......................... (1,272) 1,272(4c) -- (300,384)
-------- --------- --------- -----------
Profit (loss) from continuing
operations before income taxes..... 6,194 (122,795) (116,601) (6,402,362)
Income tax expense (benefit)............. -- -- -- --
-------- --------- --------- -----------
Profit (loss) from continuing
operations......................... 6,194 (122,795) (116,601) (6,402,362)
======== ========= ========= ===========
Profit (loss) from continuing operations
per common share -- basic and
diluted................................ $ (1.18)
===========
Weighted average number of common shares
outstanding -- basic and diluted....... 5,403,403(4d)
===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
F-22
<PAGE> 94
eMERGE INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(1) OVERVIEW
The pro forma condensed combined financial statements are unaudited and
give effect to the acquisition of Lost Pelican L.L.C. (formerly CIN, LLC) d/b/a
Cattlemen's Information Network ("Lost Pelican") on February 24, 1999, the
acquisition of QDD Investment Company L.L.C. d/b/a Professional Cattle
Consultants ("QDD") on May 19, 1999 and the issuance of Series "C" preferred
stock by eMerge Interactive, Inc. (the "Company") on May 4, 1999, a portion of
the proceeds of which were used to acquire QDD.
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1998 is based on the historical financial statements of
the Company, Lost Pelican and QDD, giving effect to the transactions under the
purchase method of accounting and the assumptions and adjustments discussed
below. The pro forma condensed combined statements of operations for the six
months ended June 30, 1999 is based on the historical financial statements of
the Company, Lost Pelican (for the period from January 1, 1999 to February 23,
1999, date prior to acquisition) and QDD (for the period from January 1, 1999 to
May 19, 1999, date prior to acquisition), giving effect to the transactions
under the purchase method of accounting and the assumptions and adjustments
discussed below. The Company's purchase of Cyberstockyard, Inc. on March 29,
1999 is not included because the pro forma effects are not significant.
These unaudited pro forma financial statements may not be indicative of the
results of operations that actually would have occurred if the combination had
been in effect on January 1, 1998 or 1999 or which may be obtained in the
future. The pro forma financial statements should be read in conjunction with
the audited financial statements of the Company, Lost Pelican and QDD contained
elsewhere herein.
(2) ACQUISITION OF LOST PELICAN
On February 24, 1999, the Company acquired substantially all of the
tangible and intangible assets of Lost Pelican. The purchase price for the
assets consisted of 600,000 shares of the Company's Class A common stock valued
at $720,000, the assumption of up to $600,000 of liabilities, a cash payment due
in October 1999 of $383,000, and an agreement to pay the first $350,000 from
Internet sales of third party products over the Company's Web site. In addition,
the Company agreed to assume $177,000 in liabilities related to employee bonuses
and an outstanding grant obligation.
(3) ACQUISITION OF QDD
On May 19, 1999, the Company acquired substantially all of the tangible and
intangible assets of QDD for a cash payment of $1,800,000 and an assumption of
approximately $30,000 of liabilities.
(4) PRO FORMA ADJUSTMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1999
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 combines the
statements
F-23
<PAGE> 95
eMERGE INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
of operations of the Company, Lost Pelican and QDD. In combining the companies,
the pro forma adjustments reflect the following:
(a) Record amortization of goodwill ($415,274 in 1998 and $62,576 in 1999)
and non-compete agreements ($20,000 in 1998 and $3,014 in 1999) for
Lost Pelican over estimated useful lives of five years.
(b) Record amortization of goodwill ($300,790 in 1998 and $114,547 in 1999)
and non-compete agreements ($25,000 in 1998 and $9,520 in 1999) for QDD
over estimated useful lives of five years and four years, respectively.
(c) To eliminate interest on debt of QDD not acquired of $1,927 in 1998 and
$1,272 in 1999.
(d) Record the issuance of 600,000 shares of Class A common stock in
connection with Lost Pelican transaction.
There is no income tax effect on the above pro forma adjustments due to the
full valuation allowance on net deferred tax assets.
F-24
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
To the Board of Members
Lost Pelican, L.L.C.:
We have audited the accompanying balance sheets of Lost Pelican, L.L.C.
(d/b/a Cattlemen's Information Network) as of December 31, 1997 and 1998 and the
related statements of operations, members' equity (deficit) and cash flows for
each of the two years ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1 to the financial statements, on February 23, 1999,
Lost Pelican, L.L.C. sold substantially all of its assets and trade names to
eMerge Interactive, Inc.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lost Pelican, L.L.C. at
December 31, 1997 and 1998 and the results of its operations and its cash flows
for each of the two years ended December 31, 1998 in conformity with generally
accepted accounting principles.
Orlando, Florida
April 13, 1999
F-25
<PAGE> 97
LOST PELICAN, L.L.C.
D/B/A CATTLEMEN'S INFORMATION NETWORK
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ FEBRUARY 23,
1997 1998 1999
--------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $ -- $ -- $ 737
Trade accounts receivable, net of
allowance for uncollectible accounts of
$-0-, $9,135, and $8,500 as of December
31, 1997 and 1998 and February 23,
1999, respectively..................... -- 8,548 6,497
--------- ----------- -----------
Total current assets.............. -- 8,548 7,234
Property and equipment, net (notes 3 and
5)........................................ 1,288 102,233 105,247
--------- ----------- -----------
Total assets...................... $ 1,288 $ 110,781 $ 112,481
========= =========== ===========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit (note 4)................... $ -- $ 293,983 $ 267,109
Current installments of long-term debt
(note 5)............................... 60,544 91,471 241,950
Accounts payable.......................... 7,991 3,710 1,518
Accrued liabilities....................... 2,614 15,481 18,646
--------- ----------- -----------
Total current liabilities......... 71,149 404,645 529,223
Long-term debt, excluding current
installments (note 5)..................... -- 112,944 109,854
--------- ----------- -----------
Total liabilities................. 71,149 517,589 639,077
--------- ----------- -----------
Commitment (note 6)
Subsequent event (note 8)
Members' equity (deficit) (note 7):
Unit capital.............................. 879,419 1,003,819 1,106,478
Accumulated deficit....................... (949,280) (1,410,627) (1,633,074)
--------- ----------- -----------
Total members' equity (deficit)... (69,861) (406,808) (526,596)
--------- ----------- -----------
Total liabilities and members'
equity (deficit)................ $ 1,288 $ 110,781 $ 112,481
========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 98
LOST PELICAN, L.L.C.
D/B/A CATTLEMEN'S INFORMATION NETWORK
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
DECEMBER 31, JANUARY 1, 1999
--------------------- SIX MONTHS ENDED THROUGH
1997 1998 JUNE 30, 1998 FEBRUARY 23, 1999
--------- --------- ---------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue....................... $ 43,672 $ 157,692 $ 39,130 $ 11,758
Cost of revenue............... 13,789 25,736 7,022 4,176
--------- --------- --------- ---------
Gross profit............. 29,883 131,956 32,108 7,582
Selling, general and
administrative.............. 377,504 231,883 136,122 182,814
Research and development...... 124,043 341,588 135,317 35,596
--------- --------- --------- ---------
Profit (loss) from
operations............. (471,664) (441,515) (239,331) (210,828)
Other income (expense):
Other income................ -- 245 -- --
Interest expense............ (4,764) (20,077) (5,792) (11,619)
--------- --------- --------- ---------
Net other income
(expense).............. (4,764) (19,832) (5,792) (11,619)
--------- --------- --------- ---------
Net profit (loss)........ $(476,428) $(461,347) $(245,123) $(222,447)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 99
LOST PELICAN, L.L.C.
D/B/A CATTLEMEN'S INFORMATION NETWORK
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
UNIT CAPITAL
------------------------- ACCUMULATED
UNITS AMOUNT DEFICIT TOTAL
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balances at January 1, 1997........... 600,000 $ 473,380 $ (472,852) $ 528
Non-cash contribution of services by
members (note 7)...................... -- 222,557 -- 222,557
Cash contribution by majority members
(note 7)............................ -- 183,482 -- 183,482
Net profit (loss)..................... -- -- (476,428) (476,428)
------- ---------- ----------- ---------
Balances at December 31, 1997......... 600,000 879,419 (949,280) (69,861)
Non-cash contribution of services by
members (note 7).................... -- 39,583 -- 39,583
Cash contribution by majority members
(note 7)............................ -- 84,817 -- 84,817
Net profit (loss)..................... -- -- (461,347) (461,347)
------- ---------- ----------- ---------
Balances at December 31, 1998......... 600,000 1,003,819 (1,410,627) (406,808)
Non-cash contribution of services by
members (unaudited) (note 7)........ -- 102,659 -- 102,659
Net profit (loss) (unaudited)......... -- -- (222,447) (222,447)
------- ---------- ----------- ---------
Balances at February 23, 1999
(unaudited)......................... 600,000 $1,106,478 $(1,633,074) $(526,596)
======= ========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 100
LOST PELICAN, L.L.C.
D/B/A CATTLEMEN'S INFORMATION NETWORK
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED FOR THE PERIOD
DECEMBER 31, JANUARY 1, 1999
--------------------- SIX MONTHS ENDED THROUGH
1997 1998 JUNE 30, 1998 FEBRUARY 23, 1999
--------- --------- ---------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net profit (loss)................... $(476,428) $(461,347) $(245,123) $(222,447)
Adjustments to reconcile net
profit (loss) to net cash used
in operating activities:
Non-cash contribution of service
by members.................... 222,557 39,583 67,857 102,659
Depreciation.................... 322 26,606 2,053 9,964
Provision for doubtful
accounts...................... -- 9,135 -- --
Changes in operating assets and
liabilities:
Trade accounts receivable..... -- (17,683) -- 2,051
Accounts payable.............. 7,991 (4,281) 64 (2,192)
Accrued royalties............. 2,320 6,054 896 --
Accrued liabilities........... 294 6,813 132,131 3,165
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities....... (242,944) (395,120) (42,122) (106,800)
--------- --------- --------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment....................... (1,610) (127,551) (41,952) (12,978)
--------- --------- --------- ---------
Cash flows from financing
activities:
Net borrowings under line of
credit agreements............... -- 293,983 -- (26,874)
Proceeds from long-term debt...... 60,544 547,834 27,531 150,000
Repayments of long-term debt...... -- (403,963) -- (2,610)
Proceeds from capital
contributions................... 183,482 84,817 56,543 --
--------- --------- --------- ---------
Net cash provided by financing
activities................. 244,026 522,671 84,074 120,516
--------- --------- --------- ---------
Net increase (decrease) in
cash....................... (528) -- -- 738
Cash -- beginning of period......... 528 -- -- --
--------- --------- --------- ---------
Cash -- end of period............... $ -- $ -- $ -- $ 738
========= ========= ========= =========
Supplemental disclosure:
Cash paid for interest............ $ 2,444 $ 14,023 $ 2,765 $ 11,619
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 101
LOST PELICAN, L.L.C.
D/B/A CATTLEMEN'S INFORMATION NETWORK
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO FEBRUARY 23, 1999, THE SIX MONTHS ENDED
JUNE 30, 1998 AND FOR THE PERIOD JANUARY 1, 1999 THROUGH FEBRUARY 23, 1999 IS
UNAUDITED)
(1) ORGANIZATION
Lost Pelican, L.L.C. (the "Company") was formed on April 1, 1996 as
Cattlemen's Management Network as a limited liability company under the laws of
the state of Kansas and its affairs are governed by its Limited Liability
Company Agreement (the "Agreement"). The Company's income and losses are
allocated in accordance with the terms of the Agreement. On December 21, 1998,
the Company changed its name to CIN L.L.C. On February 24, 1999, the Company
changed its name to Lost Pelican, L.L.C. and sold its assets and trade names
("CIN" and "Cattlemen's Information Network") to eMerge Interactive, Inc.
("eMerge").
Prior to formation as an L.L.C., the Company's business was financed and
operated by Cattle Management Health Network, "CMHN", which was owned by the
majority members of the Company. The primary business of the Company is selling
access to its cattle feedlot performance measurements database.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using accelerated methods over the estimated useful lives
of the assets.
(b) REVENUE RECOGNITION
The Company recognizes revenue in accordance with the terms of the sale or
contract, generally as services are provided.
(c) INCOME TAXES
As a limited liability Company, the Company is classified as a partnership
for income tax purposes and is not directly subject to U.S. federal and most
state income taxes, including Kansas state income tax.
(d) USE OF ESTIMATES
The preparation of the Company's financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
(e) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
accrued liabilities reflected in the financial statements approximates fair
value due to the short-term maturity of these instruments.
F-30
<PAGE> 102
LOST PELICAN, L.L.C.
D/B/A CATTLEMEN'S INFORMATION NETWORK
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ FEBRUARY 23, ESTIMATED
1997 1998 1999 USEFUL LIVES
------ -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Office and computer equipment....... $1,610 $125,770 $138,748 5 - 7 years
Purchased software.................. -- 3,391 3,391 3 years
------ -------- --------
1,610 129,161 142,139
Less accumulated depreciation....... 322 26,928 36,892
------ -------- --------
Property and equipment, net......... $1,288 $102,233 $105,247
====== ======== ========
</TABLE>
(4) LINE OF CREDIT
During 1998, the Company entered into a $300,000 line of credit agreement,
guaranteed by the principal shareholders, with a bank that expires on September
15, 1999. Under the agreement, principal is payable on September 15, 1999, and
interest is payable monthly at 9.5%. Outstanding borrowings under this agreement
were $293,983 as of December 31, 1998 and $267,109 (unaudited) as of February
23, 1999.
(5) LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ FEBRUARY 23,
1997 1998 1999
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Kansas Technology Enterprise
Corporation, including interest at 10% (see
note 6)........................................ $60,544 60,544 $ 60,544
Variable rate note payable in monthly
installments of $3,814, including interest at
prime plus 1% (9.25% at December 31, 1998)
through October 1, 2002; secured by equipment.... -- 143,871 141,260
Variable rate note payable, interest payable
monthly at 9.5% through September 15, 1999;
secured by equipment........................... -- -- 150,000
------- ------- --------
60,544 204,415 351,804
Less current installments........................ 60,544 91,471 241,950
------- ------- --------
Long-term debt, excluding current installments... $ -- 112,944 $109,854
======= ======= ========
</TABLE>
The aggregate maturities of long-term debt for each of the four years
subsequent to December 31, 1998 are as follows: 1999, $91,471; 2000, $36,856;
2001, $40,413; and 2002, $35,675.
F-31
<PAGE> 103
LOST PELICAN, L.L.C.
D/B/A CATTLEMEN'S INFORMATION NETWORK
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENT
ROYALTY AGREEMENT
On September 6, 1996, the Company entered into a funding agreement with
Kansas Technology Enterprise Corporation (KTEC) for the development of a cattle
management network (the "Product"). The Company received $60,544 under this
agreement. Under the terms of this agreement, the Company will pay KTEC a
royalty of 3% on gross sales of the Product, until the award amount of $60,544
plus interest at 10% per annum is repaid. Interest begins to accrue on the date
KTEC makes its last payment on the project. Once the original obligation is met,
the Company will pay KTEC a royalty of 1% on future gross sales of the product
up to an additional $60,544 in royalty payments.
If the Company licenses, sells, or otherwise transfers the rights to
manufacture the Product to another Kansas firm, such that the primary point of
activity occurs in Kansas, the Company shall pay KTEC: (1) twenty five percent
of the proceeds of such sale, up to the award amount of $60,544 plus interest at
10%; and (2) an ongoing royalty on gross sales of the Product up to an
additional $60,544 in royalty payments. In the event such transfer of the
Product within Kansas involves the exchange of other assets or is unsuitable to
this type of repayment structure, then repayment terms may be subject to
renegotiation.
If the Company: (1) commercializes the Product out-of-state such that no
management, marketing or production activity occurs in Kansas; or (2) sells,
transfers, licenses, or otherwise disposes of the rights to the Product
out-of-state, such that no management, marketing or production activity occurs
in Kansas, the Company shall pay KTEC: (1) within thirty (30) days of such
transfer, the award amount of $60,544 plus interest at 10%; and (2) an ongoing
royalty of 2% on gross sales up to an additional $90,816. If significant
benefits to Kansas can occur as a result of such out-of-state transfer, this
repayment obligation may be subject to renegotiation. The Company does note
anticipate the acquisition by eMerge Interactive, Inc. (eMerge) as described in
note 8 to impact the agreement with KTEC.
(7) MEMBERS' EQUITY
Since inception of the Company, the Company's majority members have
contributed approximately $383,000 in services and paid expenses on behalf of
the business from other sources totaling approximately $503,000. Non-cash
contributions totaled $222,557 in 1997, $39,583 in 1998 and $102,659 (unaudited)
in 1999 and cash contributions totaled $183,482 in 1997, $84,817 in 1998 and
$-0- (unaudited) in 1999.
(8) SUBSEQUENT EVENT
On February 24, 1999, the Company assets were acquired by eMerge for
600,000 shares of eMerge's Class A common stock, $383,000 in cash, assumption of
liabilities of $600,000 and a commitment to pay $350,000 of the first net sales
of CIN products.
F-32
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
To the Board of Members
QDD Investment Company, L.L.C.:
We have audited the accompanying balance sheet of QDD Investment Company,
L.L.C. (d/b/a Professional Cattle Consultants, L.L.C.) as of December 31, 1998,
and the related statements of operations, members' equity and cash flows, for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, on May 19, 1999, QDD
Investment Company, L.L.C. sold substantially all of its assets and trade names
to eMerge Interactive, Inc.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of QDD Investment Company,
L.L.C. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Oklahoma City, Oklahoma
July 7, 1999
F-33
<PAGE> 105
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets -- trade accounts receivable, net......... $ 18,872 $ 46,875
-------- --------
Computer software and hardware:
Software (note 1)...................................... 182,394 220,825
Hardware............................................... 45,480 51,995
-------- --------
Total computer software and hardware, at
cost......................................... 227,874 272,820
Less accumulated depreciation and amortization......... 10,330 13,901
-------- --------
Net computer software and hardware............. 217,544 258,919
-------- --------
Total assets................................... $236,416 $305,794
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 29,135 $ 25,319
Related party payable (note 5)......................... 12,000 14,000
Notes payable (note 3)................................. 34,930 74,930
-------- --------
Total current liabilities...................... 76,065 114,249
Members' equity (note 4)................................. 160,351 191,545
Commitments and contingencies (notes 5, 6 and 8).........
-------- --------
Total liabilities and members' equity.......... $236,416 $305,794
======== ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 106
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED JANUARY 1, 1999
DECEMBER 31, SIX MONTHS ENDED THROUGH
1998 JUNE 30, 1998 MAY 19, 1999
------------ ---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Service revenue..................... $332,730 $166,603 $154,901
-------- -------- --------
Operating expenses:
Cost of services.................. 152,158 75,961 67,752
General and administrative (note
4)............................. 162,428 80,822 79,683
-------- -------- --------
Total operating
expenses................ 314,586 156,783 147,435
-------- -------- --------
Operating income.......... 18,144 9,820 7,466
Other income (expense):
Advertising income (note 2)....... 36,548 18,000 --
Interest expense.................. (1,927) (551) (1,272)
-------- -------- --------
Net income................ $ 52,765 $ 27,269 $ 6,194
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 107
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<S> <C>
Balance, December 31, 1997.................................. $ 68,586
Net income.................................................. 52,765
Non-cash contribution of services by members (note 4)..... 39,000
--------
Balance, December 31, 1998.................................. 160,351
Net income (unaudited).................................... 6,194
Non-cash contributions of services by members (note 4)
(unaudited)............................................ 25,000
--------
Balance, May 19, 1999 (unaudited)........................... $191,545
========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 108
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED JANUARY 1, 1999
DECEMBER 31, SIX MONTHS ENDED THROUGH
1998 JUNE 30, 1998 MAY 19, 1999
------------ ---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 52,765 $ 27,269 $ 6,194
Adjustments to reconcile net income to
net cash provided by operating
activities:
Non-cash contribution of services
by members....................... 39,000 20,000 25,000
Depreciation and amortization
expense.......................... 7,035 3,518 3,571
Changes in operating assets and
liabilities:
Accounts receivable.............. 778 2,070 (28,003)
Accounts and related party
payable....................... 17,101 15,887 (1,816)
--------- -------- --------
Net cash provided by operating
activities.................. 116,679 68,744 4,946
--------- -------- --------
Cash used in investing activities --
purchases of computer software and
hardware.............................. (141,631) (68,744) (44,946)
--------- -------- --------
Cash flows from financing activities:
Payments on notes payable............. (10,000) (10,000) --
Borrowings on notes payable........... 34,952 10,000 40,000
--------- -------- --------
Net cash provided by financing
activities.................. 24,952 -- 40,000
--------- -------- --------
Net increase in cash.................... -- -- --
Cash at beginning of period............. -- -- --
--------- -------- --------
Cash at end of period................... $ -- $ -- $ --
========= ======== ========
Supplemental cash flow information:
Cash payments of interest............. $ 1,927 $ 551 $ 1,272
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 109
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION INSOFAR AS IT RELATES TO MAY 19, 1999 OR THE SIX MONTHS ENDED JUNE
30, 1998 AND FOR THE PERIOD JANUARY 1, 1999 THROUGH MAY 19, 1999 IS UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
QDD Investment Company, L.L.C. (the Company) is a provider of performance
measurement information related to the United States cattle feedyard industry.
The Company's customers consist primarily of cattle feedyards located in the
United States, and to a lesser extent, other organizations involved in the
United States cattle industry.
In May 1999, the Company changed its name to QDD Investment Company, L.L.C.
On May 19, 1999, the Company sold substantially all of its assets and trade
names ("Professional Cattle Consultants, L.L.C." and "PCC") to eMerge
Interactive, Inc. ("eMerge") for $1,800,000 in cash. eMerge also assumed certain
of the Company's liabilities.
In the opinion of management, the accompanying unaudited financial
statements as of May 19, 1999 and for the six months ended June 30, 1998 and for
the period January 1, 1999 through May 19, 1999, reflect adjustments (all of
which were normal and recurring) which, in the opinion of management, are
necessary for a fair statement of the financial position and results for the
interim periods presented.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(b) COMPUTER SOFTWARE AND HARDWARE
Computer software and hardware is recorded at cost. Depreciation and
amortization of computer hardware and software is calculated using the
straight-line method over periods ranging from five to seven years.
In late 1997, the Company engaged a third party to develop and install a
performance measurement system. Costs related to the design, configuration,
coding, installation and testing of the system have been capitalized; all other
costs have been expensed. The Company will begin using the new performance
measurement system in the third quarter of 1999.
The Company reviews long-lived assets, including computer software, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets.
F-38
<PAGE> 110
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(c) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's accounts receivable and accounts
payable, related party payable and notes payable approximate fair value because
of the short maturity of those instruments.
(d) REVENUE RECOGNITION
The Company recognizes revenue as services are provided.
(e) ADVERTISING INCOME
In 1998, the Company contracted with an organization which placed
advertising on the Company's monthly and semi-annual newsletters for a fee of
$36,000. The contract terminated in December 1998 and was not renewed.
(f) INCOME TAXES
As a limited liability company, the Company is not directly subject to
income taxes. Income taxes, if any, are payable by the Company's members.
(g) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) on January 1, 1998. SFAS No.
130 establishes standards for reporting and display of "comprehensive income"
and its components in a set of financial statements. It requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company had no items of
comprehensive income as defined by SFAS No. 130 not included in the accompanying
statements of operations; therefore, statements of comprehensive income have not
been presented in the accompanying financial statements.
F-39
<PAGE> 111
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) NOTES PAYABLE
Notes payable at December 31, 1998 and May 19, 1999 consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 19,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Term loan from a bank, bearing interest at 9.5%;
principal and interest are due on September 30, 1999
(maturity date)(a)..................................... $20,035 --
Term loan from a bank, bearing interest at 10%; principal
and interest are due on February 5, 1999 (maturity
date)(a)................................................. 14,895 --
Term loan from a bank, bearing interest at 10%; principal
and interest are due on July 15, 1999 (maturity
date)(a)............................................... -- 74,930
------- -------
$34,930 $74,930
======= =======
</TABLE>
- -------------------------
(a) On January 22, 1999, the Company renegotiated its two term notes, resulting
in the conversion of the two notes into a single term note, additional
borrowings, changing the maturity date and increasing the interest rate. The
term note is unsecured; however, it is guaranteed by a manager and owner of
the Company.
(4) MEMBERS' EQUITY
The Company operates as a limited liability company organized in the State
of Oklahoma until February 14, 2097, unless sooner terminated. Members' equity
is allocated to the members in accordance with the operating agreement of the
Company based on each members' capital account and each member's liability is
limited to its capital account.
During the year ended December 31, 1998, the six months ended June 30, 1998
and for the period January 1, 1999 through May 19, 1999, the Company's members
contributed $39,000, $20,000 (unaudited), and $25,000 (unaudited), respectively,
in services to the Company. Services contributed on behalf of the Company by its
members are recorded as expenses and non-cash contributions in the accompanying
financial statements.
(5) RELATED PARTY TRANSACTIONS
The Company leases office space and equipment from one of its managers and
owners. The Company leases the space and equipment on a month-to-month basis.
Rent expense totaled $12,000 for the year ended December 31, 1998, $6,000
(unaudited) for the six months ended June 30, 1998 and $5,000 (unaudited) for
the period January 1, 1999 through May 19, 1999. Outstanding at December 31,
1998 and May 19, 1999 was $12,000 and $14,000 (unaudited), respectively, due to
the manager and owner of the Company for unpaid rent.
(6) LEASE OBLIGATIONS
The Company leases office equipment and a vehicle under operating leases,
which expire over the next two years. Rent expense approximated $11,000 for the
year ended December 31, 1998, $6,000 (unaudited) for the six months ended June
30, 1998 and $5,000
F-40
<PAGE> 112
QDD INVESTMENT COMPANY, L.L.C.
D/B/A PROFESSIONAL CATTLE CONSULTANTS, L.L.C.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited) for the period January 1, 1999 through May 19, 1999. Future minimum
lease payments under noncancellable operating leases will approximate $12,000
and $2,500 in 1999 and 2000, respectively. As discussed in note 5, the Company
also leases office space from a related party.
(7) BUSINESS SEGMENT INFORMATION
The Company manages its business by services it provides, which resulted in
one operating segment during the year ended December 31, 1998 and for the period
January 1, 1999 through May 19, 1999. The Company is a provider of performance
measurement information related to the United States cattle feedyard industry.
All of the Company's revenues for the year ended December 31, 1998 and for
the period January 1, 1999 through May 19, 1999, were derived from customers in
the United States. One customer accounted for 38% of the Company's revenues for
the year ended December 31, 1998, and 34% (unaudited) and 38% (unaudited) of the
Company's revenues for the six months ended June 30, 1998 and for the period
January 1, 1999 through May 19, 1999, respectively. The same customer accounted
for none and 95% (unaudited) of the Company's trade accounts receivable balance
at December 31, 1998 and May 19, 1999, respectively.
(8) YEAR 2000 RISKS
Existing computer programs of many businesses were developed with a
two-digit year identification without consideration of the upcoming change in
the century or millennium in the year 2000. The Company is in the process of
addressing its year 2000 readiness. In late 1997, the Company engaged a third
party to develop a new performance measurement system to replace its outdated
system and to handle the year 2000 issue. Final testing and use of the new
system is expected to occur in mid 1999.
Failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, resulting in part from the uncertainty of the
year 2000 readiness of third party suppliers, vendors and customers, the Company
is unable to determine at this time whether the consequences of year 2000
failures will have a material impact on the Company's results of operations,
liquidity and financial condition. The Company believes that, upon completion of
the new system, the possibility of interruptions of material consequences to
normal operations will be reduced. The Company is relying on the new system to
be year 2000 compliant and has not developed a contingency plan to minimize any
potential disruptions which could occur because of the year 2000.
F-41
<PAGE> 113
SHARES
[eMerge INTERACTIVE LOGO]
CLASS A
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
ADAMS, HARKNESS & HILL, INC.
FIRST UNION SECURITIES, INC.
FAC/EQUITIES
-------------------------
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discounts and commissions and
underwriters' non-accountable expense allowance) payable in connection with this
offering of the rights and the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $
NASD filing fee.............................................
NASDAQ filing fee...........................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue Sky fees and expenses (including legal fees)...........
Transfer agent and rights agent and registrar fees and
expenses..................................................
Miscellaneous...............................................
--------
Total.................................................. $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation permits indemnification to
the fullest extent permitted by Delaware law. The Registrant's By-laws require
the Registrant to indemnify any person who was or is an authorized
representative of the Registrant, and who was or is a party or is threatened to
be made a party to any proceeding by reason of the fact that such person was or
is an authorized representative of the Registrant, against expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such third party proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in, or
not opposed to, the best interests of the Registrant and, with respect to any
criminal proceeding (including any action or investigation which could or does
lead to a criminal proceeding) had no reasonable cause to believe such conduct
was unlawful. The Registrant shall also indemnify any person who was or is an
authorized representative of the Registrant, and who was or is a party or is
threatened to be made a party to any proceeding by reason of the fact that such
person was or is an authorized representative of the Registrant against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of such action if such person acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Registrant unless and only to the extent that the Delaware Court
of Chancery or the court in which such proceeding was pending shall determine
that, despite the adjudication of liability but in view of all the circumstances
of the case, such authorized representative is fairly and reasonably entitled to
indemnity. Such indemnification is mandatory under the Registrant's By-laws as
to expenses actually and reasonably incurred to the extent that an authorized
representative of the Registrant has been successful on the merits or otherwise
in defense of any proceeding or in defense of any claim, issue or matter
therein. The determination of whether an individual is entitled to
indemnification may be made by a
II-1
<PAGE> 115
majority of disinterested directors, independent legal counsel in a written
legal opinion or the stockholders. Delaware law also permits indemnification in
connection with a proceeding brought by or in the right of the Registrant to
procure a judgment in its favor. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Securities and Exchange Act of 1934 and is therefore unenforceable. The
Registrant expects to obtain a directors and officers liability insurance policy
prior to the effective date of this Registration Statement.
The underwriting agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Securities Act of 1933. Reference is made to Section 8.4 of the form
of underwriting agreement which is filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the preceding three years, the Registrant has issued the following
securities that were not registered under the Act:
As of October 25, 1999, eMerge Interactive had sold to employees and
certain other persons an aggregate of 5,563,780 shares of class A common
stock, including class A common stock issued in connection with business
acquisitions, as follows:
In July 1998, eMerge Interactive issued 2,000,000 shares of class A
common stock in connection with the acquisition of 100% of the partnership
interests of NutriCharge, a South Dakota partnership, at a price of $1.00
per share. eMerge Interactive issued 70,000 shares of its class A common
stock to the shareholders of STS Agriventures, Ltd., at a price of $1.00
per share. In February of 1999, eMerge Interactive issued 600,000 shares of
class A common stock to CIN, LLC for substantially all of its assets,
including CIN, LLC, at a price of $1.20 per share. eMerge Interactive
issued 200,000 shares of class A common stock for 100% of the issued and
outstanding stock of Cyberstockyard, Inc. on March 29, 1999, at a price of
$2.00 per share. In August of 1999, eMerge Interactive issued 50,000 shares
of class A common stock for 19% of the common stock of Turnkey Computer
Systems, Inc. All of such sales were made under the exemption from
registration provided under Section 4(2) of the Act. The issuance to the
stockholders of Cyberstockyard, Inc. was also made pursuant to Rule 504
under the Act.
As of October 25, 1999, eMerge Interactive had sold an aggregate of
14,499,162 shares of preferred stock, as follows:
In December 1998, we issued 2,400,000 shares of series B preferred
stock to XL Vision at a price equal to $2.00 per share, in exchange for the
cancellation of debt. In May of 1999, we issued 1,000,000 shares of series
C preferred stock to Safeguard 99 Capital L.P. and 100,000 shares to
purchasers associated with Applewood Associates, L.P. at a price of $5.00
per share. In October 1999, we agreed to issue 4,555,556 shares of series D
preferred stock to Internet Capital Group, Inc. at a purchase price of
$9.00 per share, payable in cash and a promissory note, subject to the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. In connection with the sale of preferred stock,
we have also agreed to issue to Internet Capital Group a warrant to
purchase up to 911,111 shares of class B common stock. All
II-2
<PAGE> 116
of such sales were made under the exemption from registration provided
under Section 4(2) of the Act.
Pursuant to eMerge Interactive's 1996 and 1999 Equity Compensation Plans,
eMerge Interactive has granted options to purchase a total of 2,012,170 shares
of common stock to its employees and certain other persons through October 20,
1999 at a weighted average exercise price of $2.03 per share. For more detailed
descriptions of eMerge Interactive's Equity Compensation Plans, see the section
entitled Management -- Equity Compensation in this registration statement. In
granting the options and selling the underlying securities upon exercise of the
options, eMerge Interactive is relying upon exemptions from registration set
forth in Rule 701 and Section 4(2) of the Act.
II-3
<PAGE> 117
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.#
3.1 Second Amended and Restated Certificate of Incorporation of
eMerge Interactive.*
3.2 Amended and Restated Bylaws of eMerge Interactive.*
4.1 Form of Stock Certificate.#
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
10.1 Amended and Restated 1996 Equity Compensation Plan.*
10.2 1999 Equity Compensation Plan.*
10.3 Master License Agreement dated July 29, 1998 between eMerge
Interactive and Her Majesty the Queen of Canada, as
represented by the Minister of Agriculture and Agri-Food
Canada.+#
10.4 Administrative Services Agreement dated December 15, 1997
between eMerge Interactive, Safeguard Scientifics, Inc. and
XL Vision, Inc., as amended on August 17, 1999.*
10.5 Direct Charge Administrative Services Agreement dated April
15, 1997 between eMerge Interactive and XL Vision, Inc.*
10.6 Asset Purchase Agreement dated February 24, 1999 between
eMerge Interactive, CIN, LLC and Dr. Scott Crain.*
10.7 Stock Purchase Agreement dated March 22, 1999 between eMerge
Interactive, Cyberstockyard, Inc. and J. Scott Sanders,
David Sanders, Scott Calhoun and Dr. Duane Pankratz.*
10.8 Stockholders Agreement dated July 29, 1998 among eMerge
Interactive, STS Agriventures, Ltd, Dr. Richard Stanley,
Sylvia Doerksen, Ian Turnbull, Ann Turnbull and David
Robinson.#
10.9 Purchase Agreement dated July 29, 1998 among eMerge
Interactive, NutriCharge, J Technologies, LLC, and the
Biegert Family Irrevocable Trust.*
10.10 Asset Purchase Agreement dated January 15, 1999 between
eMerge Interactive and Sperry Marine, Inc.*
10.11 Purchase and License Agreement dated January 15, 1999
between eMerge Interactive and Sperry Marine, Inc.*
10.12 Asset Purchase Agreement dated May 19, 1999 between eMerge
Interactive and Professional Cattle Consultants, L.L.C.*
10.13 Letter of Agreement dated July 1, 1999 between eMerge
Interactive and Southern States.+#
10.14 Subscription Agreement letter for purchase of Series B
Junior Preferred Stock.*
10.15 Preferred Stock Purchase Agreement dated April 1, 1999
(Series C Preferred Stock).*
10.16 Common Stock Purchase Agreement dated August 16, 1999
between eMerge Interactive and Turnkey Computer Systems,
Inc.*
10.17 Registration Rights Agreement dated July 18, 1997.*
10.18 Stockholders Agreement dated July 29, 1998.#
</TABLE>
II-4
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.19 Stockholders' and Registration Rights Agreement dated
February 24, 1999.*
10.20 Joinder and Correction to Stockholders and Registration
Rights Agreement dated March 29, 1999.*
10.21 Revolving Note dated July 21, 1999 from eMerge Interactive
to Safeguard Delaware, Inc., Amended Revolving Note dated
August 3, 1999 and second Amended Revolving Note dated
October 25, 1999.*
10.22 Revolving Note dated January 1, 1999 from XL Vision to
eMerge Interactive.
10.23 Promissory Note dated August 31, 1999 from eMerge
Interactive to Safeguard Delaware, Inc.*
10.24 Promissory Note dated September 13, 1999 from eMerge
Interactive to Safeguard Delaware, Inc.#
10.25 Promissory Note dated October 6, 1999 from eMerge
Interactive to Safeguard Delaware, Inc.*
10.26 Stockholders Agreement dated July 18, 1997 and Joinder to
Stockholders' Agreement.*
10.27 Subordinated Purchase Money Note from eMerge Interactive to
XL Vision dated July 15, 1997.*
10.28 Toll Processing Agreement dated August 16, 1999 between
eMerge Interactive and ADM Animal Health & Nutrition, a
division of Archer-Daniels-Midland Company.+#
10.29 Term Note dated October 25, 1999 from eMerge Interactive to
Safeguard Delaware, Inc.*
10.30 Securities Purchase Agreement dated October 27, 1999 between
eMerge Interactive Technologies, LLC and Internet Capital
Group, Inc.#
10.31 Registration Rights Agreement dated October 27, 1999 between
eMerge Interactive and Internet Capital Group, Inc.#
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 5.1).#
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.*
99.1 Form letter from eMerge Interactive, Inc. to holders of more
than 100 shares of Safeguard Scientifics, Inc. describing
the Directed Share Subscription Program.*
99.2 Form of letter from Adams, Harkness & Hill, Inc. to
Safeguard Scientifics, Inc. shareholders.#
</TABLE>
II-5
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
99.3 Form of letter from eMerge Interactive, Inc. to Brokers
describing the Directed Share Subscription Program.*
99.4 Form of Subscription Form for Directed Share Subscription
Program.*
</TABLE>
- -------------------------
* Filed herewith.
# To be filed by amendment.
+ We intend to request confidential treatment of certain provisions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement has been filed separately with the Securities and Exchange
Commission.
(b) FINANCIAL STATEMENT SCHEDULES
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or are
inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the prospectus.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-6
<PAGE> 120
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this registration statement
as of the time it was declared effective; and (3) that for the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by Safeguard, and
the terms of any subsequent reoffering thereof. If any public offering by the
underwriters is to be made on terms differing from those set forth on the cover
page of the prospectus, a post-effective amendment will be filed to set forth
the terms of such offering.
II-7
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Sebastian, Florida on October 27,
1999.
eMERGE INTERACTIVE, INC.
By: /s/ CHARLES L. ABRAHAM
-----------------------------------
Charles L. Abraham
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles L. Abraham and T. Michael Janney or
either of them acting alone, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and revocation, for him or her and in his
or her name, place and stead, in any and all capacities, to sign (i) any and all
amendments (including post-effective amendments) to this Registration Statement
and to file the same with, all exhibits thereto, and other documents in
connection therewith and (ii) any registration statement and any and all
amendments thereto, relating to the offer covered hereby filed pursuant to Rule
462(b) under the Securities Act of 1933, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
- ---------- -------- ----
<S> <C> <C>
/s/ CHARLES L. ABRAHAM Chief Executive Officer October 27, 1999
- --------------------------------------------- and Director (Principal
Charles L. Abraham Executive Officer)
/s/ T. MICHAEL JANNEY Chief Financial Officer October 27, 1999
- --------------------------------------------- (Principal Financial
T. Michael Janney and Accounting Officer)
/s/ JOHN S. SCOTT Chairman of the Board October 27, 1999
- ---------------------------------------------
John S. Scott, Ph.D.
/s/ DOUGLAS ALEXANDER Director October 27, 1999
- ---------------------------------------------
Douglas Alexander
/s/ E. MICHAEL FORGASH Director October 27, 1999
- ---------------------------------------------
E. Michael Forgash
</TABLE>
II-8
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
- ---------- -------- ----
<S> <C> <C>
/s/ THOMAS C. LYNCH Director October 27, 1999
- ---------------------------------------------
Thomas C. Lynch
/s/ CHRISTOPHER MOLLER Director October 27, 1999
- ---------------------------------------------
Christopher Moller, Ph.D.
/s/ JOHN W. PODUSKA, SR. Director October 27, 1999
- ---------------------------------------------
John W. Poduska, Sr., Ph.D.
</TABLE>
II-9
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.#
3.1 Second Amended and Restated Certificate of Incorporation of
eMerge Interactive.*
3.2 Amended and Restated Bylaws of eMerge Interactive.*
4.1 Form of Stock Certificate.#
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
10.1 Amended and Restated 1996 Equity Compensation Plan.*
10.2 1999 Equity Compensation Plan.*
10.3 Master License Agreement dated July 29, 1998 between eMerge
Interactive and Her Majesty the Queen of Canada, as
represented by the Minister of Agriculture and Agri-Food
Canada.+#
10.4 Administrative Services Agreement dated December 15, 1997
between eMerge Interactive, Safeguard Scientifics, Inc. and
XL Vision, Inc., as amended on August 17, 1999.*
10.5 Direct Charge Administrative Services Agreement dated April
15, 1997 between eMerge Interactive and XL Vision, Inc.*
10.6 Asset Purchase Agreement dated February 24, 1999 between
eMerge Interactive, CIN, LLC and Dr. Scott Crain.*
10.7 Stock Purchase Agreement dated March 22, 1999 between eMerge
Interactive, Cyberstockyard, Inc. and J. Scott Sanders,
David Sanders, Scott Calhoun and Dr. Duane Pankratz.*
10.8 Stockholders Agreement dated July 29, 1998 among eMerge
Interactive, STS Agriventures, Ltd, Dr. Richard Stanley,
Sylvia Doerksen, Ian Turnbull, Ann Turnbull and David
Robinson.#
10.9 Purchase Agreement dated July 29, 1998 among eMerge
Interactive, NutriCharge, J Technologies, LLC, and the
Biegert Family Irrevocable Trust.*
10.10 Asset Purchase Agreement dated January 15, 1999 between
eMerge Interactive and Sperry Marine, Inc.*
10.11 Purchase and License Agreement dated January 15, 1999
between eMerge Interactive and Sperry Marine, Inc.*
10.12 Asset Purchase Agreement dated May 19, 1999 between eMerge
Interactive and Professional Cattle Consultants, L.L.C.*
10.13 Letter of Agreement dated July 1, 1999 between eMerge
Interactive and Southern States.+#
10.14 Subscription Agreement letter for purchase of Series B
Junior Preferred Stock.*
10.15 Preferred Stock Purchase Agreement dated April 1, 1999
(Series C Preferred Stock).*
10.16 Common Stock Purchase Agreement dated August 16, 1999
between eMerge Interactive and Turnkey Computer Systems,
Inc.*
10.17 Registration Rights Agreement dated July 18, 1997.*
10.18 Stockholders Agreement dated July 29, 1998.#
10.19 Stockholders' and Registration Rights Agreement dated
February 24, 1999.*
10.20 Joinder and Correction to Stockholders and Registration
Rights Agreement dated March 29, 1999.*
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.21 Revolving Note dated July 21, 1999 from eMerge Interactive
to Safeguard Delaware, Inc., Amended Revolving Note dated
August 3, 1999 and second Amended Revolving Note dated
October 25, 1999.*
10.22 Revolving Note dated January 1, 1999 from XL Vision to
eMerge Interactive.
10.23 Promissory Note dated August 31, 1999 from eMerge
Interactive to Safeguard Delaware, Inc.*
10.24 Promissory Note dated September 13, 1999 from eMerge
Interactive to Safeguard Delaware, Inc.#
10.25 Promissory Note dated October 6, 1999 from eMerge
Interactive to Safeguard Delaware, Inc.*
10.26 Stockholders Agreement dated July 18, 1997 and Joinder to
Stockholders' Agreement.*
10.27 Subordinated Purchase Money Note from eMerge Interactive to
XL Vision dated July 15, 1997.*
10.28 Toll Processing Agreement dated August 16, 1999 between
eMerge Interactive and ADM Animal Health & Nutrition, a
division of Archer-Daniels-Midland Company.+#
10.29 Term Note dated October 25, 1999 from eMerge Interactive to
Safeguard Delaware, Inc.*
10.30 Securities Purchase Agreement dated October 27, 1999 between
eMerge Interactive Technologies, LLC and Internet Capital
Group, Inc.#
10.31 Registration Rights Agreement dated October 27, 1999 between
eMerge Interactive and Internet Capital Group, Inc.#
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 5.1).#
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.*
99.1 Form letter from eMerge Interactive, Inc. to holders of more
than 100 shares of Safeguard Scientifics, Inc. describing
the Directed Share Subscription Program.*
99.2 Form of letter from Adams, Harkness & Hill, Inc. to
Safeguard Scientifics, Inc. shareholders.#
99.3 Form of letter from eMerge Interactive, Inc. to Brokers
describing the Directed Share Subscription Program.*
99.4 Form of Subscription Form for Directed Share Subscription
Program.*
</TABLE>
- -------------------------
* Filed herewith.
# To be filed by amendment.
+ We intend to request confidential treatment of certain provisions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement has been filed separately with the Securities and Exchange
Commission.
<PAGE> 1
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EMERGE INTERACTIVE, INC.
eMerge Interactive, Inc., a Delaware corporation, hereby certifies as
follows:
FIRST. The name of the corporation under which its Certificate of
Incorporation was filed is Enhanced Vision Systems, Inc. The date of filing of
its original Certificate of Incorporation with the Secretary of State was
September 12, 1994.
SECOND. This Second Amended and Restated Certificate of Incorporation
amends, restates and integrates the provisions of the Certificate of
Incorporation of said corporation and has been duly adopted by majority vote of
the holders of all of the outstanding stock entitled to vote thereon in
accordance with the provisions of Sections 242 and 245 and all other applicable
provisions of the General Corporation Law of the State of Delaware.
THIRD. The text of the Amended and Restated Certificate of
Incorporation is hereby restated to read herein as set forth in full:
1. The name of the corporation is eMerge Interactive, Inc.
2. The address of the corporation's registered office is 1013 Centre
Road in the City of Wilmington, County of New Castle, Delaware 19805. The name
of its registered agent at such address is Corporation Service Company.
3. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue 115,000,000 shares, designated as
follows:
(A) 100,000,000 shares of Common Stock, par value $0.01 per share,
consisting of 92,711,110 shares of Class A Common Stock, par value
$0.01 per share (herein called the "Class A Common Stock") and
7,288,890 shares of Class B Common Stock, par value $0.01 per share
(herein called the "Class B Common Stock"). Each holder of Class A
Common Stock shall be entitled to vote on all matters submitted to
a vote of the stockholders of the Corporation (including election
of directors other than the Series A Directors and the Series D
Directors, each as hereinafter defined) and shall be entitled to
one vote per share and each holder of Class B Common Stock shall be
entitled to vote on all matters submitted to a vote of the
stockholders of the Corporation (including election of directors
other than the Series A Directors and the Series D Directors) and
shall be
<PAGE> 2
entitled to two and one-half votes per share. Each share of Class B
Common Stock shall be converted automatically into one fully paid,
non-assessable share of Class A Common Stock immediately prior to
the earlier of (i) the transfer by the registered holder of such
share of Class B Common Stock to another registered holder other
than an affiliate of such holder and (ii) the filing of a
registration statement with the U.S. Securities and Exchange
Commission covering the share or shares of Class A Common Stock
that are issuable upon the conversion of such share of Class B
Common Stock. Immediately upon the effectiveness of this amendment
and restatement of the Certificate of Incorporation of the Company,
each share of Common Stock issued and outstanding immediately prior
thereto ("Old Common Stock") shall, ipso facto and without any
action on the part of the holder of shares of the Old Common Stock,
be changed, converted and reclassified into one share of Class A
Common Stock.
(B) 15,000,000 shares of Preferred Stock, par value $0.01 per share,
consisting of 6,500,000 shares of Series A Preferred Stock, par
value $0.01 per share (herein called the "Series A Preferred
Stock"), 2,400,000 shares of Series B Junior Preferred Stock, par
value $0.01 per share (herein called the "Series B Junior Preferred
Stock"), 1,300,000 shares of Series C Preferred Stock, par value
$0.01 per share (herein called the "Series C Preferred Stock") and
4,555,556 shares of Series D Preferred Stock, par value $0.01 per
share (herein called the "Series D Preferred Stock". The Board of
Directors shall have the full authority permitted by law to divide
the authorized and unissued shares of Preferred Stock into classes
or series, or both, and to determine for any such class or series
its designation and the number of shares of the class or series and
the voting rights, preferences, limitations and special rights if
any, of the shares of the class or series.
***************
DESCRIPTION AND DESIGNATION OF SERIES A PREFERRED STOCK
A1. DESIGNATION. A total of 6,500,000 shares of the Company's Preferred
Stock shall be designated the Series A Preferred Stock.
A2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock (voting as a separate class), the Corporation
shall not declare or pay any dividends, or purchase, redeem, retire, or
otherwise acquire for value any shares of its capital stock junior to the Series
A Preferred Stock (or rights, options or warrants to purchase such shares) now
or hereafter outstanding, return any capital to its stockholders as such, or
make any distribution of assets to its stockholders as such, or permit any
Subsidiary to do any of the foregoing. "Subsidiary" or "Subsidiaries" means any
corporation, partnership or joint venture of which the Company and/or any of its
other Subsidiaries
<PAGE> 3
(as herein defined) directly or indirectly owns at the time at least fifty
percent (50%) of the outstanding voting shares or similar interests other than
directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
A3. LIQUIDATION, DISSOLUTION OR WINDING UP.
A3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series A Preferred Stock shall be on a parity with Series C Preferred Stock and
Series D Preferred Stock with respect to liquidation preference. The Series A
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and any
class or series of Preferred Stock designated in the future to be on a parity
with Series A Preferred Stock with respect to liquidation preference are
collectively referred to herein as a "First Priority Parity Stock". In the event
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series A Preferred Stock, including the Series B Junior Preferred Stock, in
liquidation preference (collectively referred to in this Description and
Designation of Series A Preferred Stock as "Junior Stock"), and subject to the
liquidation rights and preferences of any class or series of Preferred Stock
designated now or in the future to be senior to, or on a parity with, the Series
A Preferred Stock, including the Series C Preferred Stock and the Series D
Preferred Stock, with respect to liquidation preference (collectively referred
to in this Description and Designation of Series A Preferred Stock as "Senior
Stock"), the holders of each share of Series A Preferred Stock shall be entitled
to be paid first out of the assets of the Corporation available for distribution
to holders of the Corporation's capital stock of all classes, whether such
assets are capital, surplus or earnings ("Available Assets"), the greater of (i)
an amount per share of Series A Preferred Stock equal to $1.00, plus $.10 for
each year (pro rated for partial years) from July 16, 1997 until the date of
distribution of Available Assets, (subject to equitable adjustment for any stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Preferred Stock), or (ii) such amount per share of Series A
Preferred Stock as would have been payable had each share of
<PAGE> 4
Preferred Stock which is convertible into Common Stock been so converted
immediately prior to such liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series A Preferred Stock and of any other series of Preferred Stock on parity
with the Series A Preferred Stock, including the Series C Preferred Stock and
the Series D Preferred Stock, with respect to liquidation preference the full
amounts to which they otherwise would be entitled, the holders of Series A
Preferred Stock and such other series of Preferred Stock, including the Series C
Preferred Stock and the Series D Preferred Stock, shall share ratably in any
distribution of Available Assets pro rata in proportion to the respective
liquidation preference amounts which would otherwise be payable upon liquidation
with respect to the outstanding shares of the Series A Preferred Stock and such
other series of Preferred Stock, including the Series C Preferred Stock and the
Series D Preferred Stock, if all liquidation preference dollar amounts with
respect to such shares were paid in full.
A3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section A3; provided, however that, in the case of any such
transaction to which the provisions of Section A5.6 also apply, the holders of a
majority of the outstanding shares of Series A Preferred Stock together with
First Priority Parity Stock (voting together as a single class) shall have the
right to elect the benefits of the provisions of Section A5.6 hereof for all of
the Series A Preferred Stock and First Priority Parity Stock in lieu of
receiving payment in liquidation, dissolution or winding up of the Corporation
pursuant to this Section A3.
The provisions of this Section A3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
A3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section A3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation in a written resolution. All distributions of
property other than cash made hereunder shall be made, to the maximum extent
possible, pro rata
<PAGE> 5
with respect to each series and class of Preferred Stock and Common Stock in
accordance with the liquidation amounts payable with respect to each such series
and class.
A4. VOTING POWER.
A4.1 GENERAL. Except as otherwise required by applicable law
or as otherwise provided herein, (i) each holder of Series A Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the stockholders
of the Corporation (including election of directors other than the Series D
Directors) and shall be entitled to that number of votes equal to the largest
number of whole shares of Class A Common Stock into which such holder's shares
of Series A Preferred Stock could be converted, and (ii) the holders of shares
of Series A Preferred Stock, Series B Junior Preferred Stock, Series C Preferred
Stock, Class A Common Stock and Class B Common Stock shall vote together (or
render written consents in lieu of a vote) as a single class on all matters
submitted to the stockholders of the Corporation (including election of
directors to the extent not otherwise expressly provided for). Each holder of
Series A Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the by-laws of this Corporation at the same time and
in the same manner as notice is given to all other stockholders entitled to vote
at such meetings.
A4.2 DIRECTOR ELECTION RIGHTS. So long as any shares of Series
A Preferred Stock remain outstanding, the holders of the Series A Preferred
Stock, voting as a separate class, shall have the right to elect two directors
of the Corporation (the "Series A Directors"). At any annual or special meeting
of the Corporation held for the purpose of electing directors, the presence in
person or by proxy (or by written consent) of the holders of a majority of the
outstanding shares of Series A Preferred Stock shall constitute a quorum for the
election of the Series A Directors.
A5. CONVERSION RIGHTS. The holders of the Series A Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Class A Common Stock:
A5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section 5, any shares of the Series A Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Class A Common Stock. The
number of shares of Class A Common Stock which a holder of Series A Preferred
Stock shall be entitled to receive upon conversion shall be the product obtained
by multiplying (i) the number of shares of Series A Preferred Stock being
converted at any time, by (ii) the rate (the "Series A Conversion Rate") equal
to the quotient obtained by dividing $1.00 by the Series A Conversion Value. The
"Series A Conversion Value" in effect from time to time, except as adjusted in
accordance with this Section A5, shall be $1.00.
A5.2 AUTOMATIC CONVERSION.
<PAGE> 6
A5.2.1 EVENTS CAUSING CONVERSION. Immediately (A)
prior to the effectiveness of a registration statement filed by the Company
pursuant to the Securities Act of 1933, as amended, (other than on Form S-4 or
S-8 on any successor forms thereto) covering the offer and sale of Class A
Common Stock in an underwritten public offering on a firm commitment basis in
which the gross proceeds of the offering will equal or exceed $10,000,000
(calculated before deducting underwriters' discounts and commissions and other
offering expenses), and in which the public offering price per share of Class A
Common Stock (calculated before deducting underwriters' discounts and
commissions) results in a valuation of the total number of outstanding shares of
capital stock of the Company immediately prior to the closing of a public
offering of at least $30,000,000, (a "Public Offering") but subject to the
closing of such public offering, (B) prior to the effectiveness of a
registration statement filed by the Company pursuant to the Securities Act of
1933 covering the offer and sale of Common Stock in a rights offering to
shareholders Safeguard Scientifics, Inc., but subject to the closing of such
rights offering (a "Rights Offering"), or (C) upon the election, set forth in a
written notice to the Corporation, of holders of at least two-thirds of the
outstanding Series A Preferred Stock and First Priority Parity Stock (counted as
a single Class) to convert their shares of Series A Preferred Stock and First
Priority Parity Stock to Common Stock; all outstanding shares of Series A
Preferred Stock shall be converted automatically into the number of fully paid,
non-assessable shares of Class A Common Stock into which such shares of Series A
Preferred Stock are convertible pursuant to this Section A5 as of the closing
and consummation of such underwritten public offering or the date of such
approval, without any further action by the holders of such shares and whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent.
A5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
A5.2.1, the holders of the Series A Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the office
of the Corporation or its transfer agent for the Class A Common Stock.
Thereupon, there shall be issued and delivered to such holder a certificate or
certificates for the number of shares of Class A Common Stock into which the
shares of Series A Preferred Stock so surrendered were convertible on the date
on which the conversion occurred. The Corporation shall not be obligated to
issue such certificates unless certificates evidencing such shares of Series A
Preferred Stock being converted are either delivered to the Corporation or any
such transfer agent, or the holder notifies the Corporation that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith.
A5.3 ANTI-DILUTION ADJUSTMENTS.
A5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation
shall, while there are any shares of Series A Preferred Stock outstanding, issue
or sell shares of its Common Stock or Common Stock Equivalents (as defined in
Section A5.3.2.1 below) without consideration or at a
<PAGE> 7
price per share or Net Consideration Per Share (as defined in Section A5.3.3
below) less than the Series A Conversion Value in effect immediately prior to
such issuance or sale, then in each such case the Series A Conversion Value,
except as hereinafter provided, shall be lowered so as to be equal to an amount
determined by multiplying such Series A Conversion Value by the following
fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series A Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
<TABLE>
<CAPTION>
Example:
<S> <C> <C> <C>
initial capital 1,000,000
initial conversion price $1.00
new shares issued 1,000,000 total new consideration $500,000
new issue price $0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $0.75
</TABLE>
The provisions of this Section A5.3.1 may be waived as to all
shares of Series A Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of
<PAGE> 8
the Corporation) upon the written agreement of the holders of two-thirds of the
outstanding shares of Series A Preferred Stock.
A5.3.2 COMMON STOCK EQUIVALENTS.
A5.3.2.1 GENERAL. For the purposes of this
Section A5.3, the issuance of any warrants, options, subscription or purchase
rights with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series A Conversion Value
shall be made under this Section A5.3 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Common Stock Equivalents.
A5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT,
CANCELLATION OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net
Consideration Per Share of any such Common Stock Equivalents be decreased from
time to time other than as a result of the application of anti-dilution
provisions substantially similar to the provisions of this Section A5.3, then,
upon the effectiveness of each such change, the Series A Conversion Value will
be that which would have been obtained (1) had the adjustments made pursuant to
Section A5.3.2.1 upon the issuance of such Common Stock Equivalents been made
upon the basis of the new Net Consideration Per Share of such securities, and
(2) had the adjustments made to the Series A Conversion Value since the date of
issuance of such Common Stock Equivalents been made to such Series A Conversion
Value as adjusted pursuant to clause (1) above. Any adjustment of the Series A
Conversion Value which relates to any Common Stock Equivalent shall be
disregarded if, as, and when such Common Stock Equivalent expires or is canceled
without being exercised, or is repurchased by the Company at a price per share
at or less than the original purchase price, so that the Series A Conversion
Value effective immediately upon such cancellation or expiration shall be equal
to the Series A Conversion Value that would have been in effect (1) had the
expired or canceled Common Stock Equivalent not been issued, and (2) had the
adjustments made to the Series A Conversion Value since the date of issuance of
such Common Stock Equivalents been made to the Series A Conversion Value which
would have been in effect had the expired or canceled Common Stock Equivalent
not been issued.
A5.3.3 NET CONSIDERATION PER SHARE. The "Net
Consideration Per Share" which shall be receivable by the Corporation for any
Common Stock issued upon the exercise or conversion of any Common Stock
Equivalents shall be determined as follows:
A5.3.3.1 The Net Consideration Per Share
shall mean the amount equal to the total amount of consideration, if any,
received by the Corporation for the issuance of
<PAGE> 9
such Common Stock Equivalents, plus the minimum amount of consideration, if any,
payable to the Corporation upon exercise, or conversion or exchange thereof,
divided by the aggregate number of shares of Common Stock that would be issued
if all such Common Stock Equivalents were exercised, exchanged or converted.
A5.3.3.2 The Net Consideration Per Share
which shall be receivable by the Corporation shall be determined in each
instance as of the date of issuance of Common Stock Equivalents without giving
effect to any possible future upward price adjustments or rate adjustments which
may be applicable with respect to such Common Stock Equivalents.
A5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK
OTHER THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series A Preferred Stock.
A5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section A5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section A5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation in a written resolution.
A5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS;
BASKET FOR RESERVED EMPLOYEE SHARES. This Section A5.3 shall not apply (A) under
any of the circumstances which would constitute an Extraordinary Common Stock
Event (as described below), or (B) to any issuance or sale of shares of Common
Stock and/or Common Stock Equivalents in an underwritten public offering not
requiring conversion of the Series A Preferred Stock. Further, this Section A5.3
shall not apply with respect to the issuance or sale of shares of Common Stock,
or the grant or options exercisable therefor, to directors, officers, employees
and consultants of the Corporation or any subsidiary pursuant to any qualified
or non-qualified stock option plan or agreement, stock purchase plan or
agreement, stock restriction agreement, employee stock ownership plan (ESOP),
consulting agreement, or such other options, issuances, arrangements, agreements
or plans intended principally as a means of providing compensation for
employment or services or of providing additional compensation to a financial
institution in connection with the Corporation obtaining equipment
lease/financing, provided that in each such case such plan, agreement, or other
arrangement or issuance is approved by the vote or consent of two-thirds of the
Board of Directors or by the written consent of the holders of two-thirds of the
outstanding shares of Series A Preferred Stock.
<PAGE> 10
A5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series A Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series A
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series A Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue
of additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.
A5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their Series
A Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities or such other assets
receivable by them, giving application to all other adjustments called for
during such period under this Section A5.
A5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series A Preferred Stock shall have the
right thereafter to convert such share into, in lieu of the number of shares of
Common Stock which the holder would otherwise have been entitled to receive, the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock could
<PAGE> 11
have been converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein. The provision for such conversion right shall be a condition precedent
to the consummation by the Corporation of any such transaction unless the
election described below is made.
In the case of a transaction to which both this Section A5.6
and Section A3.2 apply, the holders of a majority of the outstanding shares of
Series A Preferred Stock and First Priority Parity Stock (voting together as a
single class) shall have the option of electing treatment for the Series A
Preferred Stock and First Priority Parity Stock under this Section A5.6, notice
of which election shall be submitted in writing to the Corporation at its
principal office no later than five (5) business days before the effective date
of such event. If no such election shall be made, the provisions of Section
A3.2, and not this Section A5.6, shall apply.
A5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Series A Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series A
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
A5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series A Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
A Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Preferred Stock being converted, shall
be the "Conversion Date". As promptly as practicable after the Conversion Date
for the Series A Preferred Stock, the Corporation shall issue and deliver to the
holder of the shares of Series A Preferred Stock being converted, or on its
written order, such certificate or certificates as it may request for the number
of whole shares of Common Stock issuable upon the conversion of such shares of
Series A Preferred Stock in accordance with the provisions of this Section A5,
and cash, as provided in Section A5.9, in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series A Preferred Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
<PAGE> 12
A5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of the shares
of Series A Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the aggregate number of shares of Series A Preferred Stock
being converted at any one time by any holder thereof, not upon each share of
Series A Preferred Stock being converted.
A5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted.
A5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Class A Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Class A
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred Stock (including any shares
of Series A Preferred Stock represented by any warrants, options, subscription
or purchase rights for Series A Preferred Stock), and if at any time the number
of authorized but unissued shares of Class A Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
A Preferred Stock (including any shares of Series A Preferred Stock represented
by any warrants, options, subscriptions or purchase rights for such Series A
Preferred Stock), the Corporation shall take such action as may be necessary to
increase its authorized but unissued shares of Class A Common Stock to such
number of shares as shall be sufficient for such purpose.
A6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
The Corporation shall not take any corporate action or amend
its Certificate of Incorporation (except to reduce the number of shares
designated as Series A Preferred Stock to the number of such shares which are
then issued and outstanding) without the approval by vote or written consent of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting as a single class, each share of Series A Preferred
Stock to be entitled to one vote in each instance, if such corporate action or
amendment would change any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Series A
Preferred Stock. Without limiting the generality of the preceding sentence, the
Corporation will not
<PAGE> 13
amend its Certificate of Incorporation or take any other corporate action
without the approval by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a single class, if
such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section 2
hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
A Preferred Stock or of any class of stock ranking senior to the Series
A Preferred Stock with respect to liquidation preferences, dividend
rights or containing redemption rights; or
(c) reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(d) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series A Preferred
Stock; or
(e) cancel or modify the conversion rights of the
holders of Series A Preferred Stock provided for in Section A5 herein;
or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section A3.2
hereof.
A7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms.
Without limiting the generality of the foregoing, the Corporation (a) will not
increase the par value of any shares of stock receivable on the conversion of
the Preferred Stock above the amount payable therefor on such conversion, and
(b) will take such action as may be necessary or appropriate in order that the
<PAGE> 14
Corporation may validly and legally issue fully paid and nonassessable shares of
stock on the conversion of all Preferred Stock from time to time outstanding.
A8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed by first class mail, postage prepaid, at
least 15 days prior to the date specified in such notice on which action is
being taken.
A9. STATUS OF CONVERTED OR REPURCHASED SERIES A PREFERRED STOCK. Any
share or shares of Series A Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series A Preferred Stock, the
provisions of this Series A Preferred Stock shall terminate and have no further
force and effect.
DESCRIPTION AND DESIGNATION OF SERIES B JUNIOR PREFERRED STOCK
<PAGE> 15
B1. DESIGNATION. A total of 2,400,000 shares of the Company's Preferred
Stock shall be designated the Series B Junior Preferred Stock
B2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series B Junior Preferred Stock, Series A Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and any other series of Preferred
Stock senior to or on parity with the Series B Junior Preferred Stock with
respect to liquidation preference (all voting together as a single class), the
Corporation shall not declare or pay any dividends, or purchase, redeem, retire,
or otherwise acquire for value any shares of its capital stock junior to the
Series B Junior Preferred Stock (or rights, options or warrants to purchase such
shares) now or hereafter outstanding, return any capital to its stockholders as
such, or make any distribution of assets to its stockholders as such, or permit
any Subsidiary to do any of the foregoing.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
B3. LIQUIDATION, DISSOLUTION OR WINDING UP.
B3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series B Junior Preferred Stock shall be junior to the Series A Preferred Stock,
Series C Preferred Stock and Series D Preferred with respect to liquidation
preference. Any class or series of Preferred Stock designated in the future to
be on a parity with the Series B Junior Preferred Stock with respect to
liquidation preference are collectively referred to herein as "Second Priority
Parity Stock". In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series B Junior Preferred Stock in liquidation
preference (collectively referred to in this Description and Designation of
Series B Junior Preferred Stock as "Junior Stock"), and subject to the
liquidation rights and preferences of the Series A Preferred Stock, Series C
Preferred Stock and Series D Preferred and any class or series of Preferred
Stock designated in the future to be
<PAGE> 16
senior to the Series B Junior Preferred Stock with respect to liquidation
preference (referred to in this Description and Designation of Series B Junior
Preferred Stock as "Senior Stock"), the holders of each share of Series B Junior
Preferred Stock shall be entitled to be paid first out of the Available Assets,
the greater of (i) an amount per share of Series B Junior Preferred Stock equal
to $2.00, plus $.20 for each year (pro rated for partial years) from December
31, 1998 until the date of distribution of Available Assets, (subject to
equitable adjustment for any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the capital structure of the Preferred Stock), or (ii)
such amount per share of Series B Junior Preferred Stock as would have been
payable had each share of Preferred Stock which is convertible into Common Stock
been so converted immediately prior to such liquidation, dissolution or winding
up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series B Junior Preferred Stock and of any Parity Stock the full amounts to
which they otherwise would be entitled, the holders of Series B Junior Preferred
Stock and Second Priority Parity Stock shall share ratably in any distribution
of Available Assets pro rata in proportion to the respective liquidation
preference amounts which would otherwise be payable upon liquidation with
respect to the outstanding shares of the Series B Junior Preferred Stock and
Parity Stock if all liquidation preference dollar amounts with respect to such
shares were paid in full.
B3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section B3; provided, however that, in the case of any such
transaction to which the provisions of Section B5.6 also apply, the holders of
the outstanding shares of Series B Junior Preferred Stock and Second Priority
Parity Stock (voting together as a single class) shall have the right by
majority vote to elect the benefits of the provisions of Section B5.6 hereof for
all of the Series B Junior Preferred Stock and Second Priority Parity Stock in
lieu of receiving payment in liquidation, dissolution or winding up of the
Corporation pursuant to this Section B3.
The provisions of this Section B3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
<PAGE> 17
B3.3 DISTRIBUTIONS OTHER THAN CASH . Whenever the distribution
provided for in this Section B3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation in a written resolution. All distributions of
property other than cash made hereunder shall be made, to the maximum extent
possible, pro rata with respect to each Series and class of Preferred Stock and
Common Stock in accordance with the liquidation amounts payable with respect to
each such Series and class.
B4. VOTING POWER.
B4.1 GENERAL. For each vote in which holders of Series B
Junior Preferred Stock are entitled to participate, each share of Series B
Junior Preferred Stock shall be entitled to that number of votes equal to the
largest number of whole shares of Common Stock into which such holder's shares
of Series B Junior Preferred Stock could be converted. Except as otherwise
required by applicable law or as otherwise provided herein, each holder of
Series B Junior Preferred Stock shall be entitled to vote together with the
Common Stock, Series A Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and all other series and classes of stock permitted to vote with
the Common Stock on all matters submitted to a vote of the stockholders of the
Corporation (including election of directors generally, but excluding election
of the Series A Directors and Series D Directors). Each holder of Series B
Junior Preferred Stock shall be entitled to notice of any stockholders' meeting
in accordance with the by-laws of this Corporation at the same time and in the
same manner as notice is given to all other stockholders entitled to vote at
such meetings.
B5. CONVERSION RIGHTS. The holders of the Series B Junior Preferred
Stock shall have the following rights and be subject to the following
obligations with respect to the conversion of such shares into shares of Common
Stock:
B5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section B5, any shares of the Series B Junior Preferred
Stock may, at the option of the holder thereof, be converted at any time and
from time to time into fully-paid and non-assessable shares of Class A Common
Stock. The number of shares of Common Stock which a holder of Series B Junior
Preferred Stock shall be entitled to receive upon conversion shall be the
product obtained by multiplying (i) the number of shares of Series B Junior
Preferred Stock being converted at any time, by (ii) the rate (the "Series B
Conversion Rate") equal to the quotient obtained by dividing $2.00 by the Series
B Conversion Value. The "Series B Conversion Value" in effect from time to time,
except as adjusted in accordance with this Section B5, shall be $2.00.
B5.2 AUTOMATIC CONVERSION.
<PAGE> 18
B5.2.1 EVENTS CAUSING CONVERSION. Immediately (A)
prior to a Public Offering (B) prior to the effectiveness of a registration
statement filed by the Company pursuant to the Securities Act of 1933 covering
the offer and sale of Common Stock in a rights offering to shareholders of
Safeguard Scientifics, Inc., but subject to the closing of such rights offering,
or (C) upon the election, set forth in a written notice to the Corporation, of
holders of at least two-thirds of the outstanding shares of Series B Junior
Preferred Stock and Parity Stock (counted as a single class) to convert their
Series B Junior Preferred Stock and Second Priority Parity Stock to Common
Stock; all outstanding shares of Series B Junior Preferred Stock and Second
Priority Parity Stock shall be converted automatically into the number of fully
paid, non-assessable shares of Class A Common Stock into which such shares of
Series B Junior Preferred Stock and Second Priority Parity Stock are convertible
pursuant to this Section B5 or the designation of such Second Priority Parity
Stock as of the closing and consummation of such underwritten public offering or
the date of such approval, without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
B5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
B5.2.1, the holders of the Series B Junior Preferred Stock shall, upon notice
from the Corporation, surrender the certificates representing such shares at the
office of the Corporation or its transfer agent for the Common Stock. Thereupon,
there shall be issued and delivered to such holder a certificate or certificates
for the number of shares of Common Stock into which the shares of Series B
Junior Preferred Stock so surrendered were convertible on the date on which the
conversion occurred. The Corporation shall not be obligated to issue such
certificates unless certificates evidencing such shares of Series B Junior
Preferred Stock being converted are either delivered to the Corporation or any
such transfer agent, or the holder notifies the Corporation that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith.
B5.3 ANTI-DILUTION ADJUSTMENTS.
B5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation
shall, while there are any shares of Series B Junior Preferred Stock
outstanding, issue or sell shares of its Common Stock or Common Stock
Equivalents without consideration or at a price per share or Net Consideration
Per Share less than the Series B Conversion Value in effect immediately prior to
such issuance or sale, then in each such case the Series B Conversion Value,
except as hereinafter provided, shall be lowered so as to be equal to an amount
determined by multiplying such Series B Conversion Value by the following
fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
<PAGE> 19
Where:
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series B Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
<TABLE>
<CAPTION>
Example:
<S> <C> <C> <C>
initial capital 1,000,000
initial conversion price $1.00
new shares issued 1,000,000 total new consideration $500,000
new issue price $0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $0.75
</TABLE>
The provisions of this Section B5.3.1 may be waived as to all
shares of Series B Junior Preferred Stock in any instance (without the necessity
of convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series B
Junior Preferred Stock.
B5.3.2 COMMON STOCK EQUIVALENTS.
B5.3.2.1 GENERAL. For the purposes of this
Section B5.3, the issuance of any warrants, options, subscription or purchase
rights with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common
<PAGE> 20
Stock and the issuance of any Common Stock Equivalents, shall be deemed an
issuance of Common Stock. Any obligation, agreement or undertaking to issue
Common Stock Equivalents at any time in the future shall be deemed to be an
issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Series B Conversion Value shall be made under this
Section B5.3 upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise, conversion or exchange of any Common Stock
Equivalents.
B5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT,
CANCELLATION OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net
Consideration Per Share of any such Common Stock Equivalents be decreased from
time to time other than as a result of the application of anti-dilution
provisions substantially similar to the provisions of this Section B5.3, then,
upon the effectiveness of each such change, the Series B Conversion Value will
be that which would have been obtained (1) had the adjustments made pursuant to
Section B5.3.2.1 upon the issuance of such Common Stock Equivalents been made
upon the basis of the new Net Consideration Per Share of such securities, and
(2) had the adjustments made to the Series B Conversion Value since the date of
issuance of such Common Stock Equivalents been made to such Series B Conversion
Value as adjusted pursuant to clause (1) above. Any adjustment of the Series B
Conversion Value which relates to any Common Stock Equivalent shall be
disregarded if, as, and when such Common Stock Equivalent expires or is canceled
without being exercised, or is repurchased by the Company at a price per share
at or less than the original purchase price, so that the Series B Conversion
Value effective immediately upon such cancellation or expiration shall be equal
to the Series B Conversion Value that would have been in effect (1) had the
expired or canceled Common Stock Equivalent not been issued, and (2) had the
adjustments made to the Series B Conversion Value since the date of issuance of
such Common Stock Equivalents been made to the Series B Conversion Value which
would have been in effect had the expired or canceled Common Stock Equivalent
not been issued.
B5.3.3 [INTENTIONALLY OMITTED]
B5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK
OTHER THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series B Junior Preferred Stock.
B5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section B5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section B5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value
<PAGE> 21
as is reasonably determined in good faith by the Board of Directors of the
Corporation in a written resolution.
B5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS. This
Section B5.3 shall not apply (A) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as described below), (B) to any
additional shares of Common Stock which become issuable upon conversion of any
other series or class of preferred stock or convertible security of the Company
as a result of any anti-dilution adjustment to the conversion ratio of such
series or class, or (C) to any issuance or sale of shares of Common Stock and/or
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series B Junior Preferred Stock. Further, this Section B5.3
shall not apply with respect to the issuance or sale of shares of Common Stock,
or the grant or options exercisable therefor, to directors, officers, employees
and consultants of the Corporation or any subsidiary pursuant to any qualified
or non-qualified stock option plan or agreement, stock purchase plan or
agreement, stock restriction agreement, employee stock ownership plan (ESOP),
consulting agreement, or such other options, issuances, arrangements, agreements
or plans intended principally as a means of providing compensation for
employment or services or of providing additional compensation to a financial
institution in connection with the Corporation obtaining equipment
lease/financing, provided that in each such case such plan, agreement, or other
arrangement or issuance is approved by the vote or consent of two-thirds of the
Board of Directors or by the written consent of the holders of two-thirds of the
outstanding shares of Series B Preferred Stock.
B5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT. Upon
the happening of an Extraordinary Common Stock Event (as hereinafter defined),
the Series B Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series B
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series B Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
B5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series B
Junior Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the number of securities
or such other assets of the
<PAGE> 22
Corporation which they would have received had their Series B Junior Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them, giving application to all other adjustments called for during such period
under this Section B5.
B5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series B Junior Preferred Stock shall
have the right thereafter to convert such share into, in lieu of the number of
shares of Common Stock which the holder would otherwise have been entitled to
receive, the kind and amount of shares of capital stock and other securities and
property receivable upon such reorganization, recapitalization, reclassification
or other change by the holders of the number of shares of Common Stock into
which such shares of Series B Junior Preferred Stock could have been converted
immediately prior to such reorganization, recapitalization, reclassification or
change, all subject to further adjustment as provided herein. The provision for
such conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction unless the election described below is made.
In the case of a transaction to which both this Section B5.6
and Section B3.2 apply, the holders of the outstanding shares of Series B Junior
Preferred Stock and Second Priority Parity Stock (voting together as a single
class) shall have the option by majority vote to elect treatment for the Series
B Junior Preferred Stock and Second Priority Parity Stock under this Section
B5.6, notice of which election shall be submitted in writing to the Corporation
at its principal office no later than five (5) business days before the
effective date of such event. If no such election shall be made, the provisions
of Section B3.2, and not this Section B5.6, shall apply.
B5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY. In each case of
an adjustment or readjustment of the Series B Applicable Conversion Rate, the
Corporation at its expense will furnish each holder of Series B Junior Preferred
Stock so affected with a certificate prepared by the Treasurer or Chief
Financial Officer of the Corporation, showing such adjustment or readjustment,
and stating in detail the facts upon which such adjustment or readjustment is
based.
B5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series B Junior Preferred Stock shall
surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder elects to convert such
shares. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The certificate or certificates
for shares of Series B Junior Preferred Stock surrendered for conversion shall
be accompanied by proper
<PAGE> 23
assignment thereof to the Corporation or in blank. As promptly as practicable
after the Conversion Date for the Series B Junior Preferred Stock being
converted, the Corporation shall issue and deliver to the holder of the shares
of Series B Junior Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of Series B
Junior Preferred Stock in accordance with the provisions of this Section B5, and
cash, as provided in Section B5.9, in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series B Junior Preferred Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
B5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Junior Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series B Junior Preferred Stock, the Corporation shall pay to the
holder of the shares of Series B Junior Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the aggregate number of
shares of Series B Junior Preferred Stock being converted at any one time by any
holder thereof, not upon each share of Series B Junior Preferred Stock being
converted.
B5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series B Junior Preferred Stock represented by a certificate(s)
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series B Junior Preferred Stock
which were not converted.
B5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Class A Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Junior Preferred Stock, such number of its shares of
Class A Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Junior Preferred Stock
(including any shares of Series B Junior Preferred Stock represented by any
warrants, options, subscription or purchase rights for Series B Junior Preferred
Stock), and if at any time the number of authorized but unissued shares of Class
A Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Junior Preferred Stock (including any shares
of Series B Junior
<PAGE> 24
Preferred Stock represented by any warrants, options, subscriptions or purchase
rights for such Series B Junior Preferred Stock), the Corporation shall take
such action as may be necessary to increase its authorized but unissued shares
of Class A Common Stock to such number of shares as shall be sufficient for such
purpose.
B6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
B6.1 The Corporation shall not take any corporate action or
amend its Certificate of Incorporation (except to reduce the number of shares
designated as Series B Junior Preferred Stock to the number of such shares which
are then issued and outstanding) without the approval by majority vote or
written consent of the holders of outstanding shares of Series B Junior
Preferred Stock, voting as a single class, if such corporate action or amendment
would change any of the rights, preferences, privileges of or limitations
provided for herein for the benefit of any shares of Series B Junior Preferred
Stock without similarly changing the rights, preferences, privileges of or
limitations on all other classes or series of Second Priority Parity Stock.
Without limiting the generality of the preceding sentence, the Corporation will
not amend this Certificate of Incorporation or take any other corporate action
without the approval of the holders of outstanding shares of Series B Junior
Preferred Stock if such amendment or corporate action would:
(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
B Junior Preferred Stock; or
(b) reduce the amount payable to the holders of
Series B Junior Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; or
(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series B Junior
Preferred Stock; or
(d) cancel or modify the conversion rights of the
holders of Series B Junior Preferred Stock provided for in Section B5
herein.
B6.2 The Corporation shall not take any corporate action or
amend its Certificate of Incorporation without the approval by majority vote or
written consent of the holders of outstanding shares of Series B Junior
Preferred Stock and Second Priority Parity Stock, voting together as a single
class, if such corporate action or amendment would similarly change the rights,
preferences, privileges of or limitations on the Series B Junior Preferred Stock
and all classes or series of Parity Stock. Without limiting the generality of
the preceding sentence, the Corporation will not amend its Certificate of
Incorporation or take any other corporate action without the approval of the
holders of the outstanding shares of Series B Junior Preferred Stock and Parity
Stock, voting together as a single class, if such amendment or corporate action
would:
<PAGE> 25
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section 2
hereof; or
(b) [INTENTIONALLY OMITTED]
(c) similarly reduce the amount payable to the
holders of Series B Junior Preferred Stock and Second Priority Parity
Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
B Junior Preferred Stock and Second Priority Parity Stock; or
(e) similarly cancel or modify the conversion rights
of the holders of Series B Junior Preferred Stock and Second Priority
Parity Stock; or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section B3.2
hereof.
B7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series B Junior Preferred Stock set
forth herein, but will at all times in good faith assist in the carrying out of
all such terms. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series B Junior Preferred Stock above the
amount payable therefor on such conversion, and (b) will take such action as may
be necessary or appropriate in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of stock on the conversion of
all Series B Junior Preferred Stock from time to time outstanding.
<PAGE> 26
B8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series B Junior Preferred Stock a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.
B9. STATUS OF CONVERTED OR REPURCHASED SERIES B JUNIOR PREFERRED STOCK.
Any share or shares of Series B Junior Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
returned to the status of authorized but unissued shares of undesignated
Preferred Stock. Upon the cancellation of all outstanding shares of Series B
Junior Preferred Stock, the provisions of this Series B Junior Preferred Stock
shall terminate and have no further force and effect.
DESCRIPTION AND DESIGNATION OF SERIES C PREFERRED STOCK
C1. DESIGNATION. A total of 1,300,000 shares of the Company's Preferred
Stock shall be designated the Series C Preferred Stock.
<PAGE> 27
C2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and any other series of Preferred Stock senior to or on parity with the
Series C Preferred Stock with respect to liquidation preference (all voting
together as a single class), the Corporation shall not declare or pay any
dividends, or purchase, redeem, retire, or otherwise acquire for value any
shares of its capital stock junior to the Series C Preferred Stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any Subsidiary to do any of the
foregoing.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
C3. LIQUIDATION, DISSOLUTION OR WINDING UP.
C3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series C Preferred Stock shall be on a parity with the Series A Preferred Stock
and the Series D Preferred Stock with respect to liquidation preference. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock, the Series B
Junior Preferred Stock or any other class or series of capital stock of the
Corporation designated to be junior to the Series C Preferred Stock in
liquidation preference (collectively referred to in this Description and
Designation of Series C Preferred Stock as, "Junior Stock"), and subject to the
liquidation rights and preferences of any class or series of Preferred Stock
designated in the future to be senior to the Series C Preferred Stock with
respect to liquidation preference (referred to in this Description and
Designation of Series C Preferred Stock as "Senior Stock"), the holders of each
share of Series C Preferred Stock shall be entitled to be paid first out of the
Available Assets, the greater of (i) an amount per share of Series C Preferred
Stock equal to $5.00, plus $.50 for each year (pro rated for partial years) from
April 15, 1999 until the date of distribution of Available Assets, (subject to
equitable adjustment for any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the capital structure of
<PAGE> 28
the Preferred Stock), or (ii) such amount per share of Series C Preferred Stock
as would have been payable had each share of Preferred Stock which is
convertible into Common Stock been so converted immediately prior to such
liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series C Preferred Stock and of any Parity Stock the full amounts to which they
otherwise would be entitled, the holders of Series C Preferred Stock and First
Priority Parity Stock shall share ratably in any distribution of Available
Assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series C Preferred Stock and Parity Stock if all
liquidation preference dollar amounts with respect to such shares were paid in
full.
C3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section C3; provided, however that, in the case of any such
transaction to which the provisions of Section C5.6 also apply, the holders of
the outstanding shares of Series C Preferred Stock and First Priority Parity
Stock (voting together as a single class) shall have the right by majority vote
to elect the benefits of the provisions of Section C5.6 hereof for all of the
Series C Preferred Stock and First Priority Parity Stock in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section C3.
The provisions of this Section C3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
C3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section C3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation by a written resolution. All distributions of
property other than cash made hereunder shall be made, to the maximum extent
possible, pro rata with respect to each Series and class of Preferred Stock and
Common Stock in accordance with the liquidation amounts payable with respect to
each such Series and class.
<PAGE> 29
C4. VOTING POWER.
C4.1 GENERAL. For each vote in which holders of Series C
Preferred Stock are entitled to participate, each share of Series C Preferred
Stock shall be entitled to that number of votes equal to the largest number of
whole shares of Class A Common Stock into which such holder's shares of Series C
Preferred Stock could be converted. Except as otherwise required by applicable
law or as otherwise provided herein, each holder of Series C Preferred Stock
shall be entitled to vote together with the Common Stock, the Series A Preferred
Stock, the Series B Junior Preferred Stock, the Series D Preferred Stock and all
other series and classes of stock permitted to vote with the Common Stock on all
matters submitted to a vote of the stockholders of the Corporation (including
election of directors generally, but excluding election of the Series A
Directors and the Series D Directors). Each holder of Series C Preferred Stock
shall be entitled to notice of any stockholders' meeting in accordance with the
by-laws of this Corporation at the same time and in the same manner as notice is
given to all other stockholders entitled to vote at such meetings.
C5. CONVERSION RIGHTS. The holders of the Series C Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Class A Common Stock:
C5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section C5, any shares of the Series C Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Class A Common Stock. The
number of shares of Class A Common Stock which a holder of Series C Preferred
Stock shall be entitled to receive upon conversion shall be the product obtained
by multiplying (i) the number of shares of Series C Preferred Stock being
converted at any time, by (ii) the rate (the "Series C Conversion Rate") equal
to the quotient obtained by dividing $5.00 by the Series C Conversion Value. The
"Series C Conversion Value" in effect from time to time, except as adjusted in
accordance with this Section C5, shall be $5.00.
C5.2 AUTOMATIC CONVERSION.
C5.2.1 EVENTS CAUSING CONVERSION. Immediately (A)
prior to a Public Offering, but subject to the closing of such Public Offering
(B) prior to the effectiveness of a registration statement filed by the Company
pursuant to the Securities Act of 1933 covering the offer and sale of Common
Stock in a rights offering to shareholders of Safeguard Scientifics, Inc., in
which the gross proceeds of the offering will equal or exceed $10,000,000
(calculated before deducting underwriters' discounts and commissions and other
offering expenses), and in which the public offering price per share of Common
Stock (calculated before deducting underwriters' discounts and commissions)
results in a valuation of the total number of outstanding shares of capital
stock of the Company immediately prior to the closing of the public offering of
at least $35,000,000,
<PAGE> 30
but subject to the closing of such rights offering, or (C) upon the election,
set forth in a written notice to the Corporation, of holders of at least
two-thirds of the outstanding shares of Series C Preferred Stock and First
Priority Parity Stock (counted as a single class) to convert their Series C
Preferred Stock and First Priority Parity Stock to Common Stock; all outstanding
shares of Series C Preferred Stock and First Priority Parity Stock shall be
converted automatically into the number of fully paid, non-assessable shares of
Class A Common Stock into which such shares of Series C Preferred Stock and
Parity Stock are convertible pursuant to this Section C5 or the designation of
such First Priority Parity Stock as of the closing and consummation of such
underwritten public offering or the date of such approval, without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
C5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
C5.2.1, the holders of the Series C Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the office
of the Corporation or its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of Series C Preferred
Stock so surrendered were convertible on the date on which the conversion
occurred. The Corporation shall not be obligated to issue such certificates
unless certificates evidencing such shares of Series C Preferred Stock being
converted are either delivered to the Corporation or any such transfer agent, or
the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
C5.3 ANTI-DILUTION ADJUSTMENTS.
C5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation
shall, while there are any shares of Series C Preferred Stock outstanding, issue
or sell shares of its Common Stock or Common Stock Equivalents without
consideration or at a price per share or Net Consideration Per Share less than
the Series C Conversion Value in effect immediately prior to such issuance or
sale, then in each such case the Series C Conversion Value, except as
hereinafter provided, shall be lowered so as to be equal to an amount determined
by multiplying such Series C Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
<PAGE> 31
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series C Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
Example:
<TABLE>
<S> <C> <C> <C>
initial capital 1,000,000
initial conversion price $1.00
new shares issued 1,000,000 Total new consideration $500,000
new issue price $0.50 New shares which would be
Issued at initial conversion price 500,000
new conversion price $0.75
</TABLE>
The provisions of this Section C5.3.1 may be waived as to all
shares of Series C Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series C
Preferred Stock.
C5.3.2 COMMON STOCK EQUIVALENTS.
C5.3.2.1 GENERAL. For the purposes of this
Section C5.3, the issuance of any warrants, options, subscription or purchase
rights with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any Common Stock Equivalents, shall be deemed an issuance of Common Stock. Any
obligation, agreement or undertaking to issue Common Stock Equivalents at any
time in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No adjustment of the
Series C Conversion Value shall be made under this Section
<PAGE> 32
C5.3 upon the issuance of any shares of Common Stock which are issued pursuant
to the exercise, conversion or exchange of any Common Stock Equivalents.
C5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT, CANCELLATION OR
EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net Consideration Per Share
of any such Common Stock Equivalents be decreased from time to time other than
as a result of the application of anti-dilution provisions substantially similar
to the provisions of this Section C5.3, then, upon the effectiveness of each
such change, the Series C Conversion Value will be that which would have been
obtained (1) had the adjustments made pursuant to Section C5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series C Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series C Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series C Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series C Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series C Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series C
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series C Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
C5.3.3 [INTENTIONALLY OMITTED]
C5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK
OTHER THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series C Preferred Stock.
C5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section C5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section C5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation in a written resolution.
<PAGE> 33
C5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS. This
Section C5.3 shall not apply (A) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as described below), (B) to any
additional shares of Common Stock which become issuable upon conversion of any
other series or class of preferred stock or convertible security of the Company
as a result of any anti-dilution adjustment to the conversion ratio of such
series or class, or (C) to any issuance or sale of shares of Common Stock and/or
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series C Preferred Stock. Further, this Section C5.3 shall not
apply with respect to the issuance or sale of shares of Common Stock, or the
grant or options exercisable therefor, to directors, officers, employees and
consultants of the Corporation or any subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, stock purchase plan or agreement,
stock restriction agreement, employee stock ownership plan (ESOP), consulting
agreement, or such other options, issuances, arrangements, agreements or plans
intended principally as a means of providing compensation for employment or
services or of providing additional compensation to a financial institution in
connection with the Corporation obtaining equipment lease/financing, provided
that in each such case such plan, agreement, or other arrangement or issuance is
approved by the vote or consent of two-thirds of the Board of Directors or by
the written consent of the holders of two-thirds of the outstanding shares of
Series C Preferred Stock.
C5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK
EVENT. Upon the happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Series C Conversion Value shall, simultaneously with the happening
of such Extraordinary Common Stock Event, be adjusted by multiplying the Series
C Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series C Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
C5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series C
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their Series
C Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of
<PAGE> 34
such event to and including the Conversion Date, retained such securities or
such other assets receivable by them, giving application to all other
adjustments called for during such period under this Section C5.
C5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series C Preferred Stock shall have the
right thereafter to convert such share into, in lieu of the number of shares of
Common Stock which the holder would otherwise have been entitled to receive, the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series C Preferred Stock could have been converted immediately prior
to such reorganization, recapitalization, reclassification or change, all
subject to further adjustment as provided herein. The provision for such
conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction unless the election described below is made.
In the case of a transaction to which both this Section C5.6
and Section C3.2 apply, the holders of the outstanding shares of Series C
Preferred Stock and First Priority Parity Stock (voting together as a single
class) shall have the option by majority vote to elect treatment for the Series
C Preferred Stock and First Priority Parity Stock under this Section C5.6,
notice of which election shall be submitted in writing to the Corporation at its
principal office no later than five (5) business days before the effective date
of such event. If no such election shall be made, the provisions of Section
C3.2, and not this Section C5.6, shall apply.
C5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Series C Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series C
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
C5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series C Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
C Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. As promptly as practicable
after the Conversion Date for such Series C Preferred Stock, the Corporation
shall issue and deliver to the holder of the
<PAGE> 35
shares of Series C Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of Series C
Preferred Stock in accordance with the provisions of this Section C5, and cash,
as provided in Section C5.9, in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series C Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
C5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series C Preferred Stock, the Corporation shall pay to the holder of the shares
of Series C Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the aggregate number of shares of Series C Preferred Stock
being converted at any one time by any holder thereof, not upon each share of
Series C Preferred Stock being converted.
C5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series C Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series C Preferred Stock which were not
converted.
C5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Class A Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series C Preferred Stock, such number of its shares of Class A
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series C Preferred Stock (including any shares
of Series C Preferred Stock represented by any warrants, options, subscription
or purchase rights for Series C Preferred Stock), and if at any time the number
of authorized but unissued shares of Class A Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the Series
C Preferred Stock (including any shares of Series C Preferred Stock represented
by any warrants, options, subscriptions or purchase rights for such Series C
Preferred Stock), the Corporation shall take such action as may be necessary to
increase its authorized but unissued shares of Class A Common Stock to such
number of shares as shall be sufficient for such purpose.
<PAGE> 36
C6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
C6.1 The Corporation shall not take any corporate action or
amend this Certificate of Incorporation (except to reduce the number of shares
designated as Series C Preferred Stock to the number of such shares which are
then issued and outstanding) without the approval by majority vote or written
consent of the holders of outstanding shares of Series C Preferred Stock, voting
as a single class, if such corporate action or amendment would change any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series C Preferred Stock without similarly changing the
rights, preferences, privileges of or limitations on all other classes or series
of First Priority Parity Stock. Without limiting the generality of the preceding
sentence, the Corporation will not amend this Certificate of Incorporation or
take any other corporate action without the approval of the holders of
outstanding shares of Series C Preferred Stock if such amendment or corporate
action would:
(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
C Preferred Stock; or
(b) reduce the amount payable to the holders of
Series C Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series C Preferred
Stock; or
(d) cancel or modify the conversion rights of the
holders of Series C Preferred Stock provided for in Section C5 herein.
C6.2 The Corporation shall not take any corporate action or
amend its Certificate of Incorporation without the approval by majority vote or
written consent of the holders of outstanding shares of Series C Preferred Stock
and First Priority Parity Stock, voting together as a single class, if such
corporate action or amendment would similarly change the rights, preferences,
privileges of or limitations on the Series C Preferred Stock and all classes or
series of First Priority Parity Stock. Without limiting the generality of the
preceding sentence, the Corporation will not amend its Certificate of
Incorporation or take any other corporate action without the approval of the
holders of the outstanding shares of Series C Preferred Stock and First Priority
Parity Stock, voting together as a single class, if such amendment or corporate
action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or
<PAGE> 37
shares of equity securities of the Corporation other than as provided
for in Section C2 hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, shares of any class of stock
ranking senior to the Series C Preferred Stock and First Priority
Parity Stock with respect to liquidation preferences or dividend
rights, or containing redemption rights; or
(c) similarly reduce the amount payable to the
holders of Series C Preferred Stock and First Priority Parity Stock
upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; or
(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
C Preferred Stock and First Priority Parity Stock; or
(e) similarly cancel or modify the conversion rights
of the holders of Series C Preferred Stock and First Priority Parity
Stock; or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section C3.2
hereof.
C7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series C Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series C Preferred Stock above the amount payable therefor on
such conversion, and (b) will take such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series C
Preferred Stock from time to time outstanding.
C8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to
<PAGE> 38
receive any dividends or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of
capital stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series C Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.
C9. STATUS OF CONVERTED OR REPURCHASED SERIES C PREFERRED STOCK. Any
share or shares of Series C Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series C Preferred Stock, the
provisions of this Series C Preferred Stock shall terminate and have no further
force and effect.
DESCRIPTION AND DESIGNATION OF SERIES D PREFERRED STOCK
D1. DESIGNATION. A total of 4,555,556 shares of the Company's Preferred
Stock shall be designated the Series D Preferred Stock.
D2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and any other series of Preferred Stock
<PAGE> 39
senior to or on parity with the Series D Preferred Stock with respect to
liquidation preference (all voting together as a single class), the Corporation
shall not declare or pay any dividends, or purchase, redeem, retire, or
otherwise acquire for value any shares of its capital stock junior to the Series
D Preferred Stock (or rights, options or warrants to purchase such shares) now
or hereafter outstanding, return any capital to its stockholders as such, or
make any distribution of assets to its stockholders as such, or permit any
Subsidiary to do any of the foregoing.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
D3. LIQUIDATION, DISSOLUTION OR WINDING UP.
D3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series D Preferred Stock shall be on a parity with the Series A Preferred Stock
and Series C Preferred Stock with respect to liquidation preference. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock, the Series B
Junior Preferred Stock or any other class or series of capital stock of the
Corporation designated to be junior to the Series D Preferred Stock in
liquidation preference (collectively, referred to in this Description and
Designation of Series D Preferred Stock as "Junior Stock"), and subject to the
liquidation rights and preferences of any class or series of Preferred Stock
designated in the future to be senior to the Series D Preferred Stock with
respect to liquidation preference (referred to in this Description and
Designation of Series D Preferred Stock as "Senior Stock"), the holders of each
share of Series D Preferred Stock shall be entitled to be paid first out of the
Available Assets, the greater of (i) an amount per share of Series D Preferred
Stock equal to $9.00, plus $1.00 for each year (pro rated for partial years)
from October ___, 1999 until the date of distribution of Available Assets,
(subject to equitable adjustment for any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Preferred Stock), or
(ii) such amount per share of Series D Preferred Stock as would have been
payable had each share of Preferred Stock which is convertible into Common Stock
been so converted immediately prior to such liquidation, dissolution or winding
up.
<PAGE> 40
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series D Preferred Stock and of any Parity Stock the full amounts to which they
otherwise would be entitled, the holders of Series D Preferred Stock and First
Priority Parity Stock shall share ratably in any distribution of Available
Assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series D Preferred Stock and First Priority Parity
Stock if all liquidation preference dollar amounts with respect to such shares
were paid in full.
D3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section D3; provided, however that, in the case of any such
transaction to which the provisions of Section D5.6 also apply, the holders of
the outstanding shares of Series D Preferred Stock and First Priority Parity
Stock (voting together as a single class) shall have the right by majority vote
to elect the benefits of the provisions of Section D5.6 hereof for all of the
Series D Preferred Stock and First Priority Parity Stock in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section D3.
The provisions of this Section D3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
D3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section D3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation in a written resolution. All distributions of
property other than cash made hereunder shall be made, to the maximum extent
possible, pro rata with respect to each Series and class of Preferred Stock and
Common Stock in accordance with the liquidation amounts payable with respect to
each such Series and class.
<PAGE> 41
D4. VOTING POWER. For each vote in which holders of Series D Preferred
Stock are entitled to participate, each share of Series D Preferred Stock shall
be entitled to that number of votes equal to two and one-half times the largest
number of whole shares of Common Stock into which such holder's shares of Series
D Preferred Stock could be converted. Except as otherwise required by applicable
law or as otherwise provided herein, each holder of Series D Preferred Stock
shall be entitled to vote together with the Common Stock, the Series A Preferred
Stock, the Series B Junior Preferred Stock, the Series C Preferred Stock and all
other series and classes of stock permitted to vote with the Common Stock on all
matters submitted to a vote of the stockholders of the Corporation (including
election of directors generally, but excluding election of the Series A
Directors). Each holder of Series D Preferred Stock shall be entitled to notice
of any stockholders' meeting in accordance with the by-laws of this Corporation
at the same time and in the same manner as notice is given to all other
stockholders entitled to vote at such meetings.
D4.3 DIRECTOR ELECTION RIGHTS. So long as any shares of Series D
Preferred Stock remain outstanding, the holders of Series D Preferred Stock,
voting as a separate class, shall have the right to elect two directors of the
Corporation (the "Series D Directors"). At any annual or special meeting of the
Corporation held for the purpose of electing directors, the presence in person
or by proxy (or by written consent) of the holders of a majority of the
outstanding shares of Series D Preferred Stock shall constitute a quorum for the
election of the Series D Director.
D5. CONVERSION RIGHTS. The holders of the Series D Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Class B Common Stock:
D5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section D5, any shares of the Series D Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Class B Common Stock. The
number of shares of Common Stock which a holder of Series D Preferred Stock
shall be entitled to receive upon conversion shall be the product obtained by
multiplying (i) the number of shares of Series D Preferred Stock being converted
at any time, by (ii) a rate (the "Series D Conversion Rate") equal to the
quotient obtained by dividing $9.00 by the Series D Conversion Value. The
"Series D Conversion Value" in effect from time to time, except as adjusted in
accordance with this Section D5, shall be $9.00.
D5.2 AUTOMATIC CONVERSION.
D5.2.1 EVENTS CAUSING CONVERSION. Immediately (A)
prior to a Public Offering, subject to such Public Offering or (B) upon the
election, set forth in a written notice to the Corporation of holders of
two-thirds of the outstanding shares of Series D Preferred and First Priority
Parity Stock (counted as a single class) to convert their shares of Series D
Preferred and First Priority Parity Stock to Common Stock, all shares of Series
D Preferred Stock then
<PAGE> 42
outstanding shall be converted automatically into that number of fully paid,
non-assessable shares of Class B Common Stock into which such shares of Series D
Preferred Stock are convertible pursuant to this Section D5, without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
D5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
D5.2.1, the holders of the Series D Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the office
of the Corporation or its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of Series D Preferred
Stock so surrendered were convertible on the date on which the conversion
occurred. The Corporation shall not be obligated to issue such certificates
unless certificates evidencing such shares of Series D Preferred Stock being
converted are either delivered to the Corporation or any such transfer agent, or
the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
D5.3 ANTI-DILUTION ADJUSTMENTS.
D5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation
shall, while there are any shares of Series D Preferred Stock outstanding, issue
or sell shares of its Common Stock or Common Stock Equivalents without
consideration or at a price per share or Net Consideration Per Share less than
the Series D Conversion Value in effect immediately prior to such issuance or
sale, then in each such case the Series D Conversion Value, except as
hereinafter provided, shall be lowered so as to be equal to an amount determined
by multiplying such Series D Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares of Common
Stock or Common Stock Equivalents (calculated on a fully-diluted basis
assuming the exercise or conversion of all then exercisable or
convertible options, warrants, purchase rights and convertible
securities).
<PAGE> 43
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series D Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
<TABLE>
Example:
<S> <C> <C> <C>
initial capital 1,000,000
initial conversion price $1.00
new shares issued 1,000,000 Total new consideration $500,000
new issue price $0.50 New shares which would be
Issued at initial conversion price 500,000
new conversion price $0.75
</TABLE>
The provisions of this Section D5.3.1 may be waived as to all
shares of Series D Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series D
Preferred Stock.
D5.3.2 COMMON STOCK EQUIVALENTS.
D5.3.2.1 GENERAL. For the purposes of this
Section D5.3, the issuance of any warrants, options, subscription or purchase
rights with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any Common Stock Equivalents, shall be deemed an issuance of Common Stock. Any
obligation, agreement or undertaking to issue Common Stock Equivalents at any
time in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No adjustment of the
Series D Conversion Value shall be made under this Section D5.3 upon the
issuance of any shares of Common Stock which are issued pursuant to the
exercise, conversion or exchange of any Common Stock Equivalents.
D5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT,
CANCELLATION OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net
Consideration Per Share of any such Common Stock Equivalents be decreased from
time to time other than as a result of the application of anti-dilution
provisions substantially similar to the provisions of this Section D5.3, then,
upon the effectiveness of each such change, the Series D Conversion Value will
be that which would have been obtained (1) had the adjustments made pursuant to
Section D5.3.2.1
<PAGE> 44
upon the issuance of such Common Stock Equivalents been made upon the basis of
the new Net Consideration Per Share of such securities, and (2) had the
adjustments made to the Series D Conversion Value since the date of issuance of
such Common Stock Equivalents been made to such Series D Conversion Value as
adjusted pursuant to clause (1) above. Any adjustment of the Series D Conversion
Value which relates to any Common Stock Equivalent shall be disregarded if, as,
and when such Common Stock Equivalent expires or is canceled without being
exercised, or is repurchased by the Company at a price per share at or less than
the original purchase price, so that the Series D Conversion Value effective
immediately upon such cancellation or expiration shall be equal to the Series D
Conversion Value that would have been in effect (1) had the expired or canceled
Common Stock Equivalent not been issued, and (2) had the adjustments made to the
Series D Conversion Value since the date of issuance of such Common Stock
Equivalents been made to the Series D Conversion Value which would have been in
effect had the expired or canceled Common Stock Equivalent not been issued.
D5.3.3 [INTENTIONALLY OMITTED]
D5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK
OTHER THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series D Preferred Stock.
D5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section D5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section D5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation in a written resolution.
D5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS. This
Section D5.3 shall not apply (A) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as described below), (B) to any
additional shares of Common Stock which become issuable upon conversion of any
other series or class of preferred stock or convertible security of the Company
as a result of any anti-dilution adjustment to the conversion ratio of such
series or class, or (C) to any issuance or sale of shares of Common Stock and/or
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series D Preferred Stock. Further, this Section D5.3 shall not
apply with respect to the issuance or sale of shares of Common Stock, or the
grant or options exercisable therefor, to directors, officers, employees and
consultants of the Corporation or any subsidiary pursuant to any
<PAGE> 45
qualified or non-qualified stock option plan or agreement, stock purchase plan
or agreement, stock restriction agreement, employee stock ownership plan (ESOP),
consulting agreement, or such other options, issuances, arrangements, agreements
or plans intended principally as a means of providing compensation for
employment or services or of providing additional compensation to a financial
institution in connection with the Corporation obtaining equipment
lease/financing, provided that in each such case such plan, agreement, or other
arrangement or issuance is approved by the vote or consent of two-thirds of the
Board of Directors or by the written consent of the holders of two-thirds of the
outstanding shares of Series D Preferred Stock.
D5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT. Except
in the case where the Series D Conversion Value is the initial offering price
per share of the Company's Common Stock upon consummation of the Qualified IPO
or Rights Offering, as the case may be, upon the happening of an Extraordinary
Common Stock Event, the Series D Conversion Value shall, simultaneously with the
happening of such Extraordinary Common Stock Event, be adjusted by multiplying
the Series D Conversion Value by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Series D Conversion Value, which, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
D5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series D
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their Series
D Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities or such other assets
receivable by them, giving application to all other adjustments called for
during such period under this Section D5.
D5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series D Preferred Stock shall have the
right thereafter to convert such share into, in lieu of the number of shares of
Common Stock which the holder would otherwise have been entitled to receive, the
kind and amount of shares of capital stock and other securities
<PAGE> 46
and property receivable upon such reorganization, recapitalization,
reclassification or other change by the holders of the number of shares of
Common Stock into which such shares of Series D Preferred Stock could have been
converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein. The provision for such conversion right shall be a condition precedent
to the consummation by the Corporation of any such transaction unless the
election described below is made.
In the case of a transaction to which both this Section D5.6
and Section D3.2 apply, the holders of the outstanding shares of Series D
Preferred Stock and First Priority Parity Stock (voting together as a single
class) shall have the option by majority vote to elect treatment for the Series
D Preferred Stock and First Priority Parity Stock under this Section D5.6,
notice of which election shall be submitted in writing to the Corporation at its
principal office no later than five (5) business days before the effective date
of such event. If no such election shall be made, the provisions of Section
D3.2, and not this Section D5.6, shall apply.
D5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Series D Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series D
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
D5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series D Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Class B Common Stock issuable upon
such conversion shall be issued. The certificate or certificates for shares of
Series D Preferred Stock surrendered for conversion shall be accompanied by
proper assignment thereof to the Corporation or in blank. As promptly as
practicable after the Conversion Date for such Series D Preferred Stock, the
Corporation shall issue and deliver to the holder of the shares of Series D
Preferred Stock being converted, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series D Preferred Stock in accordance with the
provisions of this Section D5, and cash, as provided in Section D5.9, in respect
of any fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series D Preferred Stock shall cease and such
holder shall be deemed to have become the holder of record of the shares of
Class B Common Stock represented thereby.
D5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of
<PAGE> 47
Series D Preferred Stock. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of Series D Preferred Stock, the
Corporation shall pay to the holder of the shares of Series D Preferred Stock
which were converted a cash adjustment in respect of such fractional shares in
an amount equal to the same fraction of the market price per share of the Common
Stock (as determined in a reasonable manner prescribed by the Board of
Directors) at the close of business on the Conversion Date. The determination as
to whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Series D Preferred Stock being converted at any
one time by any holder thereof, not upon each share of Series D Preferred Stock
being converted.
D5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series D Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series D Preferred Stock which were not
converted.
D5.11 RESERVATION OF CLASS B COMMON STOCK. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Class B Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series D Preferred Stock, such number of its
shares of Class B Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series D Preferred Stock
(including any shares of Series D Preferred Stock represented by any warrants,
options, subscription or purchase rights for Series D Preferred Stock), and if
at any time the number of authorized but unissued shares of Class B Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series D Preferred Stock (including any shares of Series D Preferred
Stock represented by any warrants, options, subscriptions or purchase rights for
such Series D Preferred Stock), the Corporation shall take such action as may be
necessary to increase its authorized but unissued shares of Class B Common Stock
to such number of shares as shall be sufficient for such purpose.
D6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
D6.1 The Corporation shall not take any corporate action or
amend this Certificate of Incorporation (except to reduce the number of shares
designated as Series D Preferred Stock to the number of such shares which are
then issued and outstanding) without the approval by majority vote or written
consent of the holders of outstanding shares of Series D Preferred Stock, voting
as a single class, if such corporate action or amendment would change any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series D Preferred Stock. Without limiting the
generality of the preceding sentence, the Corporation will not amend this
Certificate of Incorporation or take any other corporate action without the
approval of the holders of outstanding shares of Series D Preferred Stock if
such amendment or corporate action would:
<PAGE> 48
(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
D Preferred Stock, or series of stock ranking senior to the Series D
Preferred Stock with respect to liquidation preferences of dividend
rights or containing redemption rights; or
(b) reduce the amount payable to the holders of
Series D Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series D Preferred
Stock; or
(d) cancel or modify the conversion rights of the
holders of Series D Preferred Stock provided for in Section D5 herein.
(e) adversely affect the voting rights of the holders
of Series D Preferred Stock.
D6.2 The Corporation shall not amend or repeal any provision
of its Certificate of Incorporation or take any corporate action if such
corporate action or amendment would similarly change the rights, preferences,
privileges of or limitations on the Series D Preferred Stock and all classes or
series of First Priority Parity Stock without the approval by majority vote or
written consent of the holders of outstanding shares of Series D Preferred Stock
and First Priority Parity Stock, voting together as a single class. Without
limiting the generality of the preceding sentence, the Corporation will not take
any corporate action without the approval of the holders of the outstanding
shares of Series D Preferred Stock and First Priority Parity Stock, voting
together as a single class, if such corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section D2
hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, shares of any class of stock
ranking senior to the Series D Preferred Stock and First Priority
Parity Stock with respect to liquidation preferences or dividend
rights, or containing redemption rights; or
(c) similarly reduce the amount payable to the
holders of Series D Preferred Stock and First Priority Parity Stock
upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; or
<PAGE> 49
(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
D Preferred Stock and First Priority Parity Stock; or
(e) similarly cancel or modify the conversion rights
of the holders of Series D Preferred Stock and First Priority Parity
Stock; or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section D3.2
hereof.
D7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series D Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series D Preferred Stock above the amount payable therefor on
such conversion, and (b) will take such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series D
Preferred Stock from time to time outstanding.
D8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
<PAGE> 50
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series D Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.
D9. STATUS OF CONVERTED OR REPURCHASED SERIES D PREFERRED STOCK. Any
share or shares of Series D Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series D Preferred Stock, the
provisions of this Series D Preferred Stock shall terminate and have no further
force and effect.
<PAGE> 51
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5. The corporation is to have perpetual existence.
6. In furtherance of and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the corporation.
7. The directors of the corporation shall be entitled to the benefits
of all limitations on the liability of directors generally that are now or
hereafter become available under the General Corporation Law of Delaware.
Without limiting the generality of the foregoing, no director of the corporation
shall be personally liable to the corporation or to any stockholder of the
corporation for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not limit the liability of a director (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
8. Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the Corporation.
9. Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide.
10. The books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
bylaws of the corporation.
11. The Corporation shall, to the maximum extent permitted from time to
time under the laws of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he is or was or has agreed to be a director or officer of the
Corporation or while a director or officer is or was serving at the request of
the Corporation as a director, officer, employer or agent of any corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against any and all expenses (including
attorney's fees and expenses), judgments, fines, penalties and amounts paid in
settlement or incurred in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim; provided, however,
that the foregoing shall not require the Corporation to indemnify or advance
expenses to any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such rights arising under
any bylaw, agreement, vote of directors or stockholders or otherwise and shall
inure to the
<PAGE> 52
benefit of the heirs and legal representatives of such person. Any repeal or
modification of the foregoing provisions of this Article 10 shall not adversely
affect any right or protection of a director or officer of this Corporation
existing at the time of such repeal or modification.
12. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, eMerge Interactive, Inc. has caused this
certificate to be signed by Charles Abraham, its Chief Executive Officer on the
__ day of October, 1999.
EMERGE INTERACTIVE, Inc.
By:
------------------------------------
Charles Abraham
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
eMERGE VISION SYSTEMS, INC.
(FORMERLY) ENHANCED VISIONS SYSTEMS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES AND FISCAL YEAR
SECTION 1.01. Registered Office. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by a vote of a majority of the board of
directors in office, and a statement of such change is filed in the manner
provided by statute.
SECTION 1.02. Other Offices. The corporation may also have offices at
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year. The fiscal year of the corporation shall
end on the 31st of December in each year.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Place of Meeting. All meetings of the stockholders of
the corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.
SECTION 2.02. Annual Meeting. The board of directors may fix the date
and time of the annual meeting of the stockholders, but if no such date and time
is fixed by the board, the meeting for any calendar year shall be held on the
third Tuesday of May in such year, if not a legal holiday, and if a legal
holiday then on the next succeeding business day at 10:00 o'clock A.M., and at
said meeting the stockholders then entitled to vote shall elect directors and
shall transact such other business as may properly be brought before the
meeting.
SECTION 2.03. Special Meetings. Special meetings of the stockholders
of the corporation for any purpose or purposes for which meetings may lawfully
be called, may be called at any time by the chairman of the board, a majority of
the board of directors, the chief executive officer or the president, or at the
request, in writing, of stockholders owning individually or together ten percent
or more of the entire capital stock of the corporation issued and outstanding
and entitled to vote. At any time, upon written request of any person or persons
who have duly called a special meeting, which written request shall state the
purpose or purposes of the meeting, it shall be the duty of the secretary to fix
the date of the meeting to be held at such date and time as the secretary may
fix, not less than ten nor more than sixty days after the receipt of the
request, and to give due notice thereof. If the secretary shall neglect or
refuse to fix the time and date of such meeting and give notice thereof, the
person or persons calling the meeting may do so.
SECTION 2.04. Notice of Meetings. Written notice of the place, date
and hour of
<PAGE> 2
every meeting of the stockholders, whether annual or special, shall be given to
each stockholder of record entitled to vote at the meeting not less than ten nor
more than sixty days before the date of the meeting. Every notice of a special
meeting shall state the purpose or purposes thereof.
SECTION 2.05. Quorum, Manner of Acting and Adjournment. The holders of
a majority of the stock issued and outstanding (not including treasury stock)
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the certificate of
incorporation or by these bylaws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At any such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at any meeting, the
vote of the holders of the majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
applicable statute, the certificate of incorporation or these bylaws, a
different vote is required in which case such express provision shall govern and
control the decision of such question. Except upon those questions governed by
the aforesaid express provisions, the stockholders present in person or by proxy
at a duly organized meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.06. Organization. At every meeting of the stockholders, the
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
chief executive officer or the president, the vice presidents in their order or
rank, a chairman designated by the board of directors or a chairman chosen by
the stockholders entitled to cast a majority of the votes which all stockholders
present in person or by proxy are entitled to cast, shall act as chairman, and
the secretary, or, in his absence, an assistant secretary, or in the absence of
the secretary and the assistant secretaries, a person appointed by the chairman,
shall act as secretary.
SECTION 2.07. Voting. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. Every proxy shall be executed in writing by the stockholder
or by his duly authorized attorney-in-fact and filed with the secretary of the
corporation. A proxy, unless coupled with an interest, shall be revocable at
will, notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until notice
thereof has been given to the secretary of the corporation. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled
<PAGE> 3
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
A proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of such
death or incapacity is given to the secretary of the corporation.
SECTION 2.08. Consent of Stockholders in Lieu of Meeting. Any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required above to the
corporation, written consent, signed by a sufficient number of holders or
members to take action are delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.09. Voting Lists. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting. The list shall be arranged in alphabetical order showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.10. Judges of Election. All elections of directors shall be
by written ballot, unless otherwise provided in the certificate of
incorporation; the vote upon any other matter need not be by ballot. In advance
of any meeting of stockholders, the board of directors may appoint judges of
election, who need not be stockholders, to act at such meeting or any
adjournment thereof. If judges of election are not so appointed, the chairman of
any such meeting may, and upon the demand of any stockholder or his proxy at the
meeting and before voting begins shall, appoint judges of election. The number
of judges shall be either one or three, as determined, in the case of judges
appointed upon demand of a stockholder, by stockholders present entitled to cast
a majority of the votes which all stockholders present are entitled to cast
thereon. No person who is a candidate for office shall act as a judge. In case
any person appointed as judge fails to appear or
<PAGE> 4
fails or refuses to act, the vacancy may be filled by appointment made by the
board of directors in advance of the convening of the meeting, or at the meeting
by the chairman of the meeting.
If judges of election are appointed as aforesaid, they shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
If there be three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
On request of the chairman of the meeting or of any stockholder or his
proxy, the judges shall make a report in writing of any challenge or question or
matter determined by them, and execute a certificate of any fact found by them.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. Powers. The board of directors shall have full power to
manage the business and affairs of the corporation; and all powers of the
corporation, except those specifically reserved or granted to the stockholders
by statute, the certificate of incorporation or these bylaws, are hereby granted
to and vested in the board of directors.
SECTION 3.02. Number and Term of Office. The board of directors shall
consist of one or more members as determined from time to time by resolution of
the board of directors. Each director shall serve until the next annual meeting
of the stockholders and until his successor shall have been elected and
qualified, except in the event of his death, resignation or removal. All
directors of the corporation shall be natural persons, but need not be residents
of Delaware or stockholders of the corporation.
SECTION 3.03. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. Whenever
the holders of any class or classes of stock or series thereof are entitled to
elect one or more directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
<PAGE> 5
SECTION 3.04. Resignations. Any director of the corporation may resign
at any time by giving written notice to the chief executive officer or the
president or the secretary of the corporation. Such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05. Organization. At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the chief executive officer or the president, the vice
presidents in their order of rank and seniority, or a chairman chosen by a
majority of the directors present, shall preside, and the secretary, or, in his
absence, an assistant secretary, or in the absence of the secretary and the
assistant secretaries, any person appointed by the chairman of the meeting,
shall act as secretary.
SECTION 3.06. Place of Meeting. The board of directors may hold its
meeting, both regular and special, at such place or places within or without the
State of Delaware as the board of directors may from time to time appoint, or as
may be designated in the notice calling the meeting.
SECTION 3.07. Organization Meeting. The first meeting of each newly
elected board of directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected board of directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
SECTION 3.08. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors. If the
date fixed for any such regular meeting be a legal holiday under the laws of the
State where such meeting is to be held, then the same shall be held on the next
succeeding business day, not a Saturday, or at such other time as may be
determined by resolution of the board of directors. At such meetings, the
directors shall transact such business as may properly be brought before the
meeting.
SECTION 3.09. Special Meetings. Special meetings of the board of
directors shall be held whenever called by the chief executive officer or the
president or by two or more of the directors. Notice of each such meeting shall
be given to each director by telephone or in writing at least 24 hours (in the
case of notice by telephone) or 48 hours (in the case of notice by telegram) or
five days (in the case of notice by mail) before the time at which the meeting
is to be held. Each such notice shall state the time and place of the meeting to
be so held.
SECTION 3.10. Quorum, Manner of Acting and Adjournment. At all
meetings of the board a majority of the directors shall constitute a quorum for
the transaction of business and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise
<PAGE> 6
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof may be taken without a meeting,
if all members of the board consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board.
SECTION 3.11. Executive and Other Committees. The board of directors
may, by resolution adopted by a majority of the whole board, designate an
executive committee and one or more other committees, each committee to consist
of two or more directors. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence of disqualification of a
member, and the alternate or alternates, if any, designated for such member, of
any committee the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another director to act at the meeting in the place of any
such absent or disqualified member.
Any such committee to the extent provided in the resolution
establishing such committee shall have and may exercise all the power and
authority of the board of directors in the management of the business and
affairs of the corporation, including the power or authority to declare a
dividend or to authorize the issuance of stock, and may authorize the seal of
the corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151 (a) of the
Delaware General Corporation Law ("DGCL"), fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation), adopting an
agreement of merger or consolidation under Section 251 or 252 of the DGCL,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution expressly
so provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the DGCL. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee so formed shall
keep regular minutes of its meetings and report the same to the board of
directors when required.
SECTION 3.12. Compensation of Directors. Unless otherwise restricted
by the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of
<PAGE> 7
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICE - WAIVERS - MEETINGS
SECTION 4.01. Notice, What Constitutes. Whenever, under the provisions
of the statutes of Delaware or the certificate of incorporation or of these
bylaws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
accordance with Section 3.09 of Article III hereof.
SECTION 4.02. Waivers of Notice. Whenever any written notice is
required to be given under the provisions of the certificate of incorporation,
these bylaws, or by statute, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a special meeting of stockholders, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting,
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
SECTION 4.03. Conference Telephone Meetings. One or more directors may
participate in a meeting of the board, or of a committee of the board, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting.
ARTICLE V
OFFICERS
SECTION 5.01. Number, Qualifications and Designation. The officers of
the corporation shall be chosen by the board of directors and shall be a chief
executive officer and/or a president, one or more vice presidents, a secretary,
a treasurer, or officers acting in such capacities and such officers as may be
elected in accordance with the provisions of Section 5.03 of this Article.
SECTION 5.02. Election and Term of Office. The officers of the
corporation, except those elected by delegated authority pursuant to Section
5.03 of this Article, shall be elected annually by the board of directors, and
such other officer shall hold his office until his successor shall have been
elected and qualified, or until his earlier resignation or
<PAGE> 8
removal. Any officer may resign at any time upon written notice to the
corporation.
SECTION 5.03. Subordinate Officers, Committees and Agents. The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
SECTION 5.04. The Chairman, Vice-Chairman of the Board and Chief
Executive Officer. The chairman of the board, or in his absence, the
vice-chairman of the board, shall preside at all meetings of the stockholders
and of the board of directors, and shall perform such other duties as may from
time to time be assigned to them by the board of directors. The chairman shall
have the power to sign documents and instruments on behalf of the corporation in
the same manner that such power is conferred upon the president. The chief
executive officer shall have all of the same powers as the president.
SECTION 5.05. The Chief Executive Officer or President. The chief
executive officer or the president shall perform such duties and shall have such
rights and responsibilities as may from time to time be assigned to him by the
board of directors.
SECTION 5.06. The Vice Presidents. The vice president or vice
presidents, if any, shall perform the duties of the chief executive officer or
the president in his absence and such other duties as may from time to time be
assigned to them by the board of directors or by the chief executive officer or
the president.
SECTION 5.07. The Secretary. The secretary, or an assistant secretary,
shall attend all meetings of the stockholders and of the board of directors and
shall record the proceedings of the stockholders and of the directors and of
committees of the board in a book or books to be kept for that purpose; see that
notices are given and records and reports properly kept and filed by the
corporation as required by law; be the custodian of the seal of the corporation
and see that it is affixed to all documents to be executed on behalf of the
corporation under its seal; and, in general, perform all duties incident to the
office of the secretary, and such other duties as may from time to time be
assigned to him by the board of directors or the chief executive officer or the
president.
SECTION 5.08. The Treasurer. The treasurer, or an assistant treasurer,
shall have or provide for the custody of the funds or other property of the
corporation and shall keep a separate book account of the same to his credit as
treasurer; collect and receive or provide for the collection and receipt of
moneys earned by or in any manner due to or received by the corporation; deposit
all funds in his custody as treasurer in such banks or other places of deposit
as the board of directors may from time to time designate; whenever so required
by the board of directors, render an account showing his transactions as
treasurer and the financial condition of the corporation; and, in general,
discharge such other duties as may from time to time be assigned to him by the
board of directors of the chief executive officer or the president.
SECTION 5.09. Officers' Bonds. No officer of the corporation need
provide a bond to guarantee the faithful discharge of his duties unless the
board of directors shall
<PAGE> 9
by resolution so require a bond in which event such officer shall give the
corporation a bond (which shall be renewed if and as required) in such sum and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of his office.
SECTION 5.10. Salaries. The salaries of the officers and agents of the
corporation elected by the board of directors shall be fixed from time to time
by the board of directors.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
SECTION 6.01. Issuance. Each stockholder shall be entitled to a
certificate or certificate for shares of stock of the corporation owned by him
upon his request therefor. The stock certificates of the corporation shall be
numbered and registered in the stock ledger and transfer books of the
corporation as they are issued. They shall be signed by the chief executive
officer or the president or a vice president and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer, and shall bear
the corporate seal, which may be a facsimile, engraved or printed. Any of or all
the signatures upon such certificate may be a facsimile, engraved or printed. In
case any officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any share certificate shall have ceased to be
such officer, transfer agent or registrar, before the certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent or
registrar at the date of its issue.
SECTION 6.02. Transfer. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.
SECTION 6.03. Stock Certificates. Stock certificates of the
corporation shall be in such form as provided by statute and approved by the
board of directors. The stock record books and the blank stock certificates
books shall be kept by the secretary or by any agency designated by the board of
directors for that purpose.
SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The
board of directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 6.05. Record Holder of Shares. The corporation shall be
entitled to
<PAGE> 10
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
SECTION 6.06. Determination of Stockholders of Record. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty or less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the board of directors. If no record has been fixed by the board of
directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is required by the DGCL, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the board of directors and prior action by the board of directors
is required by the DGCL, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the board of directors adopts the
resolution taking such prior action.
In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon the resolution fixing the record date is adopted, and
which record date shall not be more than sixty days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of the business on the day on which the board of
directors adopts the resolution relating thereto.
<PAGE> 11
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
SECTION 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings. The corporation shall indemnify any person who was or is an
authorized representative of the corporation, and who was or is a party or is
threatened to be made a party to any corporation proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceeding) had no reasonable cause to believe such conduct was unlawful. The
termination of any third party proceeding by judgment, order, settlement,
indictment, conviction or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the authorized representative did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to, the best interests of the corporation, and, with
respect to any criminal third party proceeding, had reasonable cause to believe
that such conduct was unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in
Corporate Proceedings. The corporation shall indemnify any person who was or is
an authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such corporate proceeding was pending
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such authorized representative is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 7.03. Mandatory Indemnification of Authorized Representatives.
To the extent that an authorized representative of the corporation has been
successful on the merits or otherwise in defense of any third party or corporate
proceeding or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses actually and reasonably incurred by such
person in connection therewith.
SECTION 7.04. Determination of Entitlement to Indemnification. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 7.01 or 7.02 or has been successful on
the merits or otherwise as set forth
<PAGE> 12
in Section 7.03 and that the amount requested has been actually and reasonably
incurred. Such determination shall be made:
(1) By the board of directors by a majority of a quorum
consisting of directors who were not parties to such third party or corporate
proceeding, or
(2) If such a quorum is not obtainable, or, even if
obtainable, a majority vote of such quorum so directs, by independent legal
counsel in a written opinion, or
(3) By the stockholders.
SECTION 7.05. Advancing Expenses. Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of a director by the corporation in advance of the final disposition of
such third party or corporate proceeding upon receipt of an undertaking by or on
behalf of the director to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as
authorized in this Article.
Expenses actually and reasonably incurred in defending a third
party or corporate proceeding shall be paid on behalf of an authorized
representative other than a director by the corporation in advance of the final
disposition of such third party or corporate proceeding as authorized by the
board of directors upon receipt of an undertaking by or on behalf of such
authorized representative to repay if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as authorized
in this Article.
The financial ability of any authorized representative to make
a repayment contemplated by this Section shall not be a prerequisite to the
making of an advance, and shall not be considered by the board of directors in
determining whether to authorize advancement of expenses.
SECTION 7.06. Definitions. For purposes of this Article:
(1) "authorized representative" shall mean a director or
officer of the corporation, or a person serving at the request of the
corporation as a director, officer, or trustee, of another corporation,
partnership, joint venture, trust or other enterprise;
(2) "corporation" shall include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
(3) "corporate proceeding" shall mean any threatened, pending
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor or investigative proceeding by the corporation;
(4) "criminal third party proceedings" shall include any
action or investigation which could or does lead to a criminal third party
proceeding;
(5) "expenses" shall include attorney's fees and
disbursements;
(6) "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan;
<PAGE> 13
(7) "not opposed to the best interests of the corporation"
shall include such actions taken in good faith and in a manner the authorized
representative reasonably believed to be in the interest of the participants and
beneficiaries of a benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include
any service as a director, officer or employee of the corporation which imposes
duties on, or involves service by, such director, officer or employee with
respect to an employee benefit plan, its participants, or beneficiaries; and
(11) "third party proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation.
SECTION 7.07. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in such a capacity, or arising out of his status as
such, whether or not the corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article.
SECTION 7.08. Scope of Article. The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to the action in an official capacity and as to action in
another capacity. The indemnification and advancement of expenses provided by or
granted pursuant to this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an
authorized representative and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 7.09. Reliance on Provisions. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock of the corporation, subject to the provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors
<PAGE> 14
shall think conducive to the interest of the corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
SECTION 8.02. Annual Statements. The board of directors shall present
at each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
SECTION 8.03. Contracts. Except as otherwise provided in these bylaws,
the board of directors may authorize any officer or officers including the
chairman and vice chairman of the board of directors, or any agent or agents, to
enter into any contract or to execute or deliver any instrument on behalf of the
corporation and such authority may be general or confined to specific instances.
SECTION 8.04. Checks. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the board of
directors may from time to time designate.
SECTION 8.05. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
SECTION 8.06. Deposits. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
SECTION 8.07. Corporate Records. At least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of and
number of shares registered in the name of each stockholder, shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Every stockholder shall, upon written demand, under oath stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business, for any proper purpose, the stock ledger,
books or records of account, and records of the proceedings of the stockholders
and directors, and make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business. Where the stockholder seeks to inspect the books and records
of the corporation, other than its stock ledger or list of stockholders, the
stockholder shall first establish (1) compliance with the provisions of this
section respecting the form and manner of making demand for inspection of such
document; and (2) that the inspection sought is for a
<PAGE> 15
proper purpose. Where the stockholder seeks to inspect the stock ledger or list
of stockholders of the corporation and has complied with the provisions of this
section respecting the form and manner of making demand for inspection of such
documents, the burden of proof shall be upon the corporation to establish the
inspection sought is for an improper purpose.
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The court may summarily order the corporation
to permit the director to inspect any and all books and records, the stock
ledger and the stock list and to make copies or extracts therefrom. The court
may, in its discretion, prescribe any limitations or conditions with reference
to the inspection, or award such other and further relief as the court may deem
just and proper.
SECTION 8.08. Amendment of Bylaws. These bylaws may be altered,
amended or repealed or new bylaws may be adopted by the vote of more than fifty
percent of the stockholders or by a majority of the whole board of directors,
when such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting.
Sections 5.01 and 5.04 were amended by written consent of the board of Directors
on July 11, 1997
<PAGE> 1
EXHIBIT 10.1
eMERGE VISION SYSTEMS, INC.
AMENDED AND RESTATED
1996 EQUITY COMPENSATION PLAN
The purpose of the eMerge Vision Systems, Inc. Amended and Restated
1996 Equity Compensation Plan (the "Plan") is to provide (i) designated
employees of eMerge Vision Systems, Inc. (formerly known as Enhanced Vision
Systems, Inc.) (the "Company") and its subsidiaries, (ii) certain Key Advisors
and advisors who perform services for the Company or its subsidiaries and (iii)
non-employee members of the Board of Directors of the Company (the "Board") with
the opportunity to receive grants of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefiting the Company's
shareholders, and will align the economic interests of the participants with
those of the shareholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by a
committee appointed by the Board (the "Committee"). Prior to the effective date
of an initial public offering of the Company's stock as described in Section
22(b)(a "Public Offering"), the Board may exercise any power or authority of the
Committee under the Plan and, in such case, references to the Committee
hereunder, as they relate to Plan administration, shall be deemed to include the
Board as a whole. After a Public Offering, the Committee may consist of two or
more persons appointed by the Board, all of whom shall be "outside directors" as
defined under section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and related Treasury regulations and may be "non-employee
directors" as defined under Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). However, notwithstanding anything in the
Plan to the contrary, the Board must ratify or approve any grants made to
Non-Employee Directors. References in the Plan to the "Committee" shall be
deemed to include the Board, with respect to ratification or approval of grants
made to Non-Employee Directors.
(b) Committee Authority. Except as provided in Section 6, the Committee
shall have the sole authority to (i) determine the individuals to whom grants
shall be made under the Plan, (ii) determine the type, size and
1
<PAGE> 2
terms of the grants to be made to each such individual, (iii) determine the time
when the grants will be made and the duration of any applicable exercise or
restriction period, including the criteria for exercisability and the
acceleration of exercisability and (iv) deal with any other matters arising
under the Plan.
(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
2. Grants
Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as described in Section 5 and Section 6 ("Nonqualified Stock
Options")(Incentive Stock Options and Nonqualified Stock Options are
collectively referred to as "Options"), restricted stock as described in Section
7 (Restricted Stock"), stock appreciation rights as described in Section 8
("SARs"), and performance units as described in Section 9 ("Performance Units")
(hereinafter collectively referred to as "Grants"). All Grants shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the individual in a grant
instrument (the "Grant Instrument") or an amendment to the Grant Instrument. The
Committee shall approve the form and provisions of each Grant Instrument. Grants
under a particular Section of the Plan need not be uniform as among the
grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified below, the
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 1,360,000 shares.
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After a Public Offering, the maximum aggregate number of shares of Company Stock
that shall be subject to Grants made under the Plan to any individual shall be
500,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock or Performance Units are forfeited, the shares
subject to such Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of shares
of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants
shall be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.
4. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Key Advisors and advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
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services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees,
Non-Employee Directors and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to a particular Grant in such
manner as the Committee determines. Employees, Key Advisors and Non-Employee
Directors who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options to
Employees, Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the Committee and may be equal
to, greater than, or less than the Fair Market Value (as defined below) of a
share of Company Stock on the date the Option is granted; provided, however,
that (x) the Exercise Price of an Incentive Stock Option shall be equal to, or
greater than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair
Market
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<PAGE> 5
Value per share shall be determined as follows: (x) if the principal trading
market for the Company Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date or
(if there were no trades on that date) the latest preceding date upon which a
sale was reported, or (y) if the Company Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and "asked" prices
of Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not publicly traded or, if
publicly traded, is not subject to reported transactions or "bid" or "asked"
quotations as set forth above, the Fair Market Value per share shall be as
determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Option.
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Key Advisor or
member of the Board. In the event that a Grantee ceases to be employed by the
Company for any reason other than a "disability", death or "termination for
cause", any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
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(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any Option held
by the Grantee shall terminate as of the date the Grantee ceases to be employed
by the Company.
(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified by the Committee), but in
any event no later than the date of expiration of the Option term. Any of the
Grantee's Options which are not otherwise exercisable as of the date on which
the Grantee ceases to be employed by the Company shall terminate as of such
date.
(iv) If the Grantee dies while employed by the Company or
within 90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(v) For purposes of this Section 5(e), 6, 7, 8 and 9:
(A) The term "Company" shall mean the Company and its parent
and subsidiary corporations.
(B) "Employed by the Company" shall mean employment or service
as an Employee, Key Advisor or member of the Board (so that, for
purposes of exercising Options and SARs and satisfying conditions with
respect to Restricted Stock and Performance Units, a Grantee shall not
be considered to have terminated employment or service until the
Grantee ceases to be an Employee, Key Advisor and member of the Board),
unless the Committee determines otherwise.
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(C) "Disability" shall mean a Grantee's becoming disabled
within the meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean, except to the extent
specified otherwise by the Committee, a finding by the Committee that
the Grantee has breached his or her employment, service,
noncompetition, nonsolicitation or other similar contract or obligation
with the Company, or has been engaged in disloyalty to the Company,
including, without limitation, fraud, embezzlement, theft, commission
of a felony or dishonesty in the course of his or her employment or
service, or has disclosed trade secrets or confidential information of
the Company to persons not entitled to receive such information. In the
event a Grantee's employment is terminated for cause, in addition to
the immediate termination of all Grants, the Grantee shall
automatically forfeit all shares underlying any exercised portion of an
Option for which the Company has not yet delivered the share
certificates, upon refund by the Company of the Exercise Price paid by
the Grantee for such shares, and any option gain realized by the
Grantee from exercising all or a portion of an Option within the
two-year period prior to the event shall be paid by the Grantee to the
Company.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee (x) in cash, (y) with
the approval of the Committee, by delivering shares of Company Stock owned by
the Grantee for the period necessary to avoid a charge to the Company's earnings
for financial reporting purposes (including Company Stock acquired in connection
with the exercise of an Option, subject to such restrictions as the Committee
deems appropriate) and having a Fair Market Value on the date of exercise equal
to the Exercise Price or (z) by such other method as the Committee may approve,
including after a Public Offering payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board. Shares of
Company Stock used to exercise an Option shall have been held by the Grantee for
the requisite period of time to avoid adverse accounting consequences to the
Company with respect to the Option. The Grantee shall pay the Exercise Price and
the amount of any withholding tax due (pursuant to Section 10) at the time of
exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the date
of
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<PAGE> 8
the grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the option, as to the excess, shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
section 424(f) of the Code).
6. Formula Option Grants to Non-Employee Directors
[Intentionally Omitted]
7. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to an
Employee or Key Advisor under a Grant of Restricted Stock, upon such terms as
the Committee deems appropriate. The following provisions are applicable to
Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or transferred
pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of time during which the
Restricted Stock will remain subject to restrictions will be designated in the
Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a period designated in the Grant
Instrument as the Restriction Period, or if other specified conditions are not
met, the Restricted Stock Grant shall terminate as to all shares covered by the
Grant as to which the restrictions have not lapsed, and those shares of Company
Stock must be immediately returned to the Company. The Committee may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.
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(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 11(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
8. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee or Key Advisor separately or in tandem with any
Option (for all or a portion of the applicable Option). Tandem SARs may be
granted either at the time the Option is granted or at any time thereafter while
the Option remains outstanding; provided, however, that, in the case of an
Incentive Stock Option, SARs may be granted only at the time of the Grant of the
Incentive Stock Option. The Committee shall establish the base amount of the SAR
at the time the SAR is granted. Unless the Committee determines otherwise, the
base amount of each SAR shall be equal to the per share Exercise Price of the
related Option or, if there is no related Option, the Fair Market Value of a
share of Company Stock as of the date of Grant of the SAR.
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(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted
to a Grantee that shall be exercisable during a specified period shall not
exceed the number of shares of Company Stock that the Grantee may purchase upon
the exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only be exercised while the Grantee is
employed by the Company or during the applicable period after termination of
employment as described in Section 5(e). A tandem SAR shall be exercisable only
during the period when the Option to which it is related is also exercisable. No
SAR may be exercised for cash by an officer or director of the Company who is
subject to Section 16 of the Exchange Act, except in accordance with Rule 16b-3
under the Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
9. Performance Units
(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee or Key Advisor. Each Performance
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Unit shall represent the right of the Grantee to receive an amount based on the
value of the Performance Unit, if performance goals established by the Committee
are met. A Performance Unit shall be based on the Fair Market Value of a share
of Company Stock or on such other measurement base as the Committee deems
appropriate. The Committee shall determine the number of Performance Units to be
granted and the requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met and the amount, if
any, to be paid with respect to the Performance Units. Payments with respect to
Performance Units shall be made in cash, in Company Stock, or in a combination
of the two, as determined by the Committee.
(d) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
10. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to
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withhold with respect to such Grants, or the Company may deduct from other wages
paid by the Company the amount of any withholding taxes due with respect to such
Grants.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee
may elect to satisfy the Company's income tax withholding obligation with
respect to an Option, SAR, Restricted Stock or Performance Units paid in Company
Stock by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
11. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may
transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
12. Right of First Refusal
Prior to a Public Offering, if at any time an individual desires to
sell, encumber, or otherwise dispose of shares of Company Stock distributed to
him under this Plan, the individual shall first offer the shares to the Company
by
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giving the Company written notice disclosing: (a) the name of the proposed
transferee of the Company Stock; (b) the certificate number and number of shares
of Company Stock proposed to be transferred or encumbered; (c) the proposed
price; (d) all other terms of the proposed transfer; and (e) a written copy of
the proposed offer. Within 30 days after receipt of such notice, the Company
shall have the option to purchase all or part of such Company Stock at the same
price and on the same terms as contained in such notice.
In the event the Company (or a shareholder, as described below) does
not exercise the option to purchase Company Stock, as provided above, the
individual shall have the right to sell, encumber or otherwise dispose of his
shares of Company Stock on the terms of the transfer set forth in the written
notice to the Company, provided such transfer is effected within 30 days after
the expiration of the option period. If the transfer is not effected within such
period, the Company must again be given an option to purchase, as provided
above.
The Board, in its sole discretion, may waive the Company's right of
first refusal pursuant to this Section 12 and the Company's repurchase right
pursuant to Section 13 below. If the Company's right of first refusal or
repurchase right is so waived, the Board may, in its sole discretion, pass
through such right to the remaining shareholders of the Company in the same
proportion that each shareholder's stock ownership bears to the stock ownership
of all the shareholders of the Company, as determined by the Board. To the
extent that a shareholder has been given such right and does not purchase his or
her allotment, the other shareholders shall have the right to purchase such
allotment on the same basis.
On and after a Public Offering, the Company shall have no further right
to purchase shares of Company Stock under this Section 12 and Section 13 below,
and its limitations shall be null and void.
13. Purchase by the Company
Prior to a Public Offering, if a Grantee ceases to be employed by the
Company, the Company shall have the right to purchase all or part of any Company
Stock distributed to him under this Plan at its then current Fair Market Value
(as defined in Section 5(b)); provided, however, that such repurchase shall be
made in accordance with applicable accounting rules to avoid adverse accounting
treatment.
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14. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have occurred
if:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) other than Safeguard Scientifics, Inc. or any of its
subsidiaries or affiliates, including affiliated venture funds, becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing a majority or more of
the voting power of the then outstanding securities of the Company;
(b) The shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (i) the
merger or consolidation of the Company with another corporation where the
shareholders of the Company, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to a majority of all votes to which all shareholders
of the surviving corporation would be entitled in the election of directors
(without consideration of the rights of any class of stock to elect directors by
a separate class vote) or where the members of the Board, immediately prior to
the merger or consolidation, would not, immediately after the merger or
consolidation, constitute a majority of the board of directors of the surviving
corporation, (ii) the sale or other disposition of all or substantially all of
the assets of the Company, or (iii) a liquidation or dissolution of the Company;
(c) Any person has commenced a tender offer or exchange offer for a
majority of the voting power of the then outstanding shares of the Company.
15. Consequences of a Change of Control
(a) Notice and Acceleration. Upon a Change of Control, unless the
Committee determines otherwise, (i) the Company shall provide each Grantee with
outstanding Grants written notice of such Change of Control, (ii) all
outstanding Options and SARs shall automatically accelerate and become fully
exercisable, (iii) the restrictions and conditions on all outstanding Restricted
Stock shall immediately lapse, and (iv) Grantees holding Performance Units shall
receive a payment in settlement of such Performance Units, in an amount
determined by the Committee, based on the Grantee's target payment for the
Performance Period and the portion of the Performance Period that precedes the
Change of Control.
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(b) Assumption of Grants. Upon a Change of Control where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, subject to
subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options and SARs in exchange for a payment
by the Company, in cash or Company Stock as determined by the Committee, in an
amount equal to the amount by which the then Fair Market Value of the shares of
Company Stock subject to the Grantee's unexercised Options and SARs exceeds the
Exercise Price of the Options or the base amount of the SARs, as applicable, or
(ii) after giving Grantees an opportunity to exercise their outstanding Options
and SARs, terminate any or all unexercised Options and SARs at such time as the
Committee deems appropriate. Such surrender or termination shall take place as
of the date of the Change of Control or such other date as the Committee may
specify.
(d) Committee. The Committee making the determinations under this
Section 15 following a Change of Control must be comprised of the same members
as those on the Committee immediately before the Change of Control. If the
Committee members do not meet this requirement, the automatic provisions of
Subsections (a) and (b) shall apply, and the Committee shall not have discretion
to vary them.
(e) Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Change of Control, the Committee shall not have the right to
take any actions described in the Plan (including without limitation actions
described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
16. Requirements for Issuance or Transfer of Shares
Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless
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and until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
17. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required by Section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 17(b). The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated
or amended under Section 17(b) or may be amended by agreement of the Company and
the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
18. Funding of the Plan
16
<PAGE> 17
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
19. Rights of Participants
Nothing in this Plan shall entitle any Employee, Key Advisor or other
person to any claim or right to be granted a Grant under this Plan, except as
provided in Section 6. Neither this Plan nor any action taken hereunder shall be
construed as giving any individual any rights to be retained by or in the employ
of the Company or any other employment rights.
20. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
21. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
22. Effective Date of the Plan.
(a) Effective Date. Subject to the approval of the Company's
shareholders, the Plan shall be effective on January 26, 1996.
(b) Public Offering. The provisions of the Plan that refer to a Public
Offering, or that refer to, or are applicable to persons subject to, section 16
of the Exchange Act or section 162(m) of the Code, shall be effective, if at
all, upon the initial registration of the Company Stock under section 12(g) of
the Exchange Act, and shall remain effective thereafter for so long as such
stock is so registered.
23. Miscellaneous
17
<PAGE> 18
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from the
terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the substitute
grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs and
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of the State of
Delaware.
f:\partners\emerge vision\charter-corporate\amended and restated equity comp
plan 6-98(1)
- --------
(1) Adopted by the Board of Directors and Sole Stockholder on 1/26/96; amended
by the Board on July 9, 1997 and by the stockholders on July 11, 1997; amended
by the Board on 7/17/97 and by the stockholders on 7/30/97
18
<PAGE> 1
EXHIBIT 10.2
EMERGE VISION SYSTEMS, INC.
1999 EQUITY COMPENSATION PLAN
The purpose of the eMerge Vision Systems, Inc. 1999 Equity Compensation
Plan (the "Plan") is to provide (i) designated employees of eMerge Vision
Systems, Inc. (the "Company") and its subsidiaries, (ii) individuals to whom an
offer of employment has been extended, (iii) certain advisors who perform
services for the Company or its subsidiaries, and (iv) non employee members of
the Board of Directors of the Company (the "Board") with the opportunity to
receive grants of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and performance units. The Company
believes that the Plan will encourage the participants to contribute materially
to the growth of the Company, thereby benefiting the Company's stockholders, and
will align the economic interests of the participants with those of the
stockholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted
by a committee appointed by the Board (the "Committee"). The Committee shall
consist of two or more persons appointed by the Board, all of whom may be
"outside directors" as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") and related Treasury regulations and may be
"non employee directors" as defined under Rule 16b 3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Except to the extent
prohibited by applicable law or the applicable rules of a stock exchange, the
Committee may allocate all or any portion of its responsibilities and powers to
any one or more of its members or may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any time. If the
Committee does not exist, or for any other reason determined by the Board, the
Board may take any action under the Plan that would otherwise be the
responsibility of the Committee.
(b) Committee Authority. The Committee shall have the sole
authority to (i) determine the individuals to whom grants shall be made under
the Plan, (ii) determine the type, size and terms of the grants to be made to
each such individual, (iii) determine the time when the grants will be made and
the duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, and (iv)
deal with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full
power and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interest in the Plan or in any awards granted hereunder.
<PAGE> 2
All powers of the Committee shall be executed in its sole discretion, in the
best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
2. Grants
Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as described in Section 5 ("Nonqualified Stock Options") (Incentive
Stock Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 6 (Restricted Stock"),
stock appreciation rights as described in Section 7 ("SARs"), and performance
units as described in Section 8 ("Performance Units") (hereinafter collectively
referred to as "Grants"). All Grants shall be subject to the terms and
conditions set forth herein and to such other terms and conditions consistent
with this Plan as the Committee deems appropriate and as are specified in
writing by the Committee to the individual in a grant instrument (the "Grant
Instrument") or an amendment to the Grant Instrument. The Committee shall
approve the basic form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified
below, the aggregate number of shares of common stock of the Company ("Company
Stock") that may be issued or transferred under the Plan is 1,000,000 shares.
The maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the Plan to any individual during any calendar year shall be
500,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock or Performance Units are forfeited, the shares
subject to such Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind
of shares of Company Stock outstanding (i) by reason of a stock dividend,
spinoff, recapitalization, stock split or combination or exchange of shares,
(ii) by reason of a merger, reorganization or consolidation in which the Company
is the surviving corporation, (iii) by reason of a reclassification or change in
par value, or (iv) by reason of any other extraordinary or unusual event
affecting the outstanding Company Stock as a class without the Company's receipt
of consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the
<PAGE> 3
price per share or the applicable market value of such Grants shall be
appropriately adjusted by the Committee to reflect any increase or decrease in
the number of, or change in the kind or value of, issued shares of Company Stock
to preclude, to the extent practicable, the enlargement or dilution of rights
and benefits under such Grants; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated by rounding any portion of a
share equal to .5 or greater up, and any portion of a share equal to less than
.5 down, in each case to the nearest whole number. Any adjustments determined by
the Committee shall be final, binding and conclusive.
4. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, individuals to whom an offer of employment has been extended ("New
Hire"), and members of the Board who are not Employees ("Non Employee
Directors") shall be eligible to participate in the Plan. Advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital raising transaction.
(b) Selection of Grantees. The Committee shall select the
Employees, New Hires, Non-Employee Directors and Key Advisors to receive Grants
and shall determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Committee determines. Employees, New
Hires, Key Advisors, and Non Employee Directors who receive Grants under this
Plan shall hereinafter be referred to as "Grantees."
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number
of shares of Company Stock that will be subject to each Grant of Options to
Employees, New Hires, Non Employee Directors, and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options
that are intended to qualify as "incentive stock options" within the meaning of
section 422 of the Code, Nonqualified Stock Options that are not intended so to
qualify, or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, New Hires, Non Employee Directors, and Key
Advisors.
<PAGE> 4
(ii) The purchase price (the "Exercise Price") of
Company Stock subject to an Option shall be determined by the Committee and may
be equal to, greater than, or less than the Fair Market Value (as defined below)
of a share of Company Stock on the date the Option is granted, provided,
however, that (x) the Exercise Price of an Incentive Stock Option shall be equal
to, or greater than, the Fair Market Value of a share of Company Stock on the
date the Incentive Stock Option is granted and (y) an Incentive Stock Option may
not be granted to an Employee who, at the time of grant, owns stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant.
(iii) If the Company Stock is publicly traded, then,
except as otherwise determined by the Committee, the following rules regarding
the determination of Fair Market Value per share apply:
(x) if the principal trading market for the Company Stock is a national
securities exchange or the Nasdaq National Market, the mean between the highest
and lowest quoted selling prices on the relevant date or (if there were no
trades on that date) the latest preceding date upon which a sale was reported,
or
(y) if the Company Stock is not principally traded on such exchange or market,
the mean between the last reported "bid" and "asked" prices of Company Stock on
the relevant date, as reported on Nasdaq or, if not so reported, as reported by
the National Daily Quotation Bureau, Inc. or as reported in a customary
financial reporting service, as applicable and as the Committee determines. If
the Company Stock is not publicly traded or, if publicly traded, is not subject
to reported transactions or "bid" or "asked" quotations as set forth above, the
Fair Market Value per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of
each Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.
(d) Exercisability of Options.
(i) Options shall become exercisable in accordance with such terms and
conditions, consistent with the Plan, as may be determined by the Committee and
specified in the Grant Instrument or an amendment to the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding Options at
any time for any reason.
(ii) Notwithstanding the foregoing, the Option may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Non-Employee
<PAGE> 5
Director, or Key Advisor to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased shall be subject to a repurchase right in favor of
the Company, with the repurchase price to be equal to the original purchase
price, and any other restrictions the Committee determines to be appropriate.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be
exercised while the Grantee is employed by the Company as an Employee, Key
Advisor or member of the Board. In the event that a Grantee ceases to be
employed by the Company for any reason other than a "disability," death or
"termination for cause," any Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on which
the Grantee ceases to be employed by the Company (or within such other period of
time as may be specified by the Committee), but in any event no later than the
date of expiration of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by the Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed
by the Company on account of a "termination for cause" by the Company, any
Option held by the Grantee shall terminate as of the date the Grantee ceases to
be employed by the Company. In addition to the immediate termination of all
Grants, the Grantee shall automatically forfeit all shares underlying any
exercised portion of an Option, upon refund by the Company of the Exercise Price
paid by the Grantee for such shares.
(iii) In the event the Grantee ceases to be employed
by the Company because the Grantee is "disabled," any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified by the Committee), but in
any event no later than the date of expiration of the Option term. Any of the
Grantee's Options which are not otherwise exercisable as of the date on which
the Grantee ceases to be employed by the Company shall terminate as of such
date.
(iv) If the Grantee dies while employed by the
Company or within 90 days after the date on which the Grantee ceases to be
employed on account of a termination of employment specified in Section 5(e)(i)
above (or within such other period of time as may be specified by the
Committee), any Option that is otherwise exercisable by the Grantee shall
terminate unless exercised within one year after the date on which the Grantee
ceases to be employed by the Company (or within such other period of time as may
be specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by the Company shall terminate as of such date.
<PAGE> 6
(v) For purposes of Sections 5(e), 6, 7, and 8:
(A) "Company," when used in the phrase "employed by the Company," shall mean the
Company, its parent and any subsidiary corporation.
(B) "Employed by the Company" shall mean employment or service as an Employee,
Key Advisor, or member of the Board (so that, for purposes of exercising Options
and SARs and satisfying conditions with respect to Restricted Stock and
Performance Units, a Grantee shall not be considered to have terminated
employment or service until the Grantee ceases to be an Employee, Key Advisor,
and member of the Board), unless the Committee determines otherwise. The
Committee's determination as to a participant's employment or other provision of
services, termination of employment or cessation of the provision of services,
leave of absence, or reemployment shall be conclusive on all persons unless
determined to be incorrect.
(C) "Disability" shall mean a Grantee's becoming disabled within the meaning of
section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean the determination of the Committee that
any one or more of the following events has occurred:
(1) the Grantee's conviction of any act which constitutes a felony under
applicable federal or state law, either in connection with the performance of
the Grantee's obligations on behalf of the Company or which affects the
Grantee's ability to perform his or her obligations as an employee, board member
or advisor of the Company or under any employment agreement, non-competition
agreement, confidentiality agreement or like agreement or covenant between the
Grantee and the Company (any such agreement or covenant being herein referred to
as an "Employment Agreement");
(2) the Grantee's willful misconduct in connection with the performance of his
or her duties and responsibilities as an employee, board member or advisor of
the Company or under any Employment Agreement, which willful misconduct is not
cured by the Grantee within 10 days of his or her receipt of written notice
thereof from the Committee;
(3) the Grantee's commission of an act of embezzlement, fraud or dishonesty
which results in a loss, damage or injury to the Company;
(4) the Grantee's substantial and continuing neglect, gross negligence or
inattention in the performance of his or her duties as an employee, board member
or advisor of the Company or under any Employment Agreement which is not cured
by the Grantee within 10 days of his or her receipt of written notice thereof
from the Committee;
(5) the Grantee's unauthorized use or disclosure or any trade secret or
confidential information of the Company which adversely affects the business of
the Company, provided that any disclosure of any trade secret or confidential
information of the Company to a third party in the ordinary course of business
who signs a confidentiality
<PAGE> 7
agreement shall not be deemed a breach of this subparagraph;
(6) the Grantee's material breach of any of the provisions of any Employment
Agreement, which material breach is not cured by the Grantee within 10 days of
his or her receipt of a written notice from the Company specifying such material
breach; or
(7) the Grantee has voluntarily terminated his or her employment or service with
the Company and breaches his or her non-competition agreement with the Company.
(f) Exercise of Options. A Grantee may exercise an Option that
has become exercisable, in whole or in part, by delivering a notice of exercise
to the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee:
(i) in cash,
(ii) by delivering shares of Company Stock owned by the Grantee for the period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price,
(iii) after a Public Offering, by payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board, or
(iv) by such other method of payment as the Committee may approve.
Shares of Company Stock used to exercise an Option shall have been held by the
Grantee for the requisite period of time to avoid adverse accounting
consequences to the Company with respect to the Option. The Grantee shall pay
the Exercise Price and the amount of any withholding tax due (pursuant to
Section 9) at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock
Option shall provide that if the aggregate Fair Market Value of the stock on the
date of the grant with respect to which Incentive Stock Options are exercisable
for the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code).
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to a
Grantee under a Grant of Restricted Stock upon such terms as the Committee deems
appropriate. The following provisions are applicable to Restricted Stock:
<PAGE> 8
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of time during which the
Restricted Stock will remain subject to restrictions will be designated in the
Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number
of shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be
employed by the Company (as defined in Section 5(e)) during a period designated
in the Grant Instrument as the Restriction Period, or if other specified
conditions are not met, the Restricted Stock Grant shall terminate as to all
shares covered by the Grant as to which the restrictions have not lapsed, and
those shares of Company Stock must be immediately returned to the Company. The
Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate.
During the Restriction Period, a Grantee may not sell, assign, transfer, pledge
or otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 10(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the
Committee determines otherwise, during the Restriction Period, the Grantee shall
have the right to vote shares of Restricted Stock and to receive any dividends
or other distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on
Restricted Stock shall lapse upon the expiration of the applicable Restriction
Period and the satisfaction of all conditions imposed by the Committee. The
Committee may determine, as to any or all Restricted Stock Grants, that the
restrictions shall lapse without regard to any Restriction Period.
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock
appreciation rights ("SARs") to a Grantee separately or in tandem with any
Option (for
<PAGE> 9
all or a portion of the applicable Option). Tandem SARs may be granted either at
the time the Option is granted or at any time thereafter while the Option
remains outstanding; provided, however, that, in the case of an Incentive Stock
Option, SARs may be granted only at the time of the Grant of the Incentive Stock
Option. The Committee shall establish the base amount of the SAR at the time the
SAR is granted. Unless the Committee determines otherwise, the base amount of
each SAR shall be equal to the per share Exercise Price of the related Option
or, if there is no related Option, the Fair Market Value of a share of Company
Stock as of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of
SARs granted to a Grantee that shall be exercisable during a specified period
shall not exceed the number of shares of Company Stock that the Grantee may
purchase upon the exercise of the related Option during such period. Upon the
exercise of an Option, the SARs relating to the Company Stock covered by such
Option shall terminate. Upon the exercise of SARs, the related Option shall
terminate to the extent of an equal number of shares of Company Stock.
(c) Exercisability. A SAR shall be exercisable during the
period specified by the Committee in the Grant Instrument and shall be subject
to such vesting and other restrictions as may be specified in the Grant
Instrument. The Committee may accelerate the exercisability of any or all
outstanding SARs at any time for any reason. SARs may only be exercised while
the Grantee is employed by the Company or during the applicable period after
termination of employment as described in Section 5(e). A tandem SAR shall be
exercisable only during the period when the Option to which it is related is
also exercisable. No SAR may be exercised for cash by an officer or director of
the Company or any of its subsidiaries who is subject to Section 16 of the
Exchange Act, except in accordance with Rule 16b 3 under the Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee
shall receive in settlement of such SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash, Company
Stock or a combination thereof. The stock appreciation for a SAR is the amount
by which the Fair Market Value of the underlying Company Stock on the date of
exercise of the SAR exceeds the base amount of the SAR as described in
Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in a SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
8. Performance Units
<PAGE> 10
(a) General Requirements. The Committee may grant performance
units ("Performance Units") to a Grantee. Each Performance Unit shall represent
the right of the Grantee to receive an amount based on the value of the
Performance Unit, if performance goals established by the Committee are met. A
Performance Unit shall be based on the Fair Market Value of a share of Company
Stock or on such other measurement base as the Committee deems appropriate. The
Committee shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance
Units are granted, the Committee shall establish the performance period during
which performance shall be measured (the "Performance Period"), performance
goals applicable to the Units ("Performance Goals") and such other conditions of
the Grant as the Committee deems appropriate. Performance Goals may relate to
the financial performance of the Company or its operating units, the performance
of Company Stock, individual performance, or such other criteria as the
Committee deems appropriate.
(c) Payment with respect to Performance Units. At the end of
each Performance Period, the Committee shall determine to what extent the
Performance Goals and other conditions of the Performance Units are met and the
amount, if any, to be paid with respect to the Performance Units. Payments with
respect to Performance Units shall be made in cash, in Company Stock, or in a
combination of the two, as determined by the Committee.
(d) Requirement of Employment. If the Grantee ceases to be
employed by the Company (as defined in Section 5(e)) during a Performance
Period, or if other conditions established by the Committee are not met, the
Grantee's Performance Units shall be forfeited. The Committee may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.
9. Qualified Performance Based Compensation.
(a) Designation as Qualified Performance Based Compensation.
The Committee may determine that Performance Units or Restricted Stock granted
to an Employee shall be considered "qualified performance based compensation"
under Section 162(m) of the Code. The provisions of this Section 9 shall apply
to Grants of Performance Units and Restricted Stock that are to be considered
"qualified performance based compensation" under Section 1 62(m) of the Code.
(b) Performance Goals. When Performance Units or Restricted
Stock that are to be considered "qualified performance based compensation" are
granted, the Committee shall establish in writing (i) the objective performance
goals that must be met in order for restrictions on the Restricted Stock to
lapse or amounts to be paid under the Performance Units, (ii) the Performance
<PAGE> 11
Period during which the performance goals must be met, (iii) the threshold,
target and maximum amounts that may be paid if the performance goals are met,
and (iv) any other conditions, including without limitation provisions relating
to death, disability, other termination of employment or Reorganization, that
the Committee deems appropriate and consistent with the Plan and Section 162(m)
of the Code. The performance goals may relate to the Employee's business unit or
the performance of the Company and its subsidiaries as a whole, or any
combination of the foregoing. The Committee shall use objectively determinable
performance goals based on one or more of the following criteria: stock price,
earnings per share, net earnings, operating earnings, return on assets,
stockholder return, return on equity, growth in assets, unit volume, sales,
market share, or strategic business criteria consisting of one or more
objectives based on meeting specific revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.
(c) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days after
the beginning of the Performance Period or (ii) the date on which 25% of the
Performance Period has been completed, or such other date as may be required or
permitted under applicable regulations under Section 162(m) of the Code. The
performance goals shall satisfy the requirements for "qualified performance
based compensation," including the requirement that the achievement of the goals
be substantially uncertain at the time they are established and that the goals
be established in such a way that a third party with knowledge of the relevant
facts could determine whether and to what extent the performance goals have been
met. The Committee shall not have discretion to increase the amount of
compensation tat is payable upon achievement of the designated performance
goals.
(d) Maximum Payment. If Restricted Stock, or Performance Units
measured with respect to the fair market value of the Company Stock, are
granted, not more than 500,000 shares may be Granted to any Grantee for any
Performance Period. If Performance Units are measured with respect to other
criteria, the maximum amount that may be paid to an employee with respect to a
Performance Period is $1,000,000.
(e) Announcement of Grants. The Committee shall certify and
announce the results for each Performance Period to all Grantees immediately
following the announcement of the Company's financial results for the
Performance Period. If and to the extent that the Committee does not certify
that the performance goals have been met, the grants of Restricted Stock or
Performance Units for the Performance Period shall be forfeited.
10. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be
subject to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages
<PAGE> 12
paid to the Grantee, any federal, state or local taxes required by law to be
withheld with respect to such Grants. In the case of Options and other Grants
paid in Company Stock, the Company may require the Grantee or other person
receiving such shares to pay to the Company the amount of any such taxes that
the Company is required to withhold with respect to such Grants, or the Company
may deduct from other wages paid by the Company the amount of any withholding
taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits,
a Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option, SAR, Restricted Stock or Performance Units paid in
Company Stock by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
11. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below,
only the Grantee may exercise rights under a Grant during the Grantee's
lifetime. A Grantee may not transfer those rights except by will or by the laws
of descent and distribution or, with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant to a
domestic relations order (as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the regulations
thereunder). When a Grantee dies, the personal representative or other person
entitled to succeed to the rights of the Grantee ("Successor Grantee") may
exercise such rights. A Successor Grantee must furnish proof satisfactory to the
Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding
the foregoing, the Committee may provide, in a Grant Instrument, that a Grantee
may transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
12. Reorganization of the Company.
(a) Reorganization. As used herein, a "Reorganization" shall
be deemed to have occurred if the stockholders of the Company approve (or, if
stockholder approval is not required, the Board approves) an agreement providing
for (i) the merger or consolidation of the Company with another corporation
where the stockholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or
consolidation, shares entitling such stockholders to more than 50% of all votes
to which all stockholders of the surviving corporation would be
<PAGE> 13
entitled in the election of directors (without consideration of the rights of
any class of stock to elect directors by a separate class vote), (ii) the sale
or other disposition of all or substantially all of the assets of the Company,
or (iii) a liquidation or dissolution of the Company.
(b) Assumption of Grants. Upon a Reorganization where the
Company is not the surviving corporation (or survives only as a subsidiary of
another corporation), unless the Committee determines otherwise, all outstanding
Options and SARs that are not exercised shall be assumed by, or replaced with
comparable options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the
event of a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their outstanding
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Committee, in an amount equal to the amount by which
the then Fair Market Value of the shares of Company Stock subject to the
Grantee's unexercised Options and SARs exceeds the Exercise Price of the Options
or the base amount of the SARs, as applicable, or (ii) after giving Grantees an
opportunity to exercise their outstanding Options and SARs, terminate any or all
unexercised Options and SARs at such time as the Committee deems appropriate.
Such surrender or termination shall take place as of the date of the
Reorganization or such other date as the Committee may specify.
(d) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Reorganization, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (b) above) that would make the Reorganization
ineligible for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment with respect to the Reorganization.
13. Change of Control of the Company.
(a) As used herein, a "Change of Control" shall be deemed to
have occurred if:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d3
under the Exchange Act), directly or indirectly, of securities of the Company
representing a majority of the voting power of the then outstanding securities
of the Company except where the acquisition is approved by the Board; or
(ii) Any person has commenced a tender offer or
exchange offer for a majority of the voting power of the then outstanding shares
of the Company.
<PAGE> 14
(b) Notice and Acceleration. Unless the Committee determines
otherwise, a Change of Control shall not result in the acceleration of vesting
of outstanding Options and SARs, the removal of restrictions and conditions on
outstanding Restricted Stock grant, or any accelerated payments in connection
with outstanding Performance Units.
(c) Other Alternatives. Notwithstanding the foregoing, in the
event of a Change of Control, the Committee may take one or both of the
following actions: the Committee may (i) require that Grantees surrender their
outstanding Options and SARs in exchange for a payment by the Company, in cash
or Company Stock as determined by the Committee, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Grantee's unexercised Options and SARs exceeds the Exercise Price
of the Options or the base amount of the SARs, as applicable, or (ii) after
giving Grantees an opportunity to exercise their outstanding Options and SARs,
terminate any or all unexercised Options and SARs at such time as the Committee
deems appropriate. Such surrender or termination shall take place as of the date
of the Change of Control or such other date as the Committee may specify.
(d) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Change of Control, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
14. Right of First Refusal
Prior to a Public Offering, if at any time an individual desires to
sell, encumber, or otherwise dispose of shares of Company Stock distributed to
him under this Plan, the individual shall first offer the shares to the Company
by giving the Company written notice disclosing: (a) the name of the proposed
transferee of the Company Stock; (b) the certificate number and number of shares
of Company Stock proposed to be transferred or encumbered; (c) the proposed
price; (d) all other terms of the proposed transfer; and (e) a written copy of
the proposed offer. Within 30 days after receipt of such notice, the Company
shall have the option to purchase all or part of such Company Stock at the same
price and on the same terms as contained in such notice.
In the event the Company (or a stockholder, as described below) does
not exercise the option to purchase Company Stock, as provided above, the
individual shall have the right to sell, encumber or otherwise dispose of his
shares of Company Stock on the terms of the transfer set forth in the written
notice to the Company, provided such transfer is effected within 30 days after
the expiration of the option period. If the transfer is not effected within such
period, the Company must again be given an option to purchase, as provided
above.
<PAGE> 15
The Board, in its sole discretion, may waive the Company's right of
first refusal pursuant to this Section 14 and the Company's repurchase right
pursuant to Section 15 below. If the Company's right of first refusal or
repurchase right is so waived, the Board may, in its sole discretion, pass
through such right to the remaining stockholders of the Company in the same
proportion that each stockholder's stock ownership bears to the stock ownership
of all the stockholders of the Company, as determined by the Board. To the
extent that a stockholder has been given such right and does not purchase his or
her allotment, the other stockholders shall have the right to purchase such
allotment on the same basis.
On and after a public offering, the Company shall have no further right
to purchase shares of Company Stock under this Section 14 and Section 15 below,
and its limitations shall be null and void.
Notwithstanding the foregoing, the Committee may require that a Grantee
execute a stockholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan. Such agreement may provide that the provisions of this Section 14 and
Section 15 below shall not apply to such Company Stock.
15. Purchase by the Company
Prior to a Public Offering, if a Grantee ceases to be employed by the
Company, whether terminated for cause or voluntarily, the Company shall have the
right to purchase all or part of any Company Stock distributed to him under this
Plan at the exercise price paid by the Grantee (unless otherwise determined by
the Board or the Committee), and in all other cases at its then current Fair
Market Value (as defined in Section 5(b)); provided, however, that such
repurchase shall be made in accordance with applicable accounting rules to avoid
adverse accounting treatment.
16. Requirements for Issuance or Transfer of Shares
(a) Stockholder's Agreement. The Committee may require that a
Grantee execute a stockholder's agreement, with such terms as the Committee
deems appropriate, with respect to any Company Stock distributed pursuant to
this Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company
Stock shall be issued or transferred in connection with any Grant hereunder
unless and until all legal requirements applicable to the issuance or transfer
of such Company Stock have been complied with to the satisfaction of the
Committee. The Committee shall have the right to condition any Grant made to any
Grantee hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
<PAGE> 16
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
17. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at
any time.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the stockholders.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Plan that occurs after a Grant is made shall not
materially impair the rights of a Grantee unless the Grantee consents. The
termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Grant. Whether or not the Plan has
terminated, an outstanding Grant may be terminated or amended in accordance with
the Plan or may be amended by agreement of the Company and the Grantee
consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling
document. No other statements, representations, explanatory materials or
examples, oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and assigns.
18. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
19. Rights of Grantees
Nothing in this Plan shall entitle any Grantee or other person to any
claim or right to be granted a Grant under this Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any individual any rights to
be retained by or in the employ of the Company or any other employment rights.
20. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards
<PAGE> 17
or other property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
21. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
22. Effective Date of the Plan
Subject to the approval of the Company's stockholders, the
Plan shall be effective on April ___, 1999.
23. Miscellaneous
(a) Grants in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees of the Company, or for other proper
corporate purposes, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may make a Grant to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving the
Company or any of its subsidiaries in substitution for a stock option or
restricted stock grant made by such corporation. The terms and conditions of the
substitute grants may vary from the terms and conditions required by the Plan
and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and
SARs and the obligations of the Company to issue or transfer shares of Company
Stock under Grants shall be subject to all applicable laws and to approvals by
any governmental or regulatory agency as may be required. With respect to
persons subject to section 16 of the Exchange Act, it is the intent of the
Company that the Plan and all transactions under the Plan comply with all
applicable provisions of Rule 16b 3 or its successors under the Exchange Act.
The Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.
(c) Governing Law. The validity, construction, interpretation
and effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the laws of the
State of Delaware.
<PAGE> 18
(d) Public Offering. The provisions of the Plan that refer to a Public Offering,
or that refer to, or are applicable to persons subject to, section 16 of the
Exchange Act or section 162(m) of the Code, shall be effective, if at all, upon
the initial registration of the Company Stock under section 12(g) of the
Exchange Act, and shall remain effective thereafter for so long as such stock is
so registered.
f:\partners\emerge vision\charter-corporate\1999 equity compensation plan
<PAGE> 1
EXHIBIT 10.4
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 15th day of December, 1997 by and
between SAFEGUARD SCIENTIFICS, INC., a Pennsylvania corporation ("Safeguard")
and XL VISION, INC., a Delaware corporation, ("XL Vision") and eMERGE VISION
SYSTEMS, INC., a Delaware corporation, ("EVS").
WITNESSETH:
WHEREAS, Safeguard and XL Vision are providing EVS with certain
administrative support services; and
WHEREAS, Safeguard, XL Vision and EVS have agreed to enter into an
Administrative Services Agreement to reflect the parties' respective rights and
obligations.
NOW, therefore, the parties hereto, in consideration of their mutual
covenants and intending to be legally bound, hereby agree as follows:
1. Safeguard and XL Vision agrees to provide (either directly or
indirectly through its subsidiaries) to EVS for the term specified
herein administrative support services and access to the broad
management experience of the corporate management staff of Safeguard
and XL vision. Such services shall be substantially those heretofore
provided by Safeguard and XL Vision to EVS, including without
limitation, consultation in regard to general management, investor
relations, financial management, human resources management, legal
services, insurance programs administration, audit administration, tax
research and planning, and preparation of federal and sate income tax
returns. Nothing herein shall be construed to require Safeguard or XL
Vision to provide any services under this Agreement which cannot
reasonably be provided by Safeguard and XL Vision's management and
corporate staff.
2. In consideration of the services to be rendered by Safeguard and XL
Vision under this Agreement, EVS shall pay an annual fee ("Services
Fee") of 1.5% of EVS's gross revenues each year, with such Services Fee
not to exceed $300,000 in any given year. This Services Fee is to be
divide(f as follows: Safeguard shall receive an annual fee ("Services
Fee") equal to .75 % of EVS's gross revenues each year, and XL Vision
shall receive an annual fee equal to .75 % of EVS's gross revenues each
year. The Services Fee shall be payable in quarterly installments
within 30 days of the commencement of each quarter based on revenues
from the preceding quarter and shall be subject to adjustment on the
basis of the fiscal year audited financial statements of EVS; provided,
however, that the Service Fee will accrue until the Company's cash flow
is positive and payments of the fee will then be made as provided in
this paragraph for such periods during which the cash flow remains
positive.
<PAGE> 2
3. EVS recognizes that Safeguard and XL Vision have heretofore provided,
or have made arrangements for, certain other services and benefits for
EVS and have incurred guarantees of certain obligations of EVS and that
Safeguard and XL Vision may continue to provide, or make arrangements
for, certain of such services and benefits and may incur guarantees of
obligations of EVS. The foregoing may involve, among other things,
various types of insurance programs; various legal, accounting and
other matters requiring outside professional services or in-house
services by Safeguard and XL Vision personnel (including but not
limited to legal and accounting services) which are not in the ordinary
course; and guarantees of obligations. To the extent Safeguard and XL
Vision continue to incur obligations for EVS at EVS's request in
connection with such services and benefits, EVS shall pay to Safeguard,
XL Vision or to the provider of such services, in addition to the fee
provided in Paragraph 2 of the Agreement, the actual and identifiable
costs of such services and benefits, or in those cases where actual
costs cannot be identified, EVS's proportionate share of such benefits
and services, and the sums necessary to discharge, repay or to
otherwise compensate Safeguard and XL Vision for any obligations
incurred by Safeguard or XL Vision in connection therewith. Safeguard
and XL Vision shall submit to EVS a monthly statement of all such sums
due in accordance with the provisions of this Paragraph and each such
statement shall be paid by EVS within 30 days after the delivery of
such statement to EVS.
4. This Agreement shall be effective December 31, 1997 and shall extend
through and include December 31, 2002 and shall automatically continue
to be effective thereafter on an annual basis, subject to termination
on the final day of any succeeding calendar year by delivery of written
notice by either party to the other party no less than 90 days prior to
the termination date.
5. Nothing herein shall be construed to relieve the directors or officers
of EVS from the performance of their respective duties or limit the
exercise of their powers in accordance with the Certificate of
Incorporation or By-Laws of EVS, any applicable provisions of the
Corporation Law of the State of Delaware, or otherwise. The activities
of EVS shall at all times be subject to the control and direction of
its Board of Directors and Officers.
6. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may not be amended
or modified except by the written agreement of the parties hereto.
7. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors. Nothing in this
Agreement, expressed or implied, is intended to confer on any other
person other than the parties hereto, or their respective successors,
any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
8. This Agreement and any rights or obligations pursuant hereto shall not
be assignable by either party without prior written consent of the
other party.
2
<PAGE> 3
9. Nothing in this Agreement shall be deemed to constitute the parties
hereto joint venturers, partners or participants in an unincorporated
business or other separate entity.
IN WITNESS WHEREOF, Safeguard Scientifics Inc., XL Vision, Inc. and
eMERGE Vision Systems, Inc. have caused this Agreement to be executed in their
respective corporate names by an officer thereunto duly authorized, all as of
the date first above written.
ATTEST: SAFEGUARD SCIENTIFICS, INC.
/s/: Kathleen Lees By:/s/: Michael Miles
- -------------------------------- --------------------------------
Name: Kathleen Lees Title: Michael Miles
Title: Assistant Secretary
ATTEST: XL VISION, INC.
/s/: Kathleen Lees By:/s/: Gregory Haskell
- -------------------------------- --------------------------------
Kathleen Lees Gregory W. Haskell
Assistant Secretary President and Chief Operating Officer
ATTEST: eMERGE VISION SYSTEMS, INC.
/s/: Kathleen Lees By:/s/: E. Scott Blackwell
- -------------------------------- --------------------------------
Name: Kathleen Lees E. Scott Blackwell
Title: Assistant Secretary Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.5
DIRECT CHARGE ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 15th day of April, 1997, by and
between XL VISION, INC., a Delaware corporation, ("XL Vision") and ENHANCED
VISION SYSTEMS, INC., a Delaware corporation, ("EVS").
WITNESSETH:
WHEREAS, XL Vision is providing EVS with certain administrative support
services; and
WHEREAS, XL Vision and EVS have agreed to enter into an Administrative
Services Agreement to reflect the parties' respective rights and obligations.
NOW, therefore, the parties hereto, in consideration of their mutual
covenants and intending to be legally bound, hereby agree as follows:
1. XL Vision agrees to provide (either directly or indirectly through its
subsidiaries) to EVS for the term specified herein, administrative
support services and access to the broad management experience of the
corporate management staff of XL vision. Such services shall be
substantially those heretofore provided by XL Vision to EVS, including
without limitation, consultation in regard to general management,
investor relations, financial management, human resources management,
legal services, insurance programs administration, audit
administration, tax research and planning, and preparation of federal
and state income tax returns. Nothing herein shall be construed to
require XL Vision to provide any services under this Agreement which
cannot reasonably be provided by XL Vision's management and corporate
staff.
2. In consideration of the services to be rendered by XL Vision under this
Agreement, EVS shall pay to XL Vision costs which shall be based on the
individual personal rates and which such hours shall be billed at the
end of each month.
3. EVS recognizes that XL Vision has heretofore provided, or has made
arrangements for, certain other services and benefits for EVS and has
incurred certain obligations of EVS and that XL Vision may continue to
provide, or make arrangements for, certain of such services and
benefits and may incur guarantees of obligations of EVS. The foregoing
may involve, among other things, various types of insurance programs;
various legal, accounting and other matters requiring outside
professional services or in-house services by XL Vision personnel
(including but not limited to legal and accounting services) which are
not in the ordinary course; and guarantees of obligations. To the
extent XL
<PAGE> 2
Vision continues to incur obligations for EVS at EVS's request in
connection with such services and benefits, EVS shall pay to XL Vision
or to the provider of such services, in addition to the fees provided
in Paragraph 2 of the Agreement, the actual and identifiable costs of
such services and benefits, or in those cases where actual costs cannot
be identified, EVS's proportionate share of such benefits and services,
and the sums necessary to discharge, repay or to otherwise compensate
XL Vision for any obligations incurred by XL Vision in connection
therewith. XL Vision shall submit to EVS a monthly statement of all
such sums due in accordance with the provisions of this Paragraph and
each such statement shall be paid by EVS within 30 days after the
delivery of such statement to EVS.
4. This Agreement shall be effective April 1, 1997 and shall extend on a
month to month basis. Termination of this agreement can be made by
either party to the other party with no less than 30 days prior written
notice.
5. Nothing herein shall be construed to relieve the directors or officers
of EVS from the performance of their respective duties or limit the
exercise of their powers in accordance with the Certificate of
Incorporation or By-Laws of XL Vision, any applicable provisions of the
Corporation Law of the State of Delaware, or otherwise. The activities
of EVS shall at all times be subject to the control and direction of
its Board of Directors and Officers.
6. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may not be amended
or modified except by the written agreement of the parties hereto.
7. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors. Nothing in this
Agreement, expressed or implied, is intended to confer on any other
person other than the parties hereto, or their respective successors,
any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
8. This Agreement and any rights or obligations pursuant hereto shall not
be assignable by either party without prior written consent of the
other party.
9. Nothing in this Agreement shall be deemed to constitute the parties
hereto joint venturers, partners or participants in an unincorporated
business or other separate entity.
IN WITNESS WHEREOF, XL Vision, Inc. and ENHANCED VISION SYSTEMS, INC.
have caused this Agreement to be executed in their respective corporate names by
an officer thereunto duly authorized, all as of the date first above written.
2
<PAGE> 3
ATTEST: XL VISION, INC.
/s/: Kathleen Lees By:/s/: Gregory W. Haskell
- ------------------ --------------------------
Kathleen Lees Gregory W. Haskell
Assistant Secretary President and COO
ATTEST: ENHANCED VISION SYSTEMS, INC.
/s/: Kathleen Lees By:/s/: E. Scott Blackwell
- ------------------ --------------------------
Kathleen Lees E. Scott Blackwell
Assistant Secretary President - Chief Executive Officer
3
<PAGE> 1
Exhibit 10.6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into
this 24th day of February, 1999 by and among eMERGE Vision Systems, Inc., a
Delaware corporation ("Buyer"), CIN, LLC, a Kansas limited liability company
formerly known as Cattle Management Network, L.L.C. ("Seller"), and Dr. Scott
Crain ("Crain").
RECITALS
A. Seller is in the business of developing, marketing, licensing, and
distributing software programs for use in agriculture, veterinary medicine, and
animal food sciences markets (the "Business") including the software product
commonly referred to as "Industry Net" and "Beef Industry Information
Integrator," Feed Yard Information System" and "Veterinary Information System"
(the "Software Program");
B. Seller desires to sell, and Buyer desires to purchase, the Business
and substantially all of the tangible and intangible assets used in the
Business, including, but not limited to, the Software Program, on the terms and
subject to the conditions set forth in this Agreement; and
C. As the majority owner of Seller, owing together with his wife,
approximately 81% of the equity of Seller, Crain will derive significant benefit
from the transactions contemplated by this Agreement and, as a condition to
Buyer entering into this Agreement, Crain is required to make certain
representations, warranties, and covenants specifically provided in this
Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt, sufficiency, and adequacy of which are hereby acknowledged, Seller,
Crain, and Buyer agree as follows:
AGREEMENTS
ARTICLE I
SALE AND PURCHASE OF ASSETS
Effective as of the close of business on the Closing Date (as defined
in Section 4.1) and subject to the terms and conditions hereof and in reliance
on the representations and warranties contained herein, Seller shall sell,
convey, transfer, assign, and deliver to Buyer at the Closing (as defined in
Section 4.1), and Buyer shall purchase from Seller, all of the properties,
business, and assets of Seller and Crain used in connection with the Business,
of every kind and description, personal and mixed, tangible and intangible,
wherever located (except the Excluded Assets, defined
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in Article II) (collectively, the "Purchased Assets"). Without limiting the
generality of the foregoing, the Purchased Assets shall include the following:
(a) all of Seller's inventory as of the Closing Date,
including, without limitation: (i) computer program code (in all media)
and materials, including the Software Program; (ii) computer program
documentation, including user materials; (iii) all other unused or
reusable materials, stores, supplies, works in progress, finished
goods, product samples, packaging, and shipping materials, as listed on
Schedule 1(a) hereto (collectively, the "Inventory");
(b) all technical and descriptive materials (other than
Inventory) relating to the acquisition, design, development, use, or
maintenance of computer code and program documentation and materials,
including, but not limited to, all technical and programming notes (the
"Technical Documentation");
(c) all of the rights and benefits accruing to Seller under or
pursuant to any and all contracts, agreements, licenses, and other
commitments and arrangements, oral or written, with any person or
entity relating to the ownership, license, acquisition, design,
development, distribution, marketing, use, or maintenance of computer
program code, related technical or user documentation, and databases,
in each case relating to or arising out of the Business, including, but
not limited to: (i) licenses from third parties; (ii) development
contracts, work-for-hire agreements, and consulting and employment
agreements; (iii) distributorships and manufacturer's representation
contracts; (iv) licenses and sublicenses to others (including without
limitation the Feedyard and Veterinary Data Agreements); and (v)
maintenance, support, or enhancement agreements, as listed on Schedule
1(c) hereto (collectively, the "Software Contracts");
(d) all equipment and devices (including data processing
hardware and related telecommunications equipment, media, and tools)
used in the Business, as listed on Schedule 1(d) hereto (the "Computer
Equipment"), including, but not limited to, Seller's rights under all
related warranties;
(e) all equipment (other than Computer Equipment), including,
but not limited to, all furniture, office equipment, and other personal
property, as listed on Schedule 1(e) hereto;
(f) all accounts receivable of Seller relating to the
Business, arising from sales of products in the ordinary course of
business as of the date of this Agreement, including all license fees
and maintenance fees and charges owing or to become owing to Seller
under Software Contracts, as are listed on Schedule 1(f) hereto (the
"Accounts Receivable");
(g) all operating data and records of Seller related to the
Business, including, but not limited to, all customer lists, vendor
lists, price lists, correspondence, customer files, account histories,
customer specifications, dealer and distributor lists, promotional
materials, sales literature, art work, sales data, and other historical
and current
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information relating to sales, financial, accounting, and credit
records, correspondence, budgets, and other similar documents and
records;
(h) all of the rights and benefits accruing to Seller under or
pursuant to the Accounts Receivable, contracts, agreements, including,
but not limited to, all distributorship or sales representation
agreements, licenses, leases, arrangements, commitments, and unshipped,
open, and blanket purchase orders, other than the Software Contracts,
and certain oral agreements to provide discounted services to feedyard
customers, all as identified (and with respect to the oral agreements
described in detail) on Schedule 1(h) (the "Purchased Contracts");
(i) all claims Seller may have against any person relating to
or arising from the Purchased Assets, the Software Contracts, the
Purchased Contracts, or the Business, including rights to recoveries
for damages or defective goods, refunds, insurance claims, and causes
in action;
(j) all of Seller's right, title, and interest in and to the
names "CIN, LLC," "Cattlemen's Information Network L.L.C.," "Cattle
Management Network, LLC," "Industry Net," and "Beef Industry
Information Integrator," and all variants thereof, all of Seller's
right, title, and interest in and to the Internet domain name
"cattleinfo.com" and all iterations or permutations thereof and the
registrations therefor, any and all trademarks, service marks, trade
names, and copyrights of Seller and all licenses, registrations, and
applications therefor, and all other intellectual property rights,
rights to the data compiled through the use of the Software Program
technology, know-how, trade secrets, computer software, code, slogans,
patents, formulae, processes, and other similar intangible rights
relating to the Business (the "Intellectual Property"), as are listed
on Schedule 1(j) hereto; and
(k) all of Seller's right, title, and interest in and to the
goodwill of Seller relating to the Business and all other assets of
every kind and description, wherever located, used or useful in, or
related to the Business.
ARTICLE II
EXCLUDED ASSETS
Seller is not selling or assigning to Buyer, and the Purchased Assets
shall not include, any of the following (collectively, the "Excluded Assets"):
(a) all cash consideration to be received by Seller, and
Seller's other rights, under this Agreement;
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(b) all limited liability company records, equity record
books, files, and other documentation of Seller, not relating to
operation of the Business or the Purchased Assets;
(c) all of Seller's cash, cash equivalents, deposits in banks,
securities, and prepaid and deferred items, existing on the Closing
Date with respect to the Business;
(d) any insurance policies relating to the Business;
(e) any and all vehicles owned or used in the Business;
(f) the 316-873-2181 telephone number of the Business;
(g) any assets of Crain's veterinary practice or farming,
ranching and cattle businesses, which items are not specifically listed
on any Schedule to this Agreement listing the Purchased Assets;
(h) items listed on Schedule 2; and
(i) any items of the Purchased Assets that Buyer expressly
elects not to accept or otherwise take.
ARTICLE III
PURCHASE PRICE, LIABILITIES
AND OTHER RELATED MATTERS
3.1 Purchase Price. Subject to adjustment as provided herein, the
purchase price (the "Purchase Price") for the Purchased Assets shall be the cash
and other consideration specified in this Section 3.1 and the assumption of the
Assumed Liabilities (as defined in Section 3.2). The Purchase Price shall be
paid by Buyer as follows:
(a) Six hundred thousand (600,000) shares of Common Stock, par
value one cent ($.01) per share, of Buyer (the "Shares"), by delivery
of stock certificate therefor issued in the name of Seller at the
Closing;
(b) Three Hundred Eighty Three Thousand Dollars ($383,000.00)
on or before October 31, 1999 (the "October Payment"), subject to
adjustment under Section 3.4 below, at Buyer's election by certified or
cashier's check payable to the order of Seller or by wire transfer to
an account designated by Seller; and
(c) Three Hundred Fifty Thousand Dollars ($350,000.00) of the
first net sales collected by Buyer (if any) arising from the sale of
third party products by Buyer through or using the Internet within the
five (5) year period from the Closing Date utilizing the Software
Program, or any other technology acquired from Seller hereunder, or any
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derivatives thereof (the "Net Sales Payment"), subject to adjustment
under Section 3.4 below, payable within thirty (30) days of the
collection of such amounts, at Buyer's election by certified check or
cashier's check payable to the order of Seller or by wire transfer to
an account designated by Seller.
3.2 Assumed Liabilities. On the Closing Date, (i) Buyer shall assume
and agree to pay, perform, and discharge in full when due the accounts payable
and accrued expenses of Seller listed on Schedule 3.2 under the heading
"Accounts Payable" and such other normal operating expenses incurred through
February 26, 1999, including trade accounts payable, accrued compensation and
related payroll taxes (the "Accounts Payable"), and Seller's obligations under
the Software Contracts and the Purchased Contracts; and (ii) Buyer shall pay in
full, at the Closing, Seller's indebtedness (including principal and interest)
to Meade State Bank ("the Bank") (subsections (i) and (ii) are hereafter
collectively referred to as the "Assumed Liabilities"), all as listed on
Schedule 3.2 hereto;
3.3 Non-Assumption of Liabilities and Obligations of Seller. Other than
the Assumed Liabilities, Buyer shall not assume or become liable for any
liabilities, obligations, or commitments of Seller of any nature whatsoever,
including, but not limited to (collectively, the "Excluded Liabilities"): (i)
any liabilities or obligations of Seller for Federal, state, local, foreign, or
other taxes, including, without limitation, income, sales, use, franchise, real
or personal property, or other taxes, assessments, duties, levies, or imposts,
or for any penalties or interest with respect to any of the foregoing, related
to any period; (ii) any liabilities or obligations with respect of any pension,
profit sharing, medical insurance, or other employee benefit plan or fringe
benefit arrangement established or maintained by Seller, whether or not any such
plans or benefits thereunder relate to employees who may be employed by Buyer
following consummation of the transactions contemplated hereby, including,
without limitation, all health insurance benefits payable with respect to costs
incurred on or prior to the Closing Date, whether or not claims therefor are
submitted on or prior to the Closing Date, and all disability benefits payable
with respect to disabilities occurring on or prior to the Closing Date, all of
which shall be paid by Seller; (iii) any liabilities or obligations whatsoever
to or with respect to any employees or independent contractors of Seller,
specifically including, without limitation, any obligations to pay salaries,
wages, bonuses, commissions, vacation, severance, or termination pay, employee
benefits, health insurance benefits, or unemployment compensation; (iv) any
liabilities or obligations arising out of any workers' compensation claims
relating to employment by Seller, or product liability claims for personal
injury, property damage, or otherwise relating to products sold or distributed
by Seller; (v) any liabilities, obligations, or commitments for product warranty
or returns or exchanges of products sold or distributed by Seller prior to the
Closing; (vi) any liabilities or obligations, whether or not known to Seller,
based on, arising out of or otherwise in respect to any act or omission of
Seller, or any other party, or any event or condition on or off any premises of
Seller, occurring at any time on or prior to the Closing Date; (vii) any
liabilities, obligations, or expenses to be borne by Seller in connection with
this Agreement and the transactions contemplated hereby, including, but not
limited to, all costs and expenses of legal counsel to Seller; (viii) any
liabilities or obligations with respect to that certain Contribution Agreement
dated January 15, 1997, between John F. Wilson and Cattle Management Network,
L.L.C., or that certain Agreement dated December 10, 1998 between
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John F. Wilson and Cattle Management Network, L.L.C. d/b/a/ Cattle Information
Network; and (ix) any other liabilities or obligations of Seller, known,
unknown, fixed, contingent, accrued, absolute, or otherwise, except the Assumed
Liabilities.
3.4 Adjustment of Purchase Price. A post-Closing adjustment shall be
made to the Purchase Price, in the manner described below, to the extent that
the Accounts Payable and the amount paid to the Bank at Closing (the "Monetary
Obligations") are greater than or less than Six Hundred Thousand Dollars
($600,000.00). For that purpose, Buyer will, within sixty (60) days of the
Closing Date, audit the books and records of the Business to determine the
actual value of the Monetary Obligations. The value of the Monetary Obligations
shall be the greater of the value as carried on the books and records of the
Business as of the Closing Date, prior to any reduction thereof, and the amount
paid in satisfaction of such obligations by Buyer. To the extent the Monetary
Obligations exceed Six Hundred Thousand Dollars ($600,000.00), the Net Sales
Payment shall be decreased on a dollar-for-dollar basis. If and to the extent
the Monetary Obligations exceed Six Hundred Thousand Dollars ($600,000.00) by
greater than Three Hundred Fifty Thousand Dollars ($350,000.00), the October
Payment shall also be decreased, on a dollar-for-dollar basis. In the event and
to the extent the Monetary Obligations are less than Five Hundred Fifty Thousand
Dollars ($550,000.00), the amount of the Net Sales Payment shall be increased on
a dollar-for-dollar basis. Under no circumstance shall the October Payment be
increased.
3.5 Allocation of Purchase Price. The Purchase Price shall be allocated
among each item, class, or category of the Purchased Assets, as mutually
determined by Buyer and Seller and set forth on Schedule 3.5. Seller and Buyer
shall prepare and file their respective Federal and any state or local income
tax returns based on such allocation of the Purchase Price. Seller and Buyer
shall prepare and file any notices or other filings required pursuant to Section
1060 of the Internal Revenue Code of 1986, as amended (the "Code") and any such
notices and filings shall be prepared based on such allocation of the Purchase
Price.
3.6 Audit Rights. At Seller's request, during Buyer's normal business
hours, from time to time before the sixth (6th) anniversary of the Closing Date,
but not more often than once during any twelve (12) month period, Buyer will
permit an independent firm of public accountants and auditors selected by
Seller, but subject to the reasonable approval of Buyer, to audit the books and
records of Buyer to verify that Buyer has paid Seller the proper payments owed
pursuant to Section 3.1((c)). Seller shall bear the costs associated with such
verification.
ARTICLE IV
THE CLOSING
4.1 Time and Place of Closing. The closing of the sale and purchase of
the Business and the Purchased Assets (the "Closing") shall take place at 10:00
a.m. local time on February 22,1999 at the offices of Buyer, 10315 102nd
Terrace, Sebastian, Florida, on such date as Seller and Buyer
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may mutually determine (the "Closing Date"), but in no event later than March
10, 1999, unless extended by mutual agreement.
4.2 Seller's Closing Deliveries. At the Closing, in addition to any
other documents specifically required to be delivered pursuant to this
Agreement, Seller shall execute and deliver, or cause to be executed and
delivered, as appropriate, to Buyer the following:
4.2.1 Bill of Sale and Assignment. A bill of sale substantially in
the form attached hereto as Exhibit A and such other forms of assignment,
endorsements, and other good and sufficient instruments of sale, assignment,
conveyance, and transfer, as may be necessary to sell, assign, transfer, and
deliver the Purchased Assets.
4.2.2 Assignment and Assumption Agreement. Assignment and
assumption agreement in the form attached hereto as Exhibit B, and consents of
the appropriate third parties, relating to the assignment and assumption of the
Software Contracts and the Purchased Contracts.
4.2.3 Assignment of Intellectual Property. Assignment agreement in
the form attached hereto as Exhibit C, relating to the assignment of the
Intellectual Property.
4.2.4 Certified Resolutions. Copies of the resolutions of the
Manager and the members of Seller authorizing the execution, delivery, and
performance of this Agreement and all related agreements, documents, and
certificates, and the transactions contemplated hereby and thereby, certified as
of the Closing Date by its Manager.
4.2.5 [Intentionally omitted].
4.2.6 Stockholders' and Registration Rights Agreement. A
stockholders' and registration rights agreement between Seller and Buyer with
respect to the Shares, in the form attached hereto as Exhibit E (the
"Stockholders' Agreement").
4.2.7 Lease. A lease agreement between Crain and Buyer for the
office facilities used by the Business located 15124 Road 18, Meade, Kansas, in
the form attached hereto as Exhibit F (the "Lease").
4.2.8 Certificate of Good Standing. Certificate of good standing of
Seller issued by the Secretary of State of Kansas, dated not more than fourteen
(14) days prior to the Closing Date.
4.2.9 Articles of Organization. A copy of the Articles of
Organization of Seller, and all amendments thereto, certified by the Secretary
of State of Kansas not more than fourteen (14) days prior to the Closing Date.
4.2.10 Manager's Certificate. A certificate of the Manager of
Seller, dated as of the Closing Date, certifying a copy of the Operating
Agreement of Seller and as to the incumbency and signatures of the Manager of
Seller executing this Agreement and all other
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agreements, documents, or certificates contemplated or delivered under this
Agreement (with such signature being certified by a member of Seller if there is
only one Manager of Seller).
4.2.11 Legal Opinion. The legal opinion of counsel to Seller, in
the form attached hereto as Exhibit G.
4.2.12 Lien Termination Statements. UCC-3 termination statements
with respect to the liens specified in Schedule 4.2.12 hereto or a letter from
the holders of such liens, in form satisfactory to Buyer, providing that upon
payment of the amounts owed to each such holder, the liens will be full and
adequately released.
4.2.13 Other. Such other documents and certificates required to be
executed or delivered at the Closing in accordance with the terms of this
Agreement or as reasonably required by Buyer or its counsel.
4.3 Buyer's Closing Deliveries. At the Closing, in addition to any
other documents specifically required to be delivered pursuant to this
Agreement, Buyer shall execute and deliver, as appropriate, to Seller the
following:
4.3.1 Purchase Price. A stock certificate in the name of Seller
representing the Shares pursuant to Section 3((b)).
4.3.2 Assignment and Assumption Agreement. Assignment and
assumption agreement in the form attached hereto as Exhibit B relating to the
assignment and assumption of the Software Contracts and the Purchased Contracts.
4.3.3 Stockholders' Agreement. The Stockholders' Agreement.
4.3.4 Lease. The Lease.
4.3.5 Side Letter. A side letter from XL Vision, Inc. relating to
its commitment to assess the viability of spinning out the Agrivision Technology
(as defined in Section 8.4), in form satisfactory to Seller.
4.3.6 Legal Opinion. The legal opinion of in-house counsel to
Buyer, in the form attached hereto as Exhibit H.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SELLER AND CRAIN
Seller and Crain, jointly and severally, represent and warrant to
Buyer, on and as of the date hereof and on and as of the Closing Date, as
follows:
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5.1 Organization of Seller. Seller is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Kansas and is duly qualified to do business and is in good standing as a foreign
limited liability company in each jurisdiction in which the character of the
properties owned or held under lease by Seller or the nature of the businesses
transacted by Seller requires such qualification. All of the members of Seller
are as set forth on Schedule 5.1.
5.2 Power and Authority. Seller has all requisite power and authority
to own, lease, and operate its properties, to conduct its business as it has
been and is now being conducted, to enter into this Agreement, and all other
agreements or documents to be executed or delivered in connection herewith, and,
subject to any required approvals or consents by other parties to contracts to
which Seller is a party (which shall be obtained by Seller prior to Closing,
except the Bank which is being paid-off at the Closing by Buyer) to perform the
obligations to be performed by it hereunder. All member and other actions
required to be taken by or on the part of Seller to execute, deliver, and carry
out the terms of this Agreement and all other agreements or documents to be
executed or delivered in connection herewith, and to authorize Seller to sell,
assign, transfer, convey, and deliver the Purchased Assets to Buyer, have been
duly and properly taken. This Agreement and all other agreements and documents
to be executed and delivered by Seller in connection herewith, when executed and
delivered by all parties thereto, shall constitute the legal, valid, and binding
obligations of Seller enforceable against Seller in accordance with their
respective terms and this Agreement and all other agreements and documents to be
executed and delivered by Crain in connection herewith, when executed and
delivered by all parties thereto, shall constitute the legal, valid, and binding
obligations of Crain enforceable against Crain in accordance with their
respective terms.
5.3 Subsidiaries. Seller does not own, directly or indirectly, any
outstanding capital stock, or securities convertible into capital stock, of any
other corporation or any participating interest in any partnership, joint
venture, or other business enterprise.
5.4 No Violation to Result. The execution and delivery of this
Agreement and all other agreements and documents to be executed or delivered in
connection herewith, and the consummation of the transactions contemplated
hereby and thereby:
(a) except with respect to the Bank (which is being paid-off
at the Closing by Buyer), are not in violation or breach of, do not
conflict with or constitute a default under, and will not accelerate or
permit the acceleration of the performance required by, any of the
terms of the charter documents or Operating Agreement of Seller or any
note, debt instrument, security agreement, or mortgage, or any other
contract or agreement, written or oral, to which Seller is a party or
by which Seller or any of its properties or assets are bound;
(b) will not be an event that, after notice or lapse of time
or both, will result in any such violation, breach, conflict, default,
or acceleration;
(c) will not result in a violation under any law, judgment,
decree, order, rule, regulation, or other legal requirement of any
governmental authority, court or arbitration
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tribunal, whether Federal, state, or local (within the United States or
otherwise) at law or in equity, and applicable to Seller or any of its
properties or assets, which could have a material adverse effect on the
Business;
(d) will not result in the creation or imposition of any lien,
option, encumbrance, security agreement, restriction, charge, or claim
of any kind in favor of any third party upon any of the properties or
assets of Seller; and
(e) will not result in the termination of any contract, lease,
or other commitment of Seller relating to the Business, including,
without limitation, any of the Software Contracts and Purchased
Contracts.
5.5 No Existing Defaults. Seller is not in default of, and has no
notice or knowledge of any default under: (i) any of the terms of any note, debt
instrument, security agreement, mortgage, or under any other commitment,
contract, agreement, license, lease, or other instrument, whether written or
oral, to which it is a party or by which it or any of its properties or assets
is bound including, without limitation, any of the Software Contracts and
Purchased Contracts; or (ii) any law, judgment, decree, order, rule, regulation,
or other legal requirement of any governmental authority, court, or arbitration
tribunal whether Federal, state, or local (within the United States or
otherwise), at law or in equity, and applicable to it or to any of its
properties or assets which could have a material adverse effect on the Business.
To the best of Seller's knowledge, there exists no condition or event that,
after notice or lapse of time or both, would constitute a default under any of
the foregoing.
5.6 [intentionally omitted]
5.7 Adverse Changes. From January 31, 1999 to the Closing Date, the
Business has been conducted only in the ordinary and regular course, and there
have not been any material adverse changes in the condition (financial or
otherwise), assets, liabilities, commitments, business prospects of the
Business, the Purchased Assets, or the Assumed Liabilities.
5.8 Taxes. Except as provided on Schedule 5.8 hereto, Seller has
prepared (or caused to be prepared) and timely and properly filed (or caused to
be timely and properly filed) with the appropriate Federal, state, and local
authorities (within the United States or otherwise) all tax returns, information
returns, and other reports required to be filed and has paid or accrued (or
caused to be paid or accrued) in full all taxes, interest, penalties,
assessments, or deficiencies, if any, due to, or claimed to be due by, any
taxing authority, excepting only any such taxes that are being duly and timely
contested in good faith by Seller and adequately reserved on the books of
Seller. Seller has not executed or filed with any taxing authority any agreement
extending the period for assessment or collection of any taxes. Seller is not a
party to any pending action or proceeding, nor is any such action or proceeding
threatened against Seller by any governmental authority for the assessment or
collection of taxes, and no claim for assessment or collection of taxes has been
asserted against Seller. During the course of any audit currently in process or
not completed, no issues have been suggested by any representative of any
governmental authority that, if asserted, would result in a proposed assessment
of taxes, interest, or penalties against
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Seller. Seller has not executed or filed any consent agreement to extend the
period for assessment or collection of any taxes.
5.9 Condition of Assets. All equipment and other items of tangible
personal property owned, leased, or otherwise used by Seller in the Business and
included in the Purchased Assets, are now and on the Closing Date shall be (i)
in the possession of Seller and in useable condition. All equipment and other
items of tangible personal property owned, leased, or otherwise used by Seller
in the Business and included in the Purchased Assets, are located at the
premises listed on Schedule 5.28.2.
5.10 Title to Assets. At the Closing, Seller shall have and shall
transfer to Buyer, good and marketable title to all of the Purchased Assets,
free and clear of any mortgage, pledge, lien, conditional sale or other
agreement, option, encumbrance, restriction, charge, or claim of any kind,
except the liens of the Bank which will be released upon satisfaction of the
obligations to the Bank at Closing. There are no assets used in the operation of
the Business that are not included in the Purchased Assets (except the Excluded
Assets).
5.11 Inventory. Schedule 1((a)) constitutes a true and complete list of
all Inventory.
5.12 Licenses and Permits. Seller possesses all material licenses and
other required governmental or official approvals, permits, and authorizations,
as to which the failure to so possess would have a material adverse effect on
the Business, financial condition, or results of operations of Seller. All such
licenses, approvals, permits, and authorizations are in full force and effect,
Seller is in compliance with their requirements, and no proceedings are pending
or, to the knowledge of Seller, threatened, to revoke or amend any of them.
Schedule 5.12 hereto contains a complete list of all such licenses, approvals,
permits, and authorizations.
5.13 Consents. Except as set forth on Schedule 5.13 hereto, no consent,
approval, authorization, or pre-notification of, or declaration, filing, or
registration with, any governmental or regulatory authority or any third party
is required in connection with the execution, delivery, and performance of this
Agreement by Seller. Except as set forth on Schedule 5.13, all of the Purchased
Assets, including, but not limited to, all contracts, agreements, licenses,
permits, and other rights, are assignable without the prior consent of any third
party.
5.14 Intellectual Property. Schedule 1((j)) constitutes a true and
complete list of all Intellectual Property. Seller or Crain owns or possesses
adequate and enforceable licenses or other rights to use all of the Intellectual
Property, all of which are included in the Purchased Assets and assignable to
Buyer at the Closing. Seller is not in default under any such licensing or
similar agreements, and has not received any notice or other knowledge of
conflict with or infringement (or alleged infringement) of any rights of others
and no officer, manager, employee, member, or former member of Seller, or any
Person (as defined in this Section 5.14), controlling, controlled, by or under
common control with Seller, has any rights in or to any of the Intellectual
Property. The Intellectual Property does not infringe any proprietary right of
any third party. No trade secret information has been wrongfully appropriated by
any third party. To the best of Seller's knowledge, the Intellectual Property is
not being infringed. Except for the payment obligations set forth under Section
10.1 of the Advanced Agricultural
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Innovation/Commercialization Fund Agreement by and between Cattle Management
Network, LLC and Kansas Technology Enterprise Corporation dated as of September
6, 1996, the use in the Business of any of the Intellectual Property and other
technical or proprietary data has not required and does not require the payment
of any royalty or similar payment to any Person, and, on the Closing Date,
Seller and Crain will transfer to Buyer good and marketable title thereto, free
and clear of any claims of any kind, without the payment of any royalty or other
special consideration. In addition to, and without limiting the generality of
the foregoing, Seller has and shall convey to Buyer at the Closing the all of
Seller's rights to use the names "CIN, LLC," "Cattlemen's Information Network
L.L.C.," "Industry Net," "Beef Industry Information Integrator," "Feed Yard
Information System" and "Veterinary Information System" and any names similar
thereto, and the sole and exclusive rights to use the Internet domain name
"cattleinfo.com" and all iterations and permutations thereof, together with all
logos, slogans, trademarks, and service marks relating thereto or heretofore
used by Seller in connection therewith. To the best of Seller's knowledge and
except as set forth in Schedule 5.14, there are no names similar to the names
specified in the prior sentence, used in the agriculture, veterinary medicine,
and animal food sciences markets. Seller and Crain have at all times maintained
in strictest confidence all Intellectual Property (excepting only patents,
copyrights, trademarks, trade names, and service marks). Neither Seller nor
Crain has received any comments from the United States Patent and Trademark
Office the (the "Patent Office") with respect to the patent application referred
to on Schedule 1((j)). Prior to the filing of such patent application with the
Patent Office, neither Seller nor Crain made any public disclosure of any of the
claims asserted thereon which would bar the patentability of the invention(s)
under 35 USC Section 102. Seller or Crain owns the right to obtain, use and
transfer the data compiled through the use of the Software Program and included
in the Intellectual Property (the "Data") pursuant to certain Software Contracts
identified in Section 1(c), and has not conveyed to any third party any interest
in, the rights (including copyright rights) to the Data. The Data has been
selected, coordinated, and arranged in a manner completely original with Seller.
Except as identified in Schedule 5.14, Seller and/or Crain has full right and
authority to use and manipulate the Data and to convey to Buyer all rights
(including copyright rights) to the Data. Except as identified in Schedule 5.14,
there are no Federal or state laws or regulations, or restrictions of any third
party, restricting such rights to use, manipulate, or convey the Data. As used
in this Agreement, the term "Person" means any individual, sole proprietorship,
corporation, partnership, limited liability company, incorporated or
unincorporated association, joint venture, joint stock company, or other entity
of any kind, as the context requires.
5.15 Procedures for Copyright Protection. Schedule 5.15 sets forth the
form and placement of the proprietary legends and copyright notices displayed in
or on the Software Program. In no instance has the eligibility of the Software
Program for protection under applicable copyright law been forfeited to the
public domain by omission of any required notice or any other action.
5.16 Procedures for Trade Secret Protection. Seller has promulgated and
used its best efforts to enforce its trade secret protection program set forth
in Schedule 5.16. Seller has no knowledge of any material violation of such
program by any Person. The source code and system documentation relating to the
Software Program: (i) have at all times been maintained in
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confidence by Seller and, to the best of Seller's knowledge, by any other Person
who has at any time had access to such materials; and (ii) have been disclosed
by Seller only to employees and consultants having a "need to know" the contents
thereof in connection with the performance of their duties to Seller and who are
obligated by common law or by written agreement (which agreements are being
transferred to Buyer pursuant to the transactions contemplated by this
Agreement) to keep such information confidential.
5.17 Personnel Agreements. Anyone, including, but not limited to, all
employees, agents, consultants, and contractors, who have contributed to or
participated in the conception and development of the Software Program,
Technical Documentation, or Intellectual Property on behalf of Seller either:
(i) have been party to a "work-for-hire" arrangement or agreement with Seller,
in accordance with applicable Federal and state law, that has afforded Seller
full, effective, exclusive, and original ownership of all tangible and
intangible property thereby arising; or (ii) have executed appropriate
instruments of assignment in favor of Seller as assignee that have conveyed, in
accordance with applicable Federal and state law, to Seller full, effective, and
exclusive ownership of all tangible and intangible property thereby arising.
5.18 Adequacy of Technical Documentation. The Technical Documentation
includes the source code, system documentation and schematics for the Software
Programs, as well as any pertinent commentary or explanation that may be
necessary to render such materials understandable and usable by a trained
computer programmer. The Technical Documentation also includes any programs
(including compilers), "workbenches," tools, and higher level (or "proprietary")
languages used for the development, maintenance, and implementation of the
Software Program.
5.19 Third-Party Components in the Software Program. Seller has validly
and effectively obtained the right and license to use, copy, modify, and
distribute the third-party programming and materials contained in the Software
Program and the Technical Documentation, pursuant to the Software Contracts
identified as "licenses from third parties" in Schedule 1((c)). The Software
Program and the Technical Documentation contain no other programming or
materials in which any third party may claim superior, joint, or common
ownership, including any right or license. The Software Program and the
Technical Documentation do not contain derivative works of any programming or
materials not owned in their entirety by Seller or Crain and included in the
Purchased Assets.
5.20 Third-Party Interests or Marketing Rights in the Software Program.
Seller has not granted, transferred, or assigned any right or interest in the
Software Program, the Technical Documentation, or the Intellectual Property to
any Person, except pursuant to the Software Contracts identified as "Feedyard or
Veterinary Data Agreements" or "licenses and sublicenses to others" in Schedule
1((c)). Except as set forth in Schedule 1((c)), all Software Contracts
identified as "licenses and sublicenses to others" in Schedule 1((c)) constitute
only end-user agreements, each of which grants the end-user thereunder solely
the nonexclusive right and license to use the Software Program and related user
documentation, for internal purposes only, on a single central processing unit.
There are no contracts, agreements, licenses, and other commitments and
arrangements in effect with respect to the marketing, distribution, licensing,
or
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promotion of the Software Program or any other independent salesperson,
distributor, sublicensor, or other remarketer or sales organization, except for
the Software Contracts identified as "distributorships and manufacturer's
representation contracts" in Schedule 1((c)).
5.21 [Intentionally Omitted]
5.22 Equipment. Schedules 1((d)) and 1((e)) hereto constitutes a true
and complete list of the Computer Equipment and other equipment owned by Seller
or with respect to which it may have ownership rights. Each such piece of
equipment is located at Seller's premises indicated on Schedule 5.28.2.
5.23 Litigation; Warranty Claims. Except as set forth on Schedule 5.23,
for the ten (10) year period occurring immediately prior to the date of this
Agreement, there has not been and currently there is no litigation, suit,
proceeding, action, claim, or investigation, at law or in equity, pending or
threatened against or affecting Seller or involving any property or assets of
Seller, before any court, agency, authority, or arbitration tribunal, including,
but not limited to, any claims related to the Intellectual Property, any product
liability, workers' compensation or wrongful dismissal claims, or claims,
actions, suits, or proceedings relating to toxic materials, hazardous
substances, pollution, or the environment. Seller is not aware of any facts that
might result in any such litigation, suit, proceeding, action, claim, or
investigation that relates to the Purchased Assets or the transactions
contemplated hereby. Seller is not subject to or in default with respect to any
notice, order, writ, injunction, or decree of any court, agency, authority, or
arbitration tribunal. Schedule 5.23 lists all warranty claims asserted against
Seller during the three (3) year period occurring immediately prior to the date
of this Agreement, relating to products sold or distributed by Seller.
5.24 Compliance with Laws. Each of Seller and the Purchased Assets are
in compliance with all laws, statutes, rules, regulations, and other
requirements imposed by Federal, state, local, and other governmental
authorities applicable to the operation or ownership of the Business or the
Purchased Assets, the noncompliance with which would have a material adverse
effect on the Business.
5.25 Employee Benefits. Except as set forth on Schedule 5.25, Seller
has not established or maintained or is not obligated to make contributions to
or under or otherwise participate in, with respect to any current or former
employee, director, or independent contractor of the Seller: (i) any equity
option, restricted equity, equity appreciation rights, bonus, or other type of
incentive compensation plan, program, agreement, or arrangement; (ii) any
severance, pension, profit-sharing, thrift or savings, retirement, deferred
compensation, employee equity ownership, employee equity purchase, or
supplemental executive retirement plan, agreement, or arrangement; or (iii) any
life insurance, death benefit, health and hospitalization, disability, employee
assistance, education or tuition assistance, vacations benefit or fringe benefit
plan, or other employee benefit plan, program, agreement, or arrangement. All
such plans listed on Schedule 5.25 in which any of the Seller's employees
participate (collectively, the "Employee Benefit Plans") have been operated and
administered in all material respects in accordance with all applicable laws,
rules, and regulations and are fully funded. Seller has no obligation or
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<PAGE> 15
commitment (formal or informal) to create any new benefit plan or program, or to
amend any existing Employee Benefit Plan to increase the benefits thereunder.
5.26 Employee Matters; Labor Relations.
5.26.1 Employment Agreements. None of the employees of the Business
are covered by employment contracts, written or oral. None of the employees of
the Business are members of any union or covered by any union contracts. Seller
is not aware of any plan or solicitation of employees of the Business to form or
join a union in the past two (2) years. Seller is not a party to or bound by any
employment agreement (written or oral) or any collective bargaining or other
labor agreement that could in any way affect Buyer, the Purchased Assets, or any
employees of the Business that Buyer may hire after the Closing Date.
5.26.2 Labor Laws. With respect to Seller's employees, Seller has
complied in all material respects with the Immigration Reform and Control Act of
1986, as amended, and all other applicable Federal, state, or local laws
relating to the employment of labor, including, but not limited to, the
provisions thereof relating to wages, non-discriminatory hiring, promotional and
employment practices and procedures, collective bargaining and payment of Social
Security, unemployment compensation, workers' compensation, and similar taxes,
and Seller is not presently liable to any Person or governmental agency for any
wage in arrears or subject to any liabilities or penalties for failure to comply
with any of the foregoing laws. With respect to Seller's employees, there are no
outstanding charges or claims of a material nature against Seller or any of its
officers, directors, agents, or employees involving any alleged or actual
violation of Seller, or, to the best of Seller's knowledge, any such Person, of
any provision of the National Labor Relations Act, the Age Discrimination in
Employment Act, the Equal Employment Opportunity Act of 1964, or any other
Federal, state, or local law concerning equal employment opportunities, equal
pay legislation, or wage and hour obligations contained in the Fair Labor
Standards Act; nor, to Seller's knowledge, has there been any threat of any such
claim or charge.
5.27 Insurance. Seller presently maintains and has maintained,
liability (excluding product liability which Seller has never maintained),
casualty, property loss, and other insurance coverage upon the properties
included in the Purchased Assets and with respect to the Business, in such
amounts, of such kinds, and with such insurance carriers as are indicated on
Schedule 5.27 hereto. Schedule 5.27 is a true and complete list of all policies
of insurance relating to the Business, the Purchased Assets, and the Assumed
Liabilities, whether currently in force or otherwise applicable to any current
or future liability, setting forth the type of coverage, policy number, policy
periods, and the status of premiums paid thereon.
5.28 Leases, Contracts, and Other Commitments.
5.28.1 Contracts and Other Commitments. Except for the Purchased
Contracts described in Schedule 1((h)) attached hereto, the Software Contracts
described in Schedule 1((c)), and the Property Leases and except with respect to
any Excluded Asset, Seller has no outstanding contracts or other commitments,
written or oral, for the performance or receipt of services, or for the payment
of monies, or for the purchase, sale, lease, license, use, or acquisition of
real or personal property of any kind or character relating to the Business, the
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Purchased Assets, or the Assumed Liabilities, except for the purchase orders,
sales orders, and other similar commitments incurred in the ordinary course of
business which (i) in the case of contracts or commitments that involve the
performance of services or the sale of products by Seller, do not involve the
payment to Seller of any amount in excess of Two Thousand Five Hundred Dollars
($2,500.00) in any single case and Ten Thousand Dollars ($10,000.00) in the
aggregate, (ii) in the case of contracts or commitments that involve the receipt
of services or the purchase, lease, or other acquisition of property by Seller,
do not involve the payment of any amount in excess of Two Thousand Five Hundred
Dollars ($2,500.00) in any single case or Ten Thousand Dollars ($10,000.00) in
the aggregate, and (iii) in either case, none of which, by its terms, cannot be
performed within one (1) year from the date of such contract or commitment.
Specifically, without limiting the generalities of the foregoing, Seller has no
written or oral contract, agreement, or understanding with any sales
representative, commission agent, distributor, consultant, or similar Person,
nor any written or oral employment contract, agreement, or understanding with
any Person, that relates to the Business, the Purchased Assets, or the Assumed
Liabilities, except as may be disclosed in the attached Schedule 1((h)).
5.28.2 Property Leases. Schedule 5.28.2 identifies each of the real
properties in which Seller has a valid and subsisting leasehold interest (the
"Property Leases") and describes each of the Property Leases thereto. Seller
does not own any real property that is used in or useful in the operation of the
Business.
5.28.3 Compliance with Contracts. Seller is in compliance with the
provisions of all contracts, leases, and other commitments that relate to the
Business, the Purchased Assets, and the Assumed Liabilities, the noncompliance
with which would have a material adverse effect on the Business, the Purchased
Assets or the Assumed Liabilities, and to the best of Seller's knowledge, no
default exists by any party to any such contract, lease, or commitment;
furthermore, to the best of Seller's knowledge, no event has occurred that, with
the passage of time or giving of notice or both, would constitute a default
under any such contract, lease, or commitment, nor is Seller aware of any event
or circumstance that could reasonably cause such a default or event to occur in
the future. All such contracts, leases, and commitments are valid, binding, and
enforceable in accordance with their terms and are in full force and effect. No
outstanding purchase commitment of Seller is in excess of the normal, ordinary,
and usual requirements of the Business, and no contract price in any outstanding
purchase commitment of Seller is excessive of the current market prices for the
relevant materials, products, commodities or services. Further, the grant of
rights to use the data obtained pursuant to the Feedyard Data Agreements and
Veterinary Data Agreements being transferred to Buyer are sufficient to allow
manipulation of the data by the Feedyard Information System and Veterinary
Information System, respectively, in their current and anticipated
configurations. No outstanding sales or lease commitment by Seller in connection
with the Business obligates Seller to sell or lease any products or services at
a price which, in view are currently prevailing and projected costs of
manufacturing, overhead and administrative and general expenses applicable
thereto, would result in, when all such sales and lease commitments are taken in
the aggregate, any loss.
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5.29 Accounts Receivable. Schedule 1((f)) constitutes a true and
complete list of all Accounts Receivable. All Accounts Receivable arose from
bona fide transactions in the ordinary course of business and are not subject to
any offset, counterclaim, or set-off.
5.30 Accounts Payable. Schedule 3.2 constitutes a true and complete
list of all accounts payable and accrued expenses included within the Assumed
Liabilities. All such accounts payable and accrued expenses arose from bona fide
transactions in the ordinary course of business.
5.31 Customers. Attached hereto as Schedule 5.31, is a complete and
accurate list of Seller's feedyard and veterinary customers during the twelve
(12) month period ending as of the date hereof, indicating the existing
contractual arrangements, if any, with each such customer. There are no
outstanding disputes with any customer listed on Schedule 5.31 and no such
customer has refused to, or stated its intention not to, continue to do business
with Seller or otherwise to materially change its arrangements with Seller.
5.32 Related Party Transactions. Except as set forth on Schedule 5.32
hereto, None of the members, managers, or officers of Seller: (i) are currently
a party to any transaction with Seller, including, but not limited to, any
contract, agreement, or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from, any such Person, or to or from any
corporation, partnership, limited liability company, trust, or other entity in
which any such Person owns in excess of five percent (5%) of the outstanding
equity interest; (ii) own, directly or indirectly, any interest in, excepting
not more than five percent (5%) equity holdings for investment purposes,
securities of any publicly held or traded company; (iii) are an officer,
director, employee, or consultant of any Person that is a competitor, customer,
or supplier of Seller; (iv) own, directly or indirectly, in full or in part, any
copyright, trademark, trade name, service mark, franchise, patent, invention,
permit, license, trade secret, or confidential information that Seller is using
or the use of which is necessary for the Business; or (v) have any cause of
action or other claim whatsoever against, or owes any amount to Seller.
5.33 Brokers. Seller has not expressly or impliedly retained any
broker, finder, investment banker, or financial advisor in connection with this
Agreement or the transactions contemplated hereby. Seller has not taken any
actions that will cause Buyer to incur or be required to pay, any broker,
finder, investment banker, financial advisor, or similar fee in connection with
this Agreement or any transaction contemplated hereby, to any Person acting as
broker, finder, investment banker, financial advisor, or in any similar capacity
on behalf of Seller.
5.34 Full Disclosure. No representation or warranty of Seller, and none
of the information furnished by Seller or by any of the authorized managers,
officers, employees, agents, accountants, or representatives of Seller, to Buyer
pursuant to this Agreement (whether furnished prior to, at, or subsequent to the
date hereof), or the information contained in the Schedules to this Agreement,
or any other information furnished to Buyer by Seller or by any of the
authorized directors, officers, employees, agents, accountants, or
representatives of Seller at
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any time prior to the Closing (pursuant to the request of Buyer or otherwise),
contains, or will contain, any misstatement of a material fact or omits, or will
omit, any material fact required to be stated herein or therein or necessary to
make all such statements and information not misleading. For purposes of this
Section 5.34, all managers and officers of Seller are authorized persons. As of
the Closing, there will be no material facts relating to the Purchased Assets,
Assumed Liabilities, earnings, properties, or operation of the Business that
have not been disclosed to Buyer in writing in this Agreement or the Schedules
hereto.
5.35 Investment in Shares. Seller has such knowledge and experience in
financial and business matters that it is capable of protecting its own
interests in connection with the acquisition of the Shares and evaluating the
merits and risks of its investment in the Shares. Seller has been provided, to
its satisfaction, the opportunity to ask questions concerning the terms and
conditions of its investment in the Shares, has had all such questions answered
to its satisfaction, and has been supplied all additional information deemed
necessary to evaluate an investment in the Shares. Seller is satisfied that,
whether or not Seller has chosen to utilize it, Seller has had effective access
to all material information about Buyer by reason of its relationship to Buyer
or one or more of Buyer's officers, directors, or stockholders. Seller
understands that an investment in the Shares involves a high degree of risk, is
familiar with the type of investment that the Shares constitutes, and has
reviewed the investment in the Shares with tax and legal counsel to the extent
that Seller has deemed such review to be advisable. Seller is investing in the
Shares solely for its own account, for investment, and not with a view to or for
any distribution, resale, subdivision, or fractionalization thereof in
connection with any distribution of securities within the meaning of the
Securities Act of 1933, as amended (the "Act"). Seller is the sole and true
party in interest and is not investing for the benefit of any other Person, nor
investing in a fiduciary capacity for any other Person. Seller acknowledges that
the Shares are being transferred to Seller in a private transaction, pursuant to
exemptions afforded by Section 4(2) of the Act and Section 17-1262 of the Kansas
Securities Act, and not registered thereunder or under the securities laws of
any other state or foreign jurisdiction, and that consequently, the Shares must
be held indefinitely unless they are subsequently registered under the Act, or
unless an exemption from registration is available thereunder. Seller further
acknowledges that Buyer has no obligation to register the Shares, except as
provided in the Registration Rights Agreement, and the certificate that will be
issued to Seller upon the issuance of the Shares shall contain a legend
substantially in the form set forth below with reference to the necessity for
compliance with Federal and state securities laws in connection with any
subsequent transfer of the Shares; Seller hereby agrees to deal with these
Shares only in compliance with such requirements:
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, OR ASSIGNED EXCEPT: (i) PURSUANT TO
REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS; OR (ii) IF, IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THE
PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE
SECURITIES LAWS WITHOUT REGISTRATION.
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5.36 True Copies. All documents furnished to Buyer by or on behalf of
Seller are true and correct copies, and there are no amendments or modifications
thereto except as set forth in such documents.
5.37 Survival of Representations and Warranties. The representations
and warranties of Seller made in this Agreement are correct, true, and complete
in all material aspects as of the date hereof and will be correct, true, and
complete in all material aspects at the Closing Date with the same force and
effect as though such representations and warranties had been made at the
Closing Date, and shall survive the Closing as provided in Article IX.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to Seller, on and as of the date hereof
and on and as of the Closing Date, as follows:
6.1 Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
6.2 Power and Authority. Buyer has all requisite power and authority to
enter into this Agreement, and all other agreements in connection herewith, and
to perform the obligations to be performed by it hereunder. All corporate and
other proceedings required to be taken by or on the part of Buyer to execute,
deliver, and carry out the terms of this Agreement, and all other agreements or
documents to be executed or delivered in connection herewith, and to perform its
obligations hereunder and thereunder, have been duly and properly taken. This
Agreement, and all other agreements and documents to be executed and delivered
by Buyer in connection herewith when executed and delivered, constitute the
legal, valid, and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms.
6.3 No Violation to Result. The execution and delivery of this
Agreement and all other agreements and documents to be executed and delivered in
connection herewith, and the consummation of the transactions contemplated
hereby and thereby:
(a) are not in violation or breach of, do not conflict with or
constitute a default under, and will not accelerate or permit the
acceleration of the performance required by, any of the terms of the
charter documents or by-laws of Buyer or any note, debt instrument,
security agreement, or mortgage, or any other contract or agreement,
written or oral, to which Buyer is a party or by which Buyer or any of
its properties or assets is bound;
(b) will not be an event that, after notice or lapse of time
or both, will result in any such violation, breach, conflict, default,
or acceleration; and
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(c) will not result in a violation under any law, judgment,
decree, order, rule, regulation or other legal requirement of any
governmental authority, court, or arbitration tribunal whether Federal,
state, or local (within the United States or otherwise) at law or in
equity, and applicable to Buyer.
6.4 Capitalization. The authorized capital stock of Buyer immediately
prior to the Closing, consists of 20,000,000 shares of Common Stock, par value
one cent ($.01) per share, of Buyer (the "Common Stock"), 4,676,500 shares of
which are outstanding as of the Closing, and 10,000,000 shares of Preferred
Stock (the "Preferred Stock"). As of the date of the Closing, 6,500,000 shares
of Preferred Stock have been designated as Series A, of which 6,443,606 shares
of which are outstanding. The Shares have been duly authorized for issuance.
Assuming the accuracy of the representations of Seller set forth in Section
5.35, the Shares will have been offered, issued, sold and delivered in
compliance with all applicable state and federal laws concerning the issuance of
securities, and when issued, will be validly issued, fully paid and
non-assessable shares of Common Stock, and will not have been issued in
violation of the preemptive rights of any person. Other than as described in
this Section 6.4 or set forth in Schedule 6.4, there are no outstanding shares
of Common Stock, Preferred Stock, or any other securities of Buyer, and except
as described on Schedule 6.4 hereto, there are no options, warrants, call
conversion rights, commitments, or agreements of any character to which Buyer is
a party or by which Buyer may be bound that do or may obligate Buyer to issue,
deliver, or sell, or cause to be issued, delivered, or sold, additional shares
of Common Stock, Preferred Stock, or other securities of Buyer, or that do or
may obligate Buyer to grant, extend, or enter into any such option, warrant,
call conversion right, commitment, or agreement. Except as set forth in Schedule
6.4, there are no outstanding arrangements, agreements, commitments, or
understandings of any kind affecting or relating to the voting, issuance,
purchase, redemption, repurchase, or transfer of any capital stock or any other
securities of Buyer.
6.5 Brokers. Buyer has not expressly or impliedly retained any broker,
finder, investment banker, or financial advisor in connection with this
Agreement or the transactions contemplated hereby. Buyer has not taken any
actions that will cause Seller to incur or be required to pay, any broker,
finder, investment banker, financial advisor, or similar fee in connection with
this Agreement or any transaction contemplated hereby, to any Person acting as
broker, finder, investment banker, financial advisor, or in any similar capacity
on behalf of Buyer.
ARTICLE VII
FURTHER AGREEMENTS AND ASSURANCES OF SELLER
7.1 Obligations to Employees. Seller shall terminate the employment of
each of its employees as of February 26, 1999. To the extent any employee of
Seller rejects Buyer's offer of employment made pursuant to Section 8.3 hereof,
Seller shall be responsible for, and shall pay, all amounts (excluding any
amounts included in the Assumed Liabilities), including wages, salaries,
bonuses, commissions, vacation pay, and severance pay, if any, and all other
employee
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benefits due to any or all of Seller's employees or independent contractors.
Specifically, but not in limitation of the foregoing, Seller shall be
responsible for providing COBRA health continuation coverage under Section 4980B
of the Code to all of its employees to the extent required by law, as well as
complying with all Federal, state, and local laws, rules, and regulations
promulgated thereunder, relating to the termination of employees, including, but
not limited to, the Worker's Adjustment and Retraining Notification Act. Buyer
does not assume and Seller shall indemnify, defend, and hold harmless Buyer
against any and all obligations and responsibilities with respect to each and
every employee of Seller under any employment agreement, current or future
pension, retirement, deferred compensation, bonus, profit-sharing, insurance, or
similar plan, agreement, arrangement, or formal or informal understanding, for
the benefit of employees, in each case whether or not legally binding, that
Seller maintains or ever has maintained or to which Seller contributes or ever
has contributed or to which Seller is obligated to contribute including, but not
limited to, the Employee Benefit Plans. Buyer shall have no liability whatsoever
to employees of Seller with respect to accrued benefits under any Employee
Benefit Plans for employees' service with Seller, whether or not any of such
employees are offered employment by, or become employees of, Buyer. Seller shall
be responsible for and shall indemnify, defend, and hold harmless Buyer against
all employee benefit claims (including long-term disability and medical and
hospitalization claims) of any nature whatsoever and workers' compensation
claims: (a) that have arisen on or before the Closing Date for any and all
employees of Seller; (b) for employees of Seller who are or become retired on or
before the Closing Date with respect to disability, illness, or any other state
of facts occurring before or after the Closing Date; (c) for any and all
employees of Seller (or their eligible dependents) with respect to events or
situations that may lead to a determination of eligibility or disability,
illness, or any other state of facts occurring before the Closing Date; and (d)
in respect of all of Seller's employees. Buyer shall have no liability
whatsoever in respect of any of the foregoing.
7.2 Non-Disclosure and Non-Competition Relating to the Business. From
and after the Closing Date, Seller and Crain shall not:
(a) at any time or in any manner, either directly or
indirectly, divulge, disclose, or communicate to any Person (other than
Buyer's employees and representatives), except the authorized
attorneys, accountants, or representatives of Seller or Crain who have
a need to know in connection with their respective services for Seller
or Crain, in any manner whatsoever, any Confidential Information (as
defined in this Section);
(b) for a period of five (5) years from and after the Closing
Date, in any manner, either directly or indirectly, as an owner,
partner, officer, director, consultant, agent, employee, independent
contractor, or equity holder (as applicable) of any Person, engage in
the business of developing, marketing, distributing, or selling
services or software designed to provide information services, imaging
tools, or animal supplements (except for the sale, prescription, or
distribution of annual supplements in the ordinary course of a bovine
and equine veterinary practice) in the markets of veterinary medicine,
animal sciences, or human medicine, anywhere within the United States
of America;
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(c) for a period of five (5) years from and after the Closing
Date, in any manner, either directly or indirectly, solicit any
employee of Buyer (or the Business) to work for any Person other than
Buyer, or engage in any activity that would cause any employee to
violate any agreement with Buyer, or dissuade, or attempt to dissuade,
any such employee from faithfully discharging such employee's
contractual and fiduciary obligations to serve Buyer's interests with
undivided loyalty; and
(d) induce or persuade any customer or supplier of Buyer (or
the Business) to terminate its relationship with Buyer (or the
Business) or to enter into any relationship with any other Person
engaged in the business of developing, marketing, distributing, or
selling services or software designed to provide information services,
imaging tools, or animal supplements (except for the sale,
prescription, or distribution of annual supplements in the ordinary
course of a bovine and equine veterinary practice) in the markets of
veterinary medicine, animal sciences, or human medicine, anywhere
within the United States of America.
Notwithstanding the foregoing, Crain shall not be deemed to be competing with
the Business pursuant to his employment by Buyer and neither Seller nor Crain
shall be deemed to be in violation of subsection ((b)) immediately preceding, by
reason of the fact that certain employees of Crain's veterinary practice (being
Crain, Dr. Nate McDonald, Cathy Rosenberry and Shane Walter) may also be
employed on a shared basis with Buyer. For purposes of this Section 7.2,
"Confidential Information" means any information not in the public domain
concerning any matters affecting or relating to the Business, including, but not
limited to, inventions, trade secrets, confidential knowledge, data, or other
proprietary information relating to products, processes, know-how, designs,
formulas, developmental or experimental work, computer programs, source code,
databases, other original works of authorship, records, ideas and research
relating to design, coding, operation, use, installation, or maintenance of
computer software or proposed computer software products of the Business, any
portion of any reports, analyses or other materials generated or used in
connection with the Business, the prices Seller obtains or has obtained from the
sale of, or at which it sells or has sold, its products and services, and
listings of any or all of the foregoing, in whatever form, or any other
information concerning the Business without regard to whether all or any part of
the foregoing matter would otherwise be deemed "confidential" or "material," the
parties hereto stipulating that, as between them, the same are confidential and
material and significantly affect the effective and successful conduct of the
Business. If any clause or provision of this Section 7.2 be found unenforceable
by a court of competent jurisdiction, then such clause or provision shall be
deemed to be enforceable to the extent permitted by law and every other clause
and provision shall continue in full force and effect. Seller and Crain
acknowledge that the restraints imposed upon it or him, as applicable, pursuant
to this Section 7.2 are no greater than is reasonably necessary to preserve and
protect the assets and legitimate business interests of Buyer and that such
restraints will not impose undue hardship on Seller or Crain, and that a
violation of this Section by Seller or Crain would irreparably injure Buyer.
Accordingly, Buyer may, in addition to pursuing its other remedies, obtain an
injunction from any court having jurisdiction of the matter against Seller or
Crain, as applicable, for any such violation without having to prove the
inadequacies of monetary relief and no bond or other security shall be required
in connection with such injunction. The agreements contained in this Section 7.2
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shall be construed and enforced independently of any other provision of this
Agreement or any other understanding or agreement between the parties, and the
existence of any claim or choses of action of Seller or Crain against Buyer, of
whatever nature, shall not constitute a defense to the enforcement of the
agreements contained in this Section 7.2 against Seller.
7.3 Satisfaction of Excluded Liabilities. From and after the Closing
Date, Seller shall pay, perform, and otherwise satisfy in full when due, all
liabilities and obligations that relate to or may affect the Business or the
Purchased Assets, including, but not limited to, the Excluded Liabilities,
excepting only the Assumed Liabilities.
7.4 Further Assurances. From time to time after the Closing, without
additional consideration, Seller shall execute and deliver all such other
instruments of sale, assignment, conveyance, and transfer and shall take all
such other action, as Buyer may request to more effectively transfer and vest in
Buyer, and to put Buyer in possession of, any of the Purchased Assets including,
but not limited to, the Intellectual Property.
7.5 Name Change. Seller shall take all necessary action to approve the
withdrawal or cancellation of every registration or a limited liability company
or assumed name incorporating the names "CIN, LLC," "Cattle Management Network,
L.L.C.," "Cattlemen's Information Network, L.L.C.," "Industry Net," and "Beef
Industry Information Integrator" in each state where Seller has registered a
limited liability company or assumed name incorporating such names. Seller shall
prepare and deliver to Buyer at Closing, all documentation and filings necessary
to effect such actions, in forms appropriate for filing by Buyer. After the
Closing Date, Seller shall refrain from using the names "CIN, LLC," "Cattle
Management Network, L.L.C.," "Cattlemen's Information Network, L.L.C.,"
"Industry Net," and "Beef Industry Information Integrator" or any derivation
thereof, except in an historical manner.
7.6 Collection of Accounts Receivable. For a period of ninety (90) days
from the Closing Date, Seller shall reasonably assist Buyer in the collection of
the Accounts Receivable.
ARTICLE VIII
FURTHER AGREEMENTS AND ASSURANCES OF BUYER
8.1 Satisfaction of Conditions by Buyer. Buyer shall not voluntarily
undertake any course of action inconsistent with the satisfaction of the
requirements or conditions applicable to it in this Agreement, including, but
not limited to, the satisfaction of the Assumed Liabilities, and Buyer shall
promptly do all such acts and take all such measures as may be appropriate to
enable it to perform the obligations herein provided to be performed by it.
8.2 Buyer to Assist in Obtaining Consents. Buyer shall provide
assistance, as reasonably requested by Seller, to secure consents to the
assignment of any of the contracts to be assumed by Buyer hereafter.
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8.3 Employment. Buyer shall offer at-will employment effective as of
March 1, 1999, subject to execution of Buyer's Non-Disclosure, Proprietary
Information, Assignment And Non-Competition Agreement, to all employees of
Seller set forth on Schedule 8.2. All such offers of employment shall include
all benefits available to other similarly situated employees of Buyer (as
determined by Buyer) and shall include participation in the Buyers health
insurance without any waiting period or exclusions for preexisting conditions.
For the benefit of Seller, Buyer shall offer all such employees a bonus, as
specified on Schedule 8.2, payable on or before October 31, 1999, with such
bonuses in the aggregate not to exceed One Hundred Seventeen Thousand Dollars
($117,000.00).
8.4 Spin Out. Buyer covenants and agrees that Buyer shall use
commercially reasonable efforts to assess or cause to be assessed the viability
of spinning out a portion of the Business as a separate company for the purpose
of developing, marketing, and distributing software applications developed from
the Software Program solely for use in the agricultural industry (being business
devoted to the science and art of producing crops, but specifically excluding
livestock, poultry, or any other food animals) (the "Agrivision Technology"). In
the event such a spin out company is formed (the "Spin Out"), and as additional
consideration for the transaction contemplated under this Agreement, the Spin
Out entity shall issue to Seller shares of its common equity constituting
twenty-five percent (25%) of the initial equity of the Spin Out, but in no event
less than one million (1,000,000) shares of such equity. So long as Seller's
ownership interest in the Spin Out remains between twenty-five percent (25%) and
ten percent (10%), contemporaneously with any acquisition by XL Vision, Inc.
("XL Vision") of additional equity in the Spin Out, Seller shall be offered the
opportunity to purchase an additional amount of equity on the same terms as XL
Vision so that Seller may maintain a percentage ownership in the Spin Out in the
same proportion as its ownership interest relates to the ownership interest of
by XL Vision in the Spin Out immediately prior to such offer. Further, if
Seller's ownership interest in the Spin Out falls below ten percent (10%), Buyer
shall use its best commercial efforts to cause the Spin Out to grant Seller
pre-emptive rights relating to capital-raising transactions (excluding, by way
of example and without limitation, issuances relating to any "Excluded
Transaction" as defined in the immediately following sentence. For purposes of
this Section, "Excluded Transaction" shall mean the issuance of any equity
securities (including any common stock, preferred stock, or other security, any
security convertible into common stock, preferred stock, or other security, or
any right to, or security carrying any right to, subscribe to or purchase any
common stock, preferred stock, or other security): (i) to any employees,
officers, or directors of, or consultants or advisors (excluding Buyer or XL
Vision) to, the Spin Out or any subsidiary, pursuant to any stock purchase or
stock option plan or other arrangement that has been approved by the board of
directors of the Spin Out; (ii) pursuant to a merger, consolidation,
acquisition, or similar business combination (for consideration other than
cash); (iii) pursuant to any stock split, stock dividend, or recapitalization
(assume that all shares of the same class of stock are effected in the same
manner) by the Spin Out; (iv) pursuant to the conversion of any convertible
equity securities or the exercise of any rights to subscribe to or purchase any
equity securities; (v) pursuant to any equipment leasing arrangement or debt
financing from a bank or similar financial institution; (vi) pursuant to a
registration statement filed under the Act; or (vii) in connection with any
strategic transaction involving the Spin Out and other entities, including (a)
joint ventures, manufacturing, marketing, or distribution
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arrangements or (b) technology transfer or development arrangements, provided
that such strategic transaction, and the issuance of equity securities in
connection therewith, has been approved by the board of directors of the Spin
Out. For so long as Crain owns at least ten percent (10%) of the Spin Out, Buyer
will use its best commercial efforts to cause Crain to be elected to the Board
of Directors of the Spin Out. In the event Buyer has not formed a spin out
company based on the Agrivision Technology within ninety (90) days of the first
anniversary of the Closing Date, Seller shall have ninety (90) days within which
to request in writing that Buyer grant Seller or an entity designated by Seller,
a perpetual, limited, royalty-free license to the Software Program for the sole
purpose of developing, marketing, and distributing the Agrivision Technology. In
consideration of such license, Buyer shall be issued equity constituting five
percent (5%) of the equity of the licensee entity.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations and Warranties. Notwithstanding any
other provision of this Agreement, each and every representation and warranty of
Seller and Crain set forth in this Agreement or any other agreement or document
executed or delivered in connection herewith, shall survive the Closing for a
period of two (2) years from the Closing Date, despite any investigations made
by or on behalf of any party hereto, excepting only that the representations and
warranties of Seller and Crain set forth in Sections 5.2 and 5.10, shall survive
the Closing without limitation, and the representations and warranties with
respect to taxes set forth in Section 5.8, shall survive until the expiration of
any statutes of limitation applicable with respect to such taxes, including any
extensions with respect to such statutes granted by or on behalf of Seller.
Notwithstanding any other provision of this Agreement, each and every
representation and warranty of Buyer set forth in this Agreement or any other
agreement or document executed or delivered in connection herewith, shall
survive the Closing for a period of two (2) years from the Closing Date, despite
any investigations made by or on behalf of any party hereto, excepting only that
the representations and warranties of Buyer set forth in Section 6.2, shall
survive the Closing without limitation. All of the covenants and other
agreements of the parties hereto shall survive the Closing until the expiration
of any statutes of limitation applicable thereto.
9.2 Indemnification.
9.2.1 By Seller and Crain. Seller and Crain, jointly and severally,
hereby indemnify and agree to defend and hold Buyer and its officers, directors,
shareholders, affiliates, employees, successors, and assigns (collectively, the
"Buyer Indemnitees") harmless from and against any and all liabilities, losses,
damages, costs, and expenses (including, without limitation, court costs, costs
of investigation, and reasonable attorneys' fees), incurred or sustained by any
of the Buyer Indemnitees because of any inaccuracy in, or breach or violation
of, any of the representations, warranties, covenants, or agreements made by
Seller or Crain pursuant to this Agreement or any other agreement or document
executed or delivered in connection herewith, whether or not such inaccuracy,
breach, or violation was known or should have been known, by
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Buyer, Seller, or Crain on the Closing Date, it being the acknowledged intention
of the parties that Seller and Crain shall be completely responsible for, and
Buyer shall be conclusively deemed to have relied upon, such representations,
warranties, and covenants in the consummation of the purchase and sale
transactions contemplated herein. In addition, Seller and Crain, jointly and
severally, hereby indemnify and agree to defend and hold the Buyer Indemnitees
harmless from and against any and all liabilities, lawsuits, damages, costs and
expenses (including, but not limited to, court costs, costs of investigation,
and reasonable attorneys' fees), incurred or sustained by any of the Buyer
Indemnitees as a result of: (i) any and all debts, liabilities (including, but
not limited to, the Excluded Liabilities set forth in Section 3.3), obligations,
or commitments of Seller or Crain of any nature whatsoever, whether approved,
liquidated, unliquidated, ordinary, extraordinary, absolute, contingent,
unknown, known, or otherwise, except the Assumed Liabilities, which Buyer
expressly agrees to assume pursuant to Section 3.2; and (ii) any and all suits,
actions, or claims (including, but not limited to, product liability, patent
infringement, and unfair trade practice claims) relating to the sale or any
other form of transaction, or any action or inaction on the part of Seller or
Crain at any time on or prior to the Closing Date, whether or not pending as of
the Closing Date.
9.2.2 By Buyer. Buyer hereby indemnifies and agrees to defend and
hold Seller and its officers, Manager, members, affiliates, employees,
successors, and assigns (collectively, the "Seller Indemnitees") harmless from
and against any and all liabilities, losses, damages, costs, and expenses
(including, without limitation, court costs, costs of investigation, and
reasonable attorneys' fees), incurred or sustained by any of the Seller
Indemnitees because of any inaccuracy in, or breach or violation of, any of the
representations, warranties, covenants, or agreements made by Buyer pursuant to
this Agreement or any other agreement or document executed or delivered in
connection herewith, whether or not such inaccuracy, breach, or violation was
known or should have been known, by Buyer, Seller, or Crain on the Closing Date,
it being the acknowledged intention of the parties that Buyer shall be
completely responsible for, and Seller shall be conclusively deemed to have
relied upon, such representations, warranties, and covenants in the consummation
of the purchase and sale transactions contemplated herein. In addition, Buyer
hereby indemnifies and agrees to defend and hold the Seller Indemnitees harmless
from and against any and all liabilities, lawsuits, damages, costs and expenses
(including, but not limited to, court costs, costs of investigation, and
reasonable attorneys' fees), incurred or sustained by any of the Seller
Indemnitees as a result of: (i) any and all debts, liabilities (including, but
not limited to, the Assumed Liabilities set forth in Section 3.3), obligations,
or commitments of Buyer of any nature whatsoever, whether approved, liquidated,
unliquidated, ordinary, extraordinary, absolute, contingent, unknown, known, or
otherwise, except the Excluded Liabilities, which Seller expressly agrees to
retain and satisfy pursuant to Section 3.2; and (ii) any and all suits, actions,
or claims (including, but not limited to, product liability, patent
infringement, and unfair trade practice claims) relating to the sale or any
other form of transaction, or any action or inaction on the part of Buyer at any
time after the Closing Date.
9.2.3 DeMinimus Exclusion and Limitation of Liability.
Notwithstanding either of the immediately preceding two subsections, it is
understood and agreed that with respect to inaccuracies or breaches of the
representations and warranties set forth in this Agreement, Seller
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and Crain or Buyer, as the case may be, shall be obligated to indemnify and hold
harmless, in the case of Seller and Crain, Buyer and, in the case of Buyer,
Seller, only to the extent that the aggregate sum of the liabilities, damages,
costs and expenses incurred or sustained by such other with respect to all such
inaccuracies or breaches shall exceed the sum of Twenty-Five Thousand Dollars
($25,000.00). The foregoing sentence is intended to be and shall be applicable
solely with respect to inaccuracies or breaches of the representations and
warranties set forth in this Agreement, and shall not be deemed to limit the
parties' respective obligations (including indemnification obligations) with
respect to any breaches or violations of any covenants or other provisions of
this Agreement. Specifically, and without limiting the generality of the
foregoing, the first sentence of this Section shall not be applicable to: (i)
any failure by Seller to transfer any of the Purchased Assets to Buyer, to pay,
perform and discharge the Excluded Liabilities, or to comply with the terms of
Article 7 of this Agreement, or (ii) any failure by Buyer to pay the Purchase
Price hereunder, to pay, perform and discharge the Assumed Liabilities, or to
comply with the terms of Article 8 of this Agreement. Notwithstanding this
Section, in no event shall the liability of Seller and Crain under this
Agreement for any and all causes of action exceed Two Million Six Hundred
Thousand Dollars ($2,600,000.00), in the aggregate and in no event shall the
liability of Buyer under this Agreement for any and all causes of action exceed
Two Million Six Hundred Thousand Dollars ($2,600,000.00), in the aggregate and
including the value of the Purchase Price paid hereunder.
9.3 Set-off. Upon written notice to Seller, Buyer may set off against
any and all amounts otherwise to be paid to Seller under Sections 3.1((b)) and
((c)) or otherwise, any amounts claimed in good faith to be owed to Seller by
Buyer.
ARTICLE X
AMENDMENT; WAIVER
10.1 Amendment. This Agreement may only be amended in a writing that
refers to this Agreement and is executed by the parties hereto.
10.2 Integration. This Agreement (including the Exhibits and Schedules
hereto), and each agreement or document executed or delivered in connection
herewith, embodies the entire agreement of the parties hereto in relation to the
purchase and sale of the Purchased Assets and the other transactions
contemplated herein, and supersedes all prior understandings and agreements of
the parties with respect to the subject matter hereof, including, but not
limited to that certain Proposal for Investment letter dated February 3, 1999,
to Seller and Crain from Buyer and XL Vision.
10.3 Waiver; Remedies. No delay on the part of any party in exercising
any right, power, or privilege shall operate as a waiver thereof, nor shall any
waiver of any right, power, or privilege operate as a waiver of any other right,
power, or privilege, nor shall any single or partial exercise of any right,
power, or privilege preclude any other or further exercise thereof or of any
other right, power, or privilege. The rights and remedies herein provided are
cumulative and are
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not exclusive of any rights or remedies that the parties otherwise may have at
law or in equity, by statute or otherwise.
ARTICLE XI
MISCELLANEOUS
11.1 Successors, Assigns, and Third Parties. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successor and assigns; provided, however, that Seller may not make any
assignment of this Agreement or any interest herein or obligation hereunder,
without the prior written consent of Buyer. Nothing herein expressed or implied
is intended or shall be construed to confer upon or give to any Person, other
than the parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
11.2 Governing Law. This Agreement shall in all respects be
interpreted, construed, and governed by and in accordance with the laws of the
State of Delaware, applicable to contracts made and to be performed therein.
Seller and Crain agree that any court proceedings brought by either of them
against Buyer arising out of this Agreement, will only be brought in a Federal
or state court located in the State of Florida, County of Indian River and in
that regard each irrevocably consents to the jurisdiction and venue (and waives
any inconvenient forum objection) of such Federal and state courts, for the
purposes of any court proceedings brought by either of them hereunder and to
accept service of process by mail. Buyer agrees that any court proceedings
brought by it against either Seller or Crain arising out of this Agreement, will
only be brought in a Federal or state court located in the State of Kansas,
County of Sedgwick and in that regard irrevocably consents to the jurisdiction
and venue (and waives any inconvenient forum objection) of such Federal and
state courts, for the purposes of any court proceedings brought by it hereunder
and to accept service of process by mail.
11.3 Specific Performance. The purpose of Buyer in entering this
Agreement is to gain control of the Purchased Assets of the Business. Such
Business and the Purchased Assets are unique and cannot be readily obtained on
the open market. If Seller refuses to perform its obligations under this
Agreement, Buyer shall be entitled to specific performance. In any action to
enforce the provisions of this Agreement, Seller shall waive the defense that
there is an adequate remedy at law.
11.4 Certain Words. Words such as "herein," "hereof," "hereby,"
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular Section or subsection of this Agreement unless the context
indicates otherwise. Wherever appropriate in the context, terms used herein in
the singular also include the plural, and vice versa, and each masculine,
feminine, or neuter pronoun shall also include the other genders.
11.5 Notices. Except as otherwise expressly provided herein, any
notice, consent, or other communication required or permitted to be given
hereunder shall be in writing and shall be
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deemed to have been given three (3) days after the date sent if sent by United
States certified mail, return receipt requested, with proper postage thereon,
one (1) day after the date sent if sent by overnight courier of national
recognition, or when transmitted, if sent by facsimile, and shall be addressed
as follows:
(a) If to Buyer: eMERGE Vision Systems, Inc.
10315 102nd Terrace
Sebastian, FL 32968
Attention: Charles L. Abraham
Chief Executive Officer
Phone Number: 561/589-5310
Facsimile Number: 561/589-3779
with a copy to: Gordon & Glickson
444 N. Michigan Avenue
Suite 3600
Chicago, IL 60611
Attention: Diana J. P. McKenzie
Phone Number: 312/321-1700
Facsimile Number: 312/321-9324
(b) If to Seller: CIN, LLC
P.O. Box 654
Meade, KS 67864
Attention: Dr. Scott Crain
Phone Number: 316-873-2181
Facsimile Number: 316-873-2182
with a copy to: Foulston & Siefkin, LLP
100 N. Broadway, Suite 700
Attention: Harvey R. Sorensen
Phone: 316/267-6371
Facsimile Number: 316/267-6345
or at such other address or addresses as the party addressed may from time to
time designate in writing.
11.6 Expenses. All sales and similar taxes arising out of the transfer
of the Purchased Assets and the transactions contemplated hereby shall be paid
by the party responsible by law for such tax. All legal, accounting, and other
costs and expenses incurred in connection herewith and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
11.7 Confidentiality. All nonpublic information disclosed heretofore or
hereafter by Buyer or Seller to the other in connection with this Agreement
shall be kept confidential by such
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other, and shall not be used other than in connection with this Agreement,
except to the extent it was known when received or as it is or hereafter becomes
lawfully obtainable from other sources, or to the extent such duty as to
confidentiality and non-use is waived, or except as may be required by court
order or any governmental agency. Such obligation as to confidentiality and
non-use shall survive any termination of this Agreement.
11.8 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
11.9 Severability. If any provision of this Agreement shall be held or
deemed to be, or shall in fact be, illegal, inoperative, or unenforceable, the
same shall not affect any other provision contained herein, or render the same
invalid, inoperative, or unenforceable to any extent whatsoever, which
provisions shall remain in full force and effect.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute the same agreement.
11.11 Record Retention. The parties hereto agree to retain for a period
of seven (7) years from and after the Closing, and make available to each other
and their respective agents, counsel, accountants, employees or representatives,
all of the books, records and documents (including records with respect to
accounts receivable, accounts payable and general ledger maintained on magnetic
tape or any other electronic medium) relating to Seller which existed on the
date next preceding the Closing and which were in the possession of any of them.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Asset Purchase
Agreement to be executed and delivered by its duly authorized officer as of the
date first written in the Preamble to this Agreement.
SELLER:
CIN, LLC
By: /s/: Dr. Scott Crain
---------------------
Its: Manager
CRAIN:
Dr. Scott Crain
--------------------------------
Dr. Scott Crain
eMERGE Vision Systems, Inc.
By: Charles L. Abraham
-----------------------
Its: Chief Executive Officer
-----------------------
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<PAGE> 32
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Bill of Sale and Assignment
Exhibit B Assignment and Assumption Agreement
Exhibit C Assignment of Intellectual Property
Exhibit D [Intentionally Omitted]
Exhibit E Shareholders' Agreement
Exhibit F Lease
Exhibit G Legal Opinion - Seller's Counsel
Exhibit H Legal Opinion - Buyer's Counsel
SCHEDULES
Schedule 1((a)) Inventory
Schedule 1((c)) Software Contracts
Schedule 1((d)) Computer Equipment
Schedule 1((e)) Equipment
Schedule 1((f)) Accounts Receivable
Schedule 1((h)) Purchased Contracts
Schedule 1((j)) Intellectual Property
Schedule 2 Excluded Assets
Schedule 3.2 Assumed Liabilities
Schedule 3.5 Allocation of Purchase Price
Schedule 4.2.12 Lien Termination Statements
Schedule 5.1 Members
Schedule 5.8 Taxes
Schedule 5.12 Licenses and Permits
Schedule 5.13 Consents
Schedule 5. 14 Intellectual Property Exceptions
Schedule 5.15 Copyright Protection
Schedule 5.16 Trade Secret Protection
Schedule 5.23 Litigation; Warranty Claims
Schedule 5.25 Employee Benefit Plans
Schedule 5.27 Insurance
Schedule 5.28.2 Property Leases
Schedule 5.31 Customers
Schedule 5.32 Related Parties
Schedule 6.4 Capitalization of Buyer
Schedule 8.3 Employee Bonus Amounts
LIST OF EXHIBITS AND SCHEDULES - PAGE 1
<PAGE> 33
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
BILL OF SALE AND ASSIGNMENT
KNOW ALL PERSONS BY THESE PRESENTS, that CIN, LLC, a Kansas limited
liability company ("Seller"), for and in consideration of the sum of Ten Dollars
($10.00), lawful money of the United States, and other good and valuable
consideration to it paid by eMERGE Vision Systems, Inc., a Delaware corporation
("Buyer"), the receipt, sufficiency, and adequacy of which are hereby
acknowledged, does hereby bargain, sell, assign, transfer, convey, and deliver
unto Buyer and its successors and assigns, all of the Purchased Assets, as that
term is defined in that certain Asset Purchase Agreement dated February __, 1999
by and among Seller, Buyer, and Dr. Scott Crain (the "Agreement"), excluding the
Excluded Assets, as that term in defined in the Agreement.
TO HAVE AND TO HOLD, all and singular, the Purchased Assets unto Buyer,
its successors and assigns, for itself and their own use forever.
AND FURTHER, Seller hereby represents and warrants to Buyer that Seller
is the absolute owner of the Purchased Assets, free and clear of all liens,
claims, conditional sale agreements, and encumbrances of any nature, except the
liens of Meade State Bank.
AND FURTHER, Seller does for itself and its successors and assigns,
covenant and agree to and with Buyer, its successors and assigns, to warrant and
forever defend the sale of the Purchased Assets hereby made to Buyer against all
and every person or persons whomever claiming title thereto.
AND FURTHER, Seller hereby covenants and agrees to execute and deliver,
and to do or make or cause to be done or made, upon reasonable request by Buyer,
any and all agreements, instruments, deeds, acts, or things supplemental,
confirmatory, or otherwise, as may be reasonably required by Buyer for the
purpose of or in connection with acquiring, or more effectively vesting, or
evidencing the vesting, in Buyer, the Purchased Assets transferred, assigned,
conveyed, and granted, or intended to be transferred, assigned, conveyed or
granted, hereby or hereunder.
EXHIBIT A - PAGE 1
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IN WITNESS WHEREOF, Seller has caused this Bill of Sale and Assignment
to be executed and delivered to Buyer by its duly authorized officer this _____
day of February, 1999.
CIN, LLC
By:______________________________
Its:_____________________________
As certain of the Purchased Assets may be owned by the undersigned, Dr. Scott
Crain, individually or in the name of another business controlled by the
undersigned, the undersigned for purposes of more fully vesting the ownership of
the Purchased Assets in Buyer for the benefit of Buyer, does hereby agree to
each of the agreements, covenants, and representations of Seller in this Bill of
Sale and Assignment, as if the undersigned was the Seller hereunder, to the
extent that any of the Purchased Asset are owned by him or another entity under
his control other than Seller and conveyed hereby.
___________________________
Dr. Scott Crain
EXHIBIT A - PAGE 2
<PAGE> 35
EXHIBIT B
TO
ASSET PURCHASE AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") is made and
entered into this _____ day of February, 1999, by and between CIN, LLC a Kansas
limited liability company ("Seller") and eMERGE VISION SYSTEMS, INC., a Delaware
corporation ("Buyer").
RECITALS:
A. Buyer is acquiring certain assets of Seller pursuant to the terms of
that certain Asset Purchase Agreement dated February __, 1999, by and among
Seller, Buyer, and Dr. Scott Crain (the "Asset Purchase Agreement").
B. Seller desires to assign to Buyer all of Seller's right, title, and
interest in and to those certain Software Contracts and Purchased Contracts (as
those terms are defined in the Asset Purchase Agreement) and Buyer desires to
assume all of Seller's obligations under the Software Contracts and Purchased
Contracts.
NOW, THEREFORE, in consideration of the recitals, the sale of the
aforementioned assets by Seller to Buyer, and other good and valuable
consideration, the receipt, sufficiency, and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. ASSIGNMENT OF SOFTWARE CONTRACTS AND PURCHASED CONTRACTS. Seller
hereby transfers, assigns, and conveys as of the date hereof, all of Seller's
right, title, and interest in and to the Software Contracts and the Purchased
Contracts listed on Schedules 1((c)) and 1((h)) to the Asset Purchase Agreement
and made a part hereof, from and after the date hereof.
2. ASSUMPTION OF SOFTWARE CONTRACTS AND PURCHASED CONTRACTS. Buyer
hereby assumes and agrees to perform the obligations of Seller under the
Software Contracts and Purchased Contracts, from and after the date hereof.
3. NO DEFAULTS. Seller represents and warrants to Buyer that it is not
in default of any of its obligations under any of the Software Contracts or
Purchased Contracts.
4. AGREEMENT BINDING; GOVERNING LAW. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. This
Agreement shall in all respects be interpreted, construed, and governed by and
in accordance with the laws of the State of Delaware, applicable to contracts
made and to be performed therein. Seller agrees that any court proceedings
brought by it against Buyer arising out of this Agreement, will only be brought
in a Federal or state court located in the State of Florida, County of Indian
River and in
EXHIBIT B - PAGE 1
<PAGE> 36
that regard irrevocably consents to the jurisdiction and venue (and waives any
inconvenient forum objection) of such Federal and state courts, for the purposes
of any court proceedings brought by it hereunder and to accept service of
process by mail. Buyer agrees that any court proceedings brought by it against
Seller arising out of this Agreement, will only be brought in a Federal or state
court located in the State of Kansas, County of Sedgwick and in that regard
irrevocably consents to the jurisdiction and venue (and waives any inconvenient
forum objection) of such Federal and state courts, for the purposes of any court
proceedings brought by it hereunder and to accept service of process by mail.
IN WITNESS WHEREOF, each of the parties has caused this Assignment and
Assumption Agreement to be executed and delivered by its duly authorized officer
as of the date first written in the Preamble hereof.
CIN, LLC
By:_________________________________________
Its:________________________________________
eMERGE VISION SYSTEMS, INC.
By:_________________________________________
Its:________________________________________
As certain of the Software Contracts and the Purchased Contracts are in the name
of the undersigned, Dr. Scott Crain, individually or in the name of another
business controlled by the undersigned, the undersigned for purposes of more
fully assigning the Software Contracts and the Purchased Contracts to Buyer and
for the benefit of Buyer, does hereby agree to each of the agreements,
covenants, and representations of Seller in this Assignment and Assumption
Agreement Assignment, as if the undersigned was the Seller hereunder, to the
extent that any of the Software Contract and Purchased Contracts are being
assigned by him or an entity he controls other than Seller and conveyed hereby.
__________________________________________
Dr. Scott Crain
EXHIBIT B - PAGE 2
<PAGE> 1
EXHIBIT 10.7
STOCK PURCHASE AGREEMENT
BETWEEN
eEMERGE VISION SYSTEMS, INC.
("Purchaser")
AND
CYBERSTOCKYARD, INC.
(the "Company")
J. SCOTT SANDERS,
DAVID SANDERS,
SCOTT CALHOUN
AND
DR. DUANE PANKRATZ
(collectively, the "Seller")
<PAGE> 2
SCHEDULES
<TABLE>
<S> <C>
1.1 Company Stockholders
2.1 Jurisdiction
2.6 Third Party and Government Consents
2.8(b) Cash Accounts
2.8(c) Equipment
2.8(e) Intellectual Property and Information
2.8(e)(i) Software Products
2.8(f) Copyright Notices
2.8(g) Trade Secret Policy
2.8(i) Technical Documentation
2.8(j) Software Contracts
(a) Licenses from Third Parties
(b) Distribution or VAR Agreements
2.8(l) Prepaid Items
2.11 Financial Statements
2.12 Permits and Approvals
2.13 Employee Benefit Plans
2.15 Hazardous Substances
2.16 Litigation; Compliance with Laws
2.17 Contracts, Leases, Etc.
2.18 Forms of Warranties and Guaranties
2.20 Insurance
2.21 Contracts with Insiders and Affiliates
2.29 No Changes
4.1(c) "Accredited Investor" Status
</TABLE>
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<PAGE> 3
STOCK PURCHASE AGREEMENT
THIS AGREEMENT made this 22nd day of March 1999 (the "Agreement")
between eMERGE Vision Systems, Inc., a Delaware corporation ("Purchaser"),
Cyberstockyard, Inc. a Mississippi corporation (the "Company") and J. Scott
Sanders, David Sanders, Scott Calhoun and Dr. Duane Pankratz (collectively, the
"Seller" and each as a "Seller").
BACKGROUND
WHEREAS, the Company is engaged in engaged in the business of selling
cattle and other products through its proprietary auction and other software
(the "Software Programs") over the internet ("Business").
WHEREAS, Sellers collectively own 400 shares of common stock, no par
value (the "Stock") of the Company, representing all of the issued and
outstanding shares of capital stock of the Company.
WHEREAS, Sellers desires to sell to Purchaser and Purchaser desires to
purchase from Sellers the Stock at the Purchase Price (as hereinafter defined)
and upon the other terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, covenants, representations and warranties made in this Agreement and
other consideration, the sufficiency of which is hereby acknowledged, Purchaser,
Company and Seller, intending to be legally bound, hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS; TRANSACTION CONSIDERATION
Section 1.1 Sale and Purchase. Subject to the terms and conditions set
forth in this Agreement, and in reliance upon the joint and several
representations and warranties made by the Company and each of the Sellers to
the Purchaser in this Agreement, each of the Sellers shall sell to the Purchaser
and the Purchaser shall purchase and receive from each of the Sellers, the
number of shares of Stock set forth opposite each Seller's name in the
Capitalization Table set forth on Schedule 1.1 hereto (the "Capitalization
Table") in exchange for a total of 200,000 shares (the "eVS Shares") of the
Purchaser's common stock, par value $0.01 (the "Purchase Price") allocated among
the Sellers as set forth on Schedule 1.1.
Section 1.2 Books and Records. At a closing, as defined in Section 12.1
(the "Closing"), Sellers shall cause the Company to deliver to Purchaser, or
turn over to Purchaser's representatives, all minute books, stock record books
and corporate seals of the Company, and the original copies of all books of
account, leases, other agreements, securities, customer lists, files and other
documents, instruments and papers of all kind and nature belonging to or
relating
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<PAGE> 4
to the business of the Company and necessary or desirable in Purchaser's
judgment for the on-going conduct of the Company and its business, whether in
the possession of Seller or the Company.
Section 1.3 Resignations. At the Closing, Sellers shall make available
to Purchaser the immediately effective written resignations of all the directors
and officers of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES RESPECTING SELLER
The Company and the Sellers, jointly and severally, represent and
warrant to Purchaser as follows:
Section 2.1 Organization and Qualification. Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Mississippi and is duly qualified and in good standing as a foreign
corporation authorized to transact business and to own and lease property in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties owned or leased by it requires such
qualification in order to avoid liability or disadvantage. All of such
jurisdictions are listed on Schedule 2.1.
Section 2.2 Capitalization of the Company. The authorized capital stock
of Company consists of 1,000 shares of a single class of common stock having no
par value per share, of which 400 shares are issued and outstanding. The Company
does not have any other authorized class or classes of securities of any kind,
whether debt or equity. The Company's total outstanding capital stock consists
of the Stock. All of the Stock is collectively owned by the Sellers as set forth
in the Capitalization Table. All of the shares of Stock are validly issued,
fully paid and non-assessable and have not been issued in violation of any
applicable securities laws or of any preemptive rights or other rights to
subscribe for, purchase or otherwise acquire securities. The Company does not
hold any shares of its capital stock in its treasury or otherwise, and no shares
of the Company's capital stock are reserved by the Company for issuance. There
are no outstanding options, warrants, conversion privileges, subscription,
calls, commitments or rights of any character relating to the capital stock of
the Company.
Section 2.3 Stock Ownership. Each Seller is the lawful owner of record
and beneficially of the shares of the Stock set forth on Schedule 1.1,
representing all of the issued and outstanding shares of capital stock of the
Company, and has good, marketable and valid title to the Stock, free and clear
of all pledges, liens, claims and encumbrances of every kind, including, without
limitation, any agreements, subscriptions, options, warrants, calls, commitments
or rights of any character granting to any person, firm or corporation any
interest in or right to acquire from Seller at any time, or upon the happening
of any event, any shares of the Stock. Sellers have full legal power and all
authorization required by law to transfer and deliver the Stock in accordance
with this Agreement. Upon delivery of the certificates representing the Stock to
the Purchaser, together with duly executed stock powers pursuant to this
Agreement, the Purchaser
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<PAGE> 5
shall acquire good, marketable and valid title to the Stock, free and clear of
all liens, security interests, pledges, negative pledges, encumbrances, or
restrictions.
Section 2.4 Due Authorization.
(a) The Company. The Company's execution, delivery and
performance of this Agreement and all other related agreements (the "Transaction
Documents") and the consummation of the transactions contemplated hereby by the
Company: (i) are within the Company's corporate powers and have been duly
authorized by all necessary corporate and shareholder action on the part of the
Company and (ii) do not (A) require any action by or in respect of, or filing
with, any governmental or regulatory authority, (B) contravene, violate or
constitute, with or without the passage of time or the giving of notice or both,
a breach or default under, any requirement of law applicable to the Company or
any of its properties or any contract to which the Company or any of its
properties is bound or subject or (C) result in the creation of any adverse
claim against or on the Stock.
(b) Individual Sellers. Each Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by each of the Sellers (i) are within the powers and
authority of each of the Sellers and (ii) do not (A) require any action by or in
respect of, or filing with, any governmental or regulatory authority, (B)
contravene, violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any requirement of law
applicable any of them or any of their respective properties or any contract to
which any of them or any of their respective properties is bound or subject or
(C) result in the creation of any adverse claim against or on the Stock.
Section 2.5 Validity of Contemplated Transactions. Except with respect
to those consents required to be obtained in connection with the following and
set forth in Schedule 2.6 hereto, (all of which have been obtained) the
execution, delivery and performance of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby do not and will not contravene any provision of the Articles/Certificate
of Incorporation or Bylaws or other governing documents of the Company; nor
violate, be in conflict with, or constitute a default under, cause the
acceleration of any payments pursuant to, or otherwise impair the validity or
effectiveness of any agreement, contract, indenture, lease, or mortgage, or
subject any property or asset of the Company, or Seller to any indenture,
mortgage, contract, commitment, or agreement, other than this Agreement, to
which the Company or Seller is a party or by which the Company or any of its
assets is bound; or violate any provision of law, rule, regulation, order,
permit, or license to which the Company or Seller is subject. This Agreement and
the Transaction Documents will, upon their execution, constitute, the valid and
binding obligations of the Company and Sellers, enforceable against Company and
Sellers in accordance with their terms.
Section 2.6 Government and Third-Party Approvals. Except as listed on
Schedule 2.6, no consent by, approval or authorization of or filing,
registration or qualification with any federal, state or local authority, or any
foreign governmental authority, or any corporation, person
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<PAGE> 6
or other entity (including any party to any contract or agreement with Seller or
Company) is required (a) for the execution, delivery or performance of the
Transaction Documents by the Sellers or Company, or (b) in connection with
Seller's and Company's consummation of the transactions contemplated thereby.
Section 2.7. Title to Property and Related Matters. Company has good,
valid and marketable title to all of its assets, whether tangible or intangible,
and whether consisting of real or personal property, and all such assets are
held free and clear of mortgages, liens, pledges, claims, charges, security
interests or other encumbrances or limitations of any nature whatsoever.
Section 2.8. Other Representations Regarding Company's Assets
(a) Accounts Receivable. All of the Accounts Receivable as of
January 31, 1999 (the "Preliminary Balance Sheet Date") will be reflected on the
Preliminary Balance Sheet and all of the Accounts Receivable as of the Closing
Date will be reflected on the Closing Date Balance Sheet. The Accounts
Receivable listed on the Preliminary Balance Sheet and/or on the Closing Date
Balance Sheet (i) have arisen or will arise solely in the ordinary course of
business of Seller; (ii) represent or will represent, upon their creation, valid
obligations due to Company and are enforceable or will, upon their creation, be
enforceable in accordance with their terms; and (iii) are or upon their creation
will be collectible on or before the 90th day following the Closing Date in the
ordinary course of business in the aggregate recorded amounts thereof in
accordance with their terms.
(b) Cash Accounts. Schedule 2.8(b) lists each bank and mutual
fund account and safe deposit box of Company and each person authorized to sign
checks or withdraw funds from such accounts and to have access to such safe
deposit boxes.
(c) Equipment. The items of Equipment listed on Schedule
2.8(c) are, and on the Closing Date will be, in good working order and fit for
their intended use. The Equipment includes all of the motor vehicles and other
machinery and equipment currently used in the operation of the Business.
(d) Real Property. Company does not own any real property.
(e) Intellectual Property. Schedule 2.8(e) contains a true and
complete list of all patents, trademarks, service marks, trade names, copyrights
and similar intangible rights and all applications and registrations thereof
owned by the Company or used by the Company including, without limitation, the
Software Programs ("Intellectual Property"). In addition, Schedule 2.8(e),
identifies whether each item of the Intellectual Property is owned by the
Company or is possessed and used by the Company under any license, contract,
agreement or other commitment, and if under any such commitment, the identity of
the parties thereto, the term thereof and all amounts payable thereunder
together with the payment terms therefor. The Company owns or possesses adequate
and enforceable licenses or other rights to use all of the Intellectual
Property. The Company is not in default under any such licensing or similar
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<PAGE> 7
agreements, and has not received any notice or other knowledge of conflict with
or infringement (or alleged infringement) of any rights of others and no
officer, director, consultant, employee, or former director of Company, or any
Person (as defined in this Section 2.8(e)), controlling, controlled, by or under
common control with Company, has any rights in or to any of the Intellectual
Property. The Intellectual Property does not infringe any proprietary right of
any third party. No trade secret information has been wrongfully appropriated by
any third party. To the best of Company's knowledge, the Intellectual Property
is not being infringed. The use by the Company of any of the Intellectual
Property and other technical or proprietary data has not required and does not
require the payment of any royalty or similar payment to any Person, and, on the
Closing Date, Company shall be able to transfer to Purchaser good and marketable
title thereto, free and clear of any claims of any kind, without the payment of
any royalty or other special consideration. In addition to, and without limiting
the generality of the foregoing, Company has and shall be able to convey to
Purchaser at the Closing the all of Company's rights to use the names
"Cyberstockyard," and any names similar thereto, and the sole and exclusive
rights to use the Internet domain name "cyberstockyard.com" and all iterations
and permutations thereof, together with all logos, slogans, trademarks, and
service marks relating thereto or heretofore used by Company in connection
therewith. To the best of Company's knowledge and except as set forth in
Schedule 2.8(e), there are no names similar to the names specified in the prior
sentence, used in the cattle industry. Company and Mr. Sanders have at all times
maintained in strictest confidence all Intellectual Property (excepting only
patents, copyrights, trademarks, trade names, and service marks). Company owns
the right to obtain, use and transfer the data compiled through the use of the
Software Programs (the Software Programs are more fully described in Schedule
2.8(e) attached hereto) and included in the Intellectual Property (the "Data"),
and has not conveyed to any third party any interest in, the rights (including
copyright rights) to the Data. The Data has been selected, coordinated, and
arranged in a manner completely original with Company. Company has full right
and authority to use and manipulate the Data and to convey to Purchaser all
rights (including copyright rights) to the Data. The Company has no contracts
with its client for software maintenance except as identified in Schedule
2.8(e), there are no Federal or state laws or regulations, or restrictions of
any third party, restricting such rights to use, manipulate, or convey the Data.
As used in this Agreement, the term "Person" means any individual, sole
proprietorship, corporation, partnership, limited liability company,
incorporated or unincorporated association, joint venture, joint stock company,
or other entity of any kind, as the context requires.
2.8(f) Procedures for Copyright Protection. Schedule 2.8(f) sets forth
the form and placement of the proprietary legends and copyright notices
displayed in or on the Software Program. In no instance has the eligibility of
the Software Program for protection under applicable copyright law been
forfeited to the public domain by omission of any required notice or any other
action.
2.8(g) Procedures for Trade Secret Protection. Company has promulgated
and used its best efforts to enforce its trade secret protection program set
forth in Schedule 2.8(g). Neither Company nor any Seller has knowledge of any
material violation of such program by any Person. The source code and system
documentation relating to the Software Program: (i) have at all
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<PAGE> 8
times been maintained in confidence by Company and, to the best of Company's
knowledge, by any other Person who has at any time had access to such materials;
and (ii) have been disclosed by Company only to employees and consultants having
a "need to know" the contents thereof in connection with the performance of
their duties to Company and who are obligated by common law or by written
agreement (which agreements are being transferred to Purchaser pursuant to the
transactions contemplated by this Agreement) to keep such information
confidential.
2.8(h) Personnel Agreements. Anyone, including, but not limited to, all
employees, agents, consultants, and contractors, who have contributed to or
participated in the conception and development of the Software Program,
Technical Documentation, or Intellectual Property on behalf of Company either:
(i) have been party to a "work-for-hire" arrangement or agreement with Company,
in accordance with applicable Federal and state law, that has afforded Company
full, effective, exclusive, and original ownership of all tangible and
intangible property thereby arising; or (ii) have executed appropriate
instruments of assignment in favor of Company as assignee that have conveyed, in
accordance with applicable Federal and state law, to Company full, effective,
and exclusive ownership of all tangible and intangible property thereby arising.
2.8(i) Adequacy of Technical Documentation. The Technical Documentation
described on Schedule 2.8(i) includes the source code, system documentation and
schematics for the Software Programs, as well as any pertinent commentary or
explanation that may be necessary to render such materials understandable and
usable by a trained computer programmer. The Technical Documentation also
includes any programs (including compilers), "workbenches," tools, and higher
level (or "proprietary") languages used for the development, maintenance, and
implementation of the Software Program.
2.8(j) Third-Party Components in the Software Program. Company has
validly and effectively obtained the right and license to use, copy, modify, and
distribute the third-party programming and materials contained in the Software
Program and the Technical Documentation, pursuant to the Software Contracts
identified in Section 2.8(j). The Software Program and the Technical
Documentation contain no other programming or materials in which any third party
may claim superior, joint, or common ownership, including any right or license.
The Software Program and the Technical Documentation do not contain derivative
works of any programming or materials not owned in their entirety by Company.
2.8(k) Third-Party Interests or Marketing Rights in the Software
Program. Company has not granted, transferred, or assigned any right or interest
in the Software Program, the Technical Documentation, or the Intellectual
Property to any Person. There are no contracts, agreements, licenses, and other
commitments and arrangements in effect with respect to the marketing,
distribution, licensing, or promotion of the Software Program or any other
independent salesperson, distributor, sublicensor, or other remarketer or sales
organization, except for the Software Contracts identified as Distribution or
VAR Agreements in Schedule 2.8(j)).
2.8(l) Prepaid Expenses. All of Company's prepaid expenses are set
forth in Schedule 2.8(l).
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<PAGE> 9
Section 2.9 Conduct of Business. Between February 1, 1999 and the date
hereof, Company has conducted the Business only in the ordinary course and in a
manner consistent with its past practices.
Section 2.10 Solvency. The Company is Solvent.
Section 2.11 Financial Statements
(a) Financial Statements. Schedule 2.11 consists of the
unaudited financial statements of the Company (the "Financial Statements") for
its fiscal year ended December 31, 1998 (the "Financial Statement Date")
(consisting of a balance sheet, a statement of operations, a statement of
shareholder's equity and retained earnings and a statement of cash flows. The
Financial Statements were prepared in accordance with generally accepted
accounting principles and practices consistently applied throughout the periods
reported upon and fairly and accurately present the financial condition and the
results of the operations of Company as at the respective dates thereof and for
the periods reported therein.
(b) Absence of Liabilities. On the Financial Statement Date,
Company had no Liabilities except as and to the extent reflected in the
Financial Statements or in this Agreement or in any Schedule hereto. Seller has
no Liabilities and no basis for any such Liability exists other than (i) any
reflected in the Financial Statements or in this Agreement or in any Schedule
hereto or (ii) any arising since the Financial Statement Date in the ordinary
course of business of Company and in compliance with the covenants and
agreements of Company herein contained.
Section 2.12. Permits and Approvals. Schedule 2.12 contains a true and
correct description of all licenses, permits, approvals, authorizations,
consents and registrations issued in favor of Company, all of which are in full
force and effect, and the Company and the Business are currently being operated
in compliance with the terms of each of the foregoing. Purchaser will not be
required, prior to or following the Closing, to file, apply for or obtain any
license, permit, approval, authorization, consent or registration in order to
own and operate the Business as currently owned and operated by Company.
Section 2.13 Employee Benefits. Except as set forth on Schedule 2.13,
Company has not established or maintained or is not obligated to make
contributions to or under or otherwise participate in, with respect to any
current or former employee, director, or independent contractor of the Company:
(i) any equity option, restricted equity, equity appreciation rights, bonus, or
other type of incentive compensation plan, program, agreement, or arrangement;
(ii) any severance, pension, profit-sharing, thrift or savings, retirement,
deferred compensation, employee equity ownership, employee equity purchase, or
supplemental executive retirement plan, agreement, or arrangement; or (iii) any
life insurance, death benefit, health and hospitalization, disability, employee
assistance, education or tuition assistance, vacations benefit or fringe benefit
plan, or other employee benefit plan, program, agreement, or arrangement. All
such plans listed on Schedule 2.13 in which any of the Company's employees
participate (collectively, the
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<PAGE> 10
"Employee Benefit Plans") have been operated and administered in all material
respects in accordance with all applicable laws, rules, and regulations and are
fully funded. Company has no obligation or commitment (formal or informal) to
create any new benefit plan or program, or to amend any existing Employee
Benefit Plan to increase the benefits thereunder.
Section 2.14 Employee Matters; Labor Relations.
(a) Employment Agreements. None of the employees of the
Business are covered by employment contracts, written or oral. None of the
employees of the Business are members of any union or covered by any union
contracts. Company is not aware of any plan or solicitation of employees of the
Business to form or join a union in the past two (2) years. Company is not a
party to or bound by any employment agreement (written or oral) or any
collective bargaining or other labor agreement that could in any way affect
Purchaser, or any employees of the Business that Purchaser may hire after the
Closing Date.
(b) Labor Laws. With respect to Company's employees, Company
has complied in all material respects with the Immigration Reform and Control
Act of 1986, as amended, and all other applicable Federal, state, or local laws
relating to the employment of labor, including, but not limited to, the
provisions thereof relating to wages, non-discriminatory hiring, promotional and
employment practices and procedures, collective bargaining and payment of Social
Security, unemployment compensation, workers' compensation, and similar taxes,
and Company is not presently liable to any Person or governmental agency for any
wage in arrears or subject to any liabilities or penalties for failure to comply
with any of the foregoing laws. With respect to Company's employees, there are
no outstanding charges or claims of a material nature against Company or any of
its officers, directors, agents, or employees involving any alleged or actual
violation of Company, or, to the best of Company's knowledge, any such Person,
of any provision of the National Labor Relations Act, the Age Discrimination in
Employment Act, the Equal Employment Opportunity Act of 1964, or any other
Federal, state, or local law concerning equal employment opportunities, equal
pay legislation, or wage and hour obligations contained in the Fair Labor
Standards Act; nor, to Company's knowledge, has there been any threat of any
such claim or charge.
Section 2.15 Hazardous Substances. Except as listed on Schedule 2.15,
to Company's knowledge: (i) none of the assets of the Company has been used for
the manufacture, storage, transportation, deposit, disposal, treatment,
handling, production, processing or recycling of toxic, dangerous or hazardous
substances; (ii) the Company has engaged in no activity which would subject the
Company or the Purchaser to liens, damages, penalties, injunctive relief or
cleanup costs under any federal, state or local law, or under any civil action
respecting hazardous substances; (iii) the Company has complied with each, and
is not in violation of any, United States or state, provincial or local law,
statute, regulation, permit provision or ordinance, relating to the generation,
handling, storage, transportation, treatment or disposal of chemicals,
substances (the "Environmental Laws"); and (iv) the Company has obtained and
complied with all necessary permits and other approvals, including interim
status under the Reserve
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<PAGE> 11
Conservation and Recovery Act, as amended ("RCRA"), necessary to store, treat,
dispose of and otherwise handle hazardous wastes and hazardous substances. A
"hazardous substance" shall mean that term as defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,
et seq., as amended, and dangerous, regulated toxic or hazardous substances,
petroleum products, or similar terms under any other applicable United States or
state, provincial or local law and any regulations thereunder
Section 2.16 Litigation; Compliance with Laws. Except as set forth in
Schedule 2.16 attached hereto, there is no suit, action, claim, arbitration,
administrative or legal or other proceeding, or governmental or other
investigation pending or, to Company or any Seller's knowledge, threatened
against or affecting the Company, whether or not covered by insurance; nor does
there exist any failure to comply with, nor any default under, any law,
ordinance, requirement, regulation, or order applicable to the Company, nor any
violation of or default with respect to any order, writ, injunction, judgment,
or decree of any court or federal, state or local department, official,
commission, authority, board, bureau, agency, or other instrumentality issued or
pending against the Company which might have a material adverse effect on the
financial condition, business, results of operations, properties, or assets of
the Company, or Purchaser's purchase or ownership of the Stock. The Company has
obtained all permits, licenses, zoning variances approvals, and other
authorization necessary for the complete operation of its business as presently
operated, and there are none. There have been no illegal kickbacks, bribes or
political contributions made by the Company.
Section 2.17 Contracts. Except as listed and described on Schedule 2.17
or any other Schedule attached hereto, the Company is not a party to any written
or oral agreement, contract or commitment (the "Contracts.").
Except as disclosed on Schedule 2.17, (i) each of the
Contracts is valid and enforceable in accordance with its terms, (ii) the
parties thereto are in compliance with the provisions thereof, (iii) no party is
in default in the performance, observance or fulfillment of any obligation,
covenant or condition contained therein, (iv) no event has occurred which with
or without the giving of notice or lapse of time, or both, would constitute a
default thereunder and (v) the Company's rights under the Contracts are
transferable by the Company to Purchaser without restriction except for the
Consents. To Company's knowledge, none of the terms or provisions of any of the
Contracts materially adversely affects the prospects, conditions, affairs, or
operations of the Company or the Business, including restrictions on the
Company's ability to compete.
Section 2.18. Product and Service Warranties. Set forth on Schedule
2.18 are the standard forms of product and service warranties and guarantees
utilized by Company in connection with the operation of the Business together
with all other material product and service warranties and guarantees used by
Company in connection with the operation of the Business.
Section 2.19. Taxes. For any period ending on or before the Closing,
the Company and Sellers have duly and timely filed or will file all federal,
state, and local tax returns, declarations,
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and reports, estimates, information returns and statements (collectively,
"Returns") required to be filed or sent by it, him or on its/his behalf and all
such Returns are or will be true, correct and complete, true, correct and
complete copies of which Returns have been delivered to Purchaser prior to the
date hereof. The Company has paid in full all Taxes (as defined hereafter) and
any penalties with respect to the Returns and any penalties entered with respect
thereto, due and payable for any period ending on or before the Financial
Statement Date. For all tax periods which commence after the Closing, to the
extent any Taxes are due and payable the Company shall use its best efforts to
determine a good faith estimate of the Taxes, shall properly reserve the full
amount of such estimate. The Company's federal income tax liabilities, if any,
have never been audited by the Internal Revenue Service and have been satisfied
for all taxable years up to and including the taxable year ended December 31,
1997. Neither the Internal Revenue Service nor any state or local taxing
authority has asserted that additional taxes are owed by the Company.
As used herein, the term "Taxes" shall include all federal, state, and
local taxes, including income, excise, withholding, property, franchise, gross
receipt and other taxes.
Section 2.20. Insurance. Schedule 2.20 sets forth a list of all
policies or binders of fire, liability, product liability, worker's
compensation, vehicular or other insurance held by or on behalf of Company
(specifying for each such insurance policy, except the policies for worker's
compensation and vehicular insurance, the insurer, the policy number or covering
note number with respect to binders, and each pending claim thereunder of more
than $5,000 and setting forth the aggregate amounts paid out under each such
policy through the date hereof). Such policies and binders are valid, in full
force and effect and sufficient to protect the Business against all insured
hazards. Company is not in default with respect to any provision contained in
any such policy or binder. Company has no knowledge of any material inaccuracy
in any application for such policies or binders, any failure to pay premiums
when due or any similar state of facts which might form the basis for
termination of any such insurance. Company has no knowledge of any state of
facts or the occurrence of any event that is reasonably likely to form the basis
for any claim against Seller not fully covered by the policies referred to on
Schedule 2.20. Company has not received written notice from any of its insurance
carriers that any insurance premiums will be materially increased in the future
or that any insurance coverage listed on Schedule 2.20 will not be available in
the future on substantially the same terms as now in effect.
Section 2.21. Contracts with Affiliates. There are no contracts,
obligations or arrangements between Company and any Seller or any director,
officer, shareholder or employee of Seller or any Affiliate of any such person
applicable to the Business except for those identified and described on Schedule
2.21.
Section 2.22. Copies of Articles and Bylaws. The copies of Company's
Certificate or Articles of Incorporation (certified by the Secretaries of State
of the respective jurisdictions of incorporation) and Bylaws (certified by
Company's Secretary) which have been delivered to Purchaser are correct and are
in effect as of the date of this Agreement.
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Section 2.23. Directors and Officers. The Company has delivered to
Purchaser a true and complete list as of the date of this Agreement showing the
names of each of the Company's officers and directors, each of whom has been
duly elected.
Section 2.24 Commission. Neither Company nor any of the Sellers nor
anyone on its/their behalf has made any agreement or taken any action which may
cause anyone claiming through Seller to become entitled to a commission as a
result of the sale of the Stock pursuant to this Agreement.
Section 2.25 Statements and Other Documents Not Misleading. Neither
this Agreement, including all Schedules, nor any other financial statement,
document or other instrument heretofore or hereafter furnished by Company or any
Seller to Purchaser in connection with the transactions contemplated hereby
contains or will contain any untrue statement of any material fact or omits or
will omit to state any material fact required to be stated in order to make such
statement, document or other instrument not misleading. There is no fact known
to the Company or any Seller which may materially adversely affect the Company's
assets or business prospects which has not been set forth in this Agreement, the
Schedules or the other documents furnished to Purchaser on or prior to the date
hereof in connection with the transactions contemplated hereby.
Section 2.26 Conditions Affecting. There is no fact, development or
threatened development with respect to the markets, products, services, clients,
customers, facilities, computer software, databases, personnel, vendors,
suppliers, operations, assets or prospects of the Business which are known to
Seller which is reasonably likely to materially adversely affect the business,
operations or prospects of Seller considered as a whole, other than such
conditions as may affect as a whole the economy generally. Seller has used its
best efforts to keep available for Purchaser the services of the employees,
agents, customers and suppliers of the Company active in the conduct of the
Business. Seller does not have any reason to believe that any loss of any
employee, agent, customer or supplier or other advantageous arrangement will
result because of the consummation of the transactions contemplated hereby.
Section 2.27 Business. The sole business of the Company is the
Business. All assets owned by the Company are used solely in connection with the
operation of the Business.
Section 2.28 Subsidiaries. The Company has no subsidiaries or interests
in other entities.
Section 2.29 No Changes. Since the date of the most recent Financial
Statements or December 31, 1998, and except as disclosed to Buyer on Schedule
2.29, there has not been:
(a) Any materially adverse change in the financial or other
condition, assets, liabilities or business of the Company, except changes
described in Schedule 2.29 hereto, none of which individually or in the
aggregate has been materially adverse to the Company;
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(b) Any damage, destruction or loss (whether or not covered by
insurance) or any condemnation by governmental authorities which has or may
adversely affect the Business, prospects or any property of the Company;
(c) Any strike, lockout, labor trouble or any event or
condition of similar character adversely affecting the business or prospects of
the Company;
(d) Any declaration, setting aside or payment of any dividend
or other distribution in respect of any of the Company's shares of stock, or any
direct or indirect redemption, purchase or other acquisition of any such shares;
or
(e) Any increase in the compensation payable or to become
payable by the Company to any of its officers, employees or agents, or any known
payment or arrangement made to or with any thereof, other than salary reviews
and increases taking effect after the Financial Statement Date, all of which
were consistent with the Company's past practices, except as disclosed to Buyer
in writing as soon as any such events have occurred.
ARTICLE III
REPRESENTATIONS AND WARRANTIES RESPECTING PURCHASER
Purchaser represents and warrants to Seller as follows:
Section 3.1 Organization. Purchaser is a corporation duly formed,
validly existing and in good standing under the laws of the State of Delaware.
Section 3.2. Due Authorization. The execution and delivery of this
Agreement by Purchaser and performance of the obligations of Purchaser
contemplated hereby and by the Transaction Documents has been duly and validly
authorized by all necessary corporate action. Purchaser has the right, power and
authority to enter into and perform this Agreement and the Transaction Documents
constitutes, upon their execution constitute, the valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with their terms.
Section 3.3. Conflict With Other Instruments. The execution, delivery
and performance of this Agreement and the Transaction Documents by Purchaser
will not contravene any provision of Purchaser's certificate of incorporation or
by-laws and will not result in a breach of, or constitute a default under, any
agreement or other document to which Purchaser is a party or by which Purchaser
is bound, or any decree, order or rule of any court or governmental agency or
any provision of applicable law which is binding on Purchaser.
Section 3.4. Government and Third-Party Approvals No consent by,
approval or authorization of or filing, registration or qualification with any
federal, state or local authority, or any corporation, person or other entity
(including any party to any contract or agreement with Purchaser) is required
for the execution, delivery or performance of this Agreement by Purchaser or in
connection with Purchaser's consummation of the transactions contemplated
hereby.
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Section 3.5. Litigation No litigation, arbitration investigation or
other proceeding of or before any court arbitrator or governmental or regulatory
official, body or authority is pending or, to the knowledge of Purchaser,
threatened against Purchaser or the transactions contemplated by this Agreement
and Purchaser does not know of any basis for such litigation, arbitration,
investigation or proceeding.
Section 3.6 Capitalization. The authorized capital stock of Purchaser
immediately prior to the Closing, consists of 20,000,000 shares of Common Stock,
par value one cent ($.01) per share, of Purchaser (the "Common Stock"),
5,297,750 shares of which are outstanding as of the Closing, and 10,000,000
shares of Preferred Stock, par value one cent ($.01) (the "Preferred Stock"). As
of the date of the Closing, 6,500,000 shares of Preferred Stock have been
designated as Series A, of which 6,443,606 shares are outstanding. The Shares
have been duly authorized for issuance. Assuming the accuracy of the
representations and covenants of Seller set forth in Article 4, the Shares will
have been offered, issued, sold and delivered in compliance with all applicable
state and federal laws concerning the issuance of securities, and when issued,
will be validly issued, fully paid and non-assessable shares of Common Stock,
and will not have been issued in violation of the preemptive rights of any
person. Other than as described in this Section 3.6 or set forth in Schedule
3.6, there are no outstanding shares of Common Stock, Preferred Stock, or any
other securities of Purchaser, and except as described on Schedule 3.6 hereto,
there are no options, warrants, call conversion rights, commitments, or
agreements of any character to which Purchaser is a party or by which Purchaser
may be bound that do or may obligate Purchaser to issue, deliver, or sell, or
cause to be issued, delivered, or sold, additional shares of Common Stock,
Preferred Stock, or other securities of Purchaser, or that do or may obligate
Purchaser to grant, extend, or enter into any such option, warrant, call
conversion right, commitment, or agreement. Except as set forth in Schedule 3.6,
there are no outstanding arrangements, agreements, commitments, or
understandings of any kind affecting or relating to the voting, issuance,
purchase, redemption, repurchase, or transfer of any capital stock or any other
securities of Purchaser.
Section 3.7 Brokers. Purchaser has not expressly or impliedly retained
any broker, finder, investment banker, or financial advisor in connection with
this Agreement or the transactions contemplated hereby. Purchaser has not taken
any actions that will cause Seller to incur or be required to pay, any broker,
finder, investment banker, financial advisor, or similar fee in connection with
this Agreement or any transaction contemplated hereby, to any Person acting as
broker, finder, investment banker, financial advisor, or in any similar capacity
on behalf of Purchaser.
Section 3.8 Acquisition of Shares for Investment. Purchaser is
acquiring ownership of the Company for investment for its own account and not
with a view to the resale or distribution thereof in violation of any federal or
state securities laws. Purchaser or such assignees will not offer, sell,
transfer, assign, pledge or hypothecate any portion of the Shares in the absence
of registration under, or pursuant to an applicable exemption from all
applicable federal and state securities laws.
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ARTICLE IV
SECURITIES LAW MATTERS
Section 4.1 Investment. Each Seller represents, covenants and agrees as
follows:
(a) Access to Information. Seller has had access to such
information relating to the business and affairs of Purchaser which Seller has
reasonably requested, and all additional information which Seller has considered
necessary to verify the accuracy of the information so received. Seller has had
the opportunity to ask questions of and receive answers from the Purchaser
concerning the terms and conditions of the transactions contemplated by this
Agreement. On the basis of the foregoing, Seller is familiar with the
operations, business plans and financial condition of Purchaser.
(b) General Access. Seller or his representative has received
and read or reviewed, and is familiar with, this Agreement and the other
agreements executed or delivered herewith, including the terms of the Stock, and
confirms that all documents, records and books pertaining to such Seller's
investment in the eVS Shares and requested by such Seller or his representative
have been made available or delivered to him.
(c) Reliance on Sellers' Representations. Seller understands
that Purchaser may issue and deliver to such Seller the number of eVS Shares
indicated on Schedule 1.1, pursuant to this Agreement, without compliance with
the registration requirements of the United States Securities Act of 1933 (the
"Securities Act") or any state securities laws; that for such purpose Purchaser
will rely upon the representations, warranties, covenants and agreements
contained herein; and that such non-compliance with registration is not
permissible unless such representations and warranties are correct and such
covenants and agreements performed. Except for Mr. J. Scott Sanders and Mr.
Scott Calhoun, each Seller represents that he is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act for the reasons set
forth on Schedule 4.1(c) hereto.
(d) Transfer Restrictions Imposed by Securities Laws. Seller
understands that, under existing rules of the United States Securities and
Exchange commission (the "SEC") he/she may be unable to sell the Shares except
to the extent that the Shares may be sold (i) pursuant to an effective
registration statement covering such shares pursuant to the Securities Act or
(ii) in a bona fide private placement to a purchaser who shall be subject to the
same restrictions on any resale or (iii) subject to the restrictions contained
in Rule 144 under the Securities Act ("Rule 144") and state securities laws.
Seller understands that Purchaser is under no obligation to effect a
registration of the eVS Shares under the Securities Act.
(e) Rule 144. Seller is familiar with the provisions of Rule
144 and the limitations upon the availability and applicability of such rule,
including without limitation its holding period requirements and volume
limitations.
(f) Sophisticated Investor. Seller is a sophisticated investor
familiar with the
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type of risks inherent in the acquisition of restricted securities such as the
eVS Shares and its financial position is such that it can afford to retain the
eVS Shares for an indefinite period of time without realizing any direct or
indirect cash return on its investment and can afford a complete loss of his
investment.
(g) Lack of Liquidity Seller has no present need for liquidity
in connection with his purchase of the Stock.
(h) Suitability and Investment Objectives. The purchase of the
Stock by Seller is consistent with the general investment objectives of Seller.
Seller understands that the purchase of the Stock involves a high degree of risk
and there may be no established market for the Purchaser's capital stock.
(i) Investment Intent. Seller is acquiring the eVS Shares for
his own account and not with a view to, or for sale in connection with, the
distribution thereof within the meaning of the Securities Act.
(j) Legends on Certificates. During the term of this
Agreement, each certificate representing eVS Shares shall, if applicable,
contain upon its face or upon the reverse side thereof legends to the following
effect:
"This Certificate represents securities which are restricted
and which are subject to the terms and conditions of a
Stockholders' and Registration Rights Agreement dated February
24, 1999 by and among eMerge Vision Systems, Inc. ("eVS") and
the stockholders identified therein (a copy of which is on
file at the principal office of eVS) and the rights,
privileges and options therein contained. No sale, transfer,
assignment, pledge, hypothecation or other disposition of this
Certificate or any of the securities represented thereby shall
be made except in compliance with the terms and conditions of
said agreement.
The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), but have been issued pursuant to an exemption from
such registration. Neither such Shares nor any interest
therein may be sold, transferred, pledged, hypothecated or
otherwise disposed of until either (i) the holder thereof
shall have received an opinion of counsel for the Company that
registration thereof under the Act is not required or (ii) a
registration statement under the Act covering such Shares or
such interest and the disposition thereof shall have become
effective under the Act.
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ARTICLE V
ACTIVITIES PRIOR TO CLOSING BY COMPANY
Section 5.1 Operation of Business. Prior to the Closing, Sellers shall
cause the Company to conduct its business only in the ordinary course and in
connection therewith and, to the extent consistent therewith, the Company shall
use its best efforts to preserve its business organization intact and maintain
its existing relations with customers, suppliers, employees and business
associates. The Company shall:
(a) Organizational Documents. Not amend its
Certificate/Articles of Incorporation or Bylaws, except as may be necessary to
carry out this Agreement or as required by law;
(b) Corporate Name. Not change its corporate name or permit
the use thereof by any other person or entity;
(c) Compensation, Bonuses. Not pay or agree to pay to any
employee, officer, or director of the Company, without the consent of the
Purchaser;
(d) Management. Not make any changes in the its management
without the consent of Purchaser;
(e) Mergers, Etc Not merge or consolidate the Company with any
other corporation or allow it to acquire or agree to acquire or be acquired by
any corporation, association, partnership, joint venture, or other entity;
(f) Disposition of Assets. Not sell, transfer, or otherwise
dispose of any assets of the Company without the prior written consent of
Purchaser;
(g) Indebtedness. Not create, incur, assume, or guarantee any
indebtedness for money borrowed arising out of or in connection with the
Company's business except in the ordinary course of business; create or suffer
to exist any lien on any of the Company's assets, except those in existence on
the date hereof; or increase the amount of any indebtedness outstanding under
any loan agreement, mortgage, or other borrowing arrangement in existence on the
date hereof arising out of or in connection with the Company's business;
(h) Payables. Pay when due, in accordance with past practices,
all of its accounts payable and trade obligations;
(i) Maintenance of Assets. Maintain its assets and properties
in good operating repair, order, and condition, reasonable wear and tear
excepted, and notify Purchaser immediately upon any loss of, damage to, or
destruction of any of the Company's assets;
(j) Insurance. Maintain in full force and effect insurance
coverage of the
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types and in the amounts currently held and apply the proceeds received under
any insurance policy or as a result of any loss or destruction of or damage to
any of the Company's assets to the repair or replacement of such assets;
(k) Contracts and Permits. Maintain in full force and effect
all Contracts and permits necessary for or related to the operation of the
Company's business in all material respects and in all places as such business
is now conducted and renew or revalidate any permits which may become void,
expired, terminated, canceled or withdrawn between the date hereof and the
Closing;
(l) Litigation, Etc Promptly advise Purchaser in writing of
the commencement of, and of any known threat to commence any, suit, claim,
action, arbitration, legal or administrative proceeding, governmental
investigation, or tax audit against it;
(m) Dividends or Other Distributions. Not declare, set aside
or pay any dividend or other distribution in respect of its shares of capital
stock, or redeem, purchase or otherwise acquire any such shares of capital
stock; and
(n) Capital Stock. Not issue, sell, pledge, dispose of or
encumber any additional shares of, or securities convertible or exchangeable
for, or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of its capital stock or split, combine or reclassify the outstanding
Stock.
Section 5.2 Access to Information. Prior to Closing, Seller and Company
will cooperate fully with Purchaser and shall provide Purchaser and its
accountants, counsel, and other representatives, during normal business hours,
full access to the books, records, equipment, Contracts, other assets owned or
leased by the Company, and customer lists, and full opportunity to discuss the
Company's business, affairs, Software Programs, Intellectual Property, assets,
processes, and trade secrets with its officers, employees, customers, suppliers
and independent accountants, and furnish to Purchaser and its representatives
copies of such documents, records, and information with respect to the affairs
of the Company as Purchaser or its representatives may reasonably request.
Purchaser, Company and Sellers, and their respective principals agree that they
will hold in confidence, trade secret or proprietary information or data
supplied by the other in conjunction with this Agreement. In the event that the
transaction contemplated by this Agreement is not consummated for any reason,
each party will return to the other all documents and other materials provided
to it relating to the other party, without retaining copies thereof.
Section 5.3 Due Diligence Investigation. As an inducement to Purchaser
to expend substantial sums in the performance of its due diligence
investigation, Sellers agree that Purchaser may terminate this Agreement at any
time prior to the Closing Date, upon written notice to Sellers, if Purchaser in
good faith but in its sole discretion, determines that the financial, technical
or legal condition or the condition of the assets, properties and business of
the Company or its prospects, are unsatisfactory.
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Section 5.4 Best Efforts. Subject to the other provisions of this
Agreement, Sellers will use their best efforts to cause the conditions listed in
Section 7.1 hereof to be satisfied on the Closing Date (as defined in Section
12.1) and further will use their best efforts to satisfy the requirements of any
applicable federal or state securities laws relating to an exemption from
registration.
Section 5.5 Benefit Plans. The Company shall not adopt, terminate,
amend, extend, or otherwise change any benefit plan without the prior written
consent of Purchaser, and the Company shall give Purchaser prior written notice
of the Company's intention to take any such action required by law or necessary
to continue the qualified status of any benefit plans as they pertain to the
Company's employees or its former employees.
Section 5.6 Notice of Change. The Company will promptly notify
Purchaser of the existence or happening of any fact, event or occurrence prior
to the Closing Date and of which the Company or any of the Company's employees,
officers, directors, stockholders, or other representatives has knowledge which
may alter the accuracy of completeness of any representation or warranty
contained in Article 2 of this Agreement.
Section 5.7 No Discussions Unless and until this Agreement is
terminated pursuant to Article 10 hereof, Sellers will not, and will not
authorize or permit the Company or any of its employees, officers, directors, or
other representatives to, enter into, participate in, request, solicit or engage
in any discussions, negotiations, understandings, agreements or other
communications with any person or entity other than Purchaser relating to
offers, inquiries, negotiations or proposals with respect to the sale of the
assets or any capital stock of the Company, or any type of business combination
transaction. Seller and the Company will promptly notify Purchaser of any such
offer, inquiry, negotiation or proposal which either Seller or the Company may
receive.
Section 5.8 Publicity. No party shall issue any press releases or
otherwise make public statements with respect to the terms of this Agreement or
the transactions contemplated hereby, without the consent of the other parties,
except as may be required by any national, state, provincial or local
governmental or regulatory agency. The parties hereto shall not issue any such
press release or make any such public statement or filing prior to such
consultation, except as may be required by law.
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ARTICLE VI
ACTIVITIES PRIOR TO CLOSING BY PURCHASER
Section 6.1 Best Efforts. Subject to the other conditions of this
Agreement, Purchaser will use its best efforts to cause the conditions listed in
Section 7.2 hereof to be satisfied on the Closing Date (as defined in Section
12.1) and will further use it best efforts to satisfy the conditions of any
applicable federal or state securities laws relating to an exemption from
registration.
Section 6.2 Access to Information. Purchaser shall provide Sellers with
information concerning Purchaser's as reasonably requested by Seller regarding
Purchaser's ability to consummate the transactions contemplated herein, as may
be reasonably requested. Seller shall not disclose any such information to any
other person or entity without the prior written consent of Purchaser.
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
Section 7.1 Conditions to Obligation of Purchaser to Close. The
obligation of Purchaser to consummate the transaction contemplated under this
Agreement on the Closing Date (as defined in Section 12.1) shall be subject to
the satisfaction or the waiver by Purchaser of the following conditions on or
prior to the Closing Date:
(a) Satisfactory Completion of Due Diligence. The results of
Purchaser's due diligence investigation shall be satisfactory to Purchaser, in
Purchaser's sole discretion.
(b) Representations and Warranties; Compliance with Agreement.
The representations and warranties of the Company and Sellers set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, and the Company
and each Seller shall have performed all covenants and agreements to be
performed by it or him under this Agreement on or prior to the Closing Date and
shall have delivered to the Purchaser a certificate to such effect, dated the
Closing Date, which certificate shall be in form and substance satisfactory to
Purchaser and its counsel.
(c) Opinion of Counsel for the Company. Gholson, Hicks &
Nickels, counsel for the Company, shall have delivered to Purchaser their
favorable opinion, dated the Closing Date and in the form set forth in Exhibit
7.1(c).
(d) Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might result in
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any such suit, action or proceeding shall be pending or threatened.
(e) Required Consents. The parties (other than the Company) to
any other contract, commitment or agreement to which the Company is a party, any
governmental agency or body or any other person, firm or corporation which owns
or has authority to grant any franchise, license, permit, easement, right or
other authorization necessary for the business or operations of the Company, and
any governmental body or regulatory agency having jurisdiction over Purchaser or
the Company, to the extent that their consent or approval is required under the
pertinent debt, lease, contract, commitment or agreement or other document or
instrument or under applicable laws, rules or regulations for the consummation
of the transaction contemplated hereby in the manner herein provided, shall have
granted such consent or approval, which shall include all Consents.
(f) Approval of Purchaser; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved by Purchaser, in the exercise of its reasonable judgment, and
Purchaser or its counsel shall have been furnished with certified copies,
satisfactory in form and substance to Purchaser in the exercise of its
reasonable judgment, of all such corporate records of the Company, and of the
proceedings of such persons authorizing the execution, delivery and performance
of this Agreement as Purchaser shall reasonably require.
(g) Availability of Exemption from Registration. The
transaction contemplated by this Agreement shall be exempt from registration
under the securities laws of the United States and any applicable state or local
jurisdiction.
(h) Delivery of Schedules. Delivery by Company and Seller of
the Schedules to this Agreement, which Schedules shall be in form and substance
reasonably satisfactory to the Purchaser.
Section 7.2 Conditions to Obligation of Seller to Close. The obligation
of each Seller to consummate the transfer of the Stock on the Closing Date (as
defined in Section 12.1) shall be subject to the satisfaction of the following
conditions on or prior to the Closing Date:
(a) Satisfactory Completion of Due Diligence. The results of
each Seller's due diligence investigation of the Purchaser shall be satisfactory
to such Seller, in such Seller's sole discretion.
(b) Representations and Warranties. The representations and
warranties of Purchaser set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date, Purchaser shall have performed all covenants and
agreements to be performed by it under this Agreement on or prior to the Closing
Date, and Purchaser shall have delivered to Company a certificate to such
effect, dated the Closing Date, which certificate shall be in form and substance
satisfactory to Company and its counsel;
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(c) Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transaction contemplated hereby, and no investigation that might eventuate in
any such suit, action or proceeding shall be pending or threatened;
(d) Approval of Seller; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Closing Date by Sellers, in the exercise of their
reasonable judgment, and Sellers shall have been furnished with certified
copies, satisfactory in form and substance to Sellers in the exercise of their
reasonable judgment, of all such records of Purchaser and the Company and of the
proceedings of Purchaser and the Company authorizing their execution, delivery
and performance of this Agreement and the eVS Shares as Sellers shall reasonably
require.
(e) Availability of Exemption from Registration. The
transactions contemplated by this Agreement shall be exempt from registration
under the securities laws of the United States and any applicable state or local
jurisdiction and Sellers' shall have been satisfied with the information of
Purchaser furnished to them in connection therewith.
(f) Opinion of Counsel for the Company. Counsel for the
Company, shall have delivered to Purchaser their favorable opinion, dated the
Closing Date and in the form set forth in Exhibit 7.2(f).
ARTICLE VIII
CERTAIN POST-CLOSING COVENANTS
Section 8.1 Covenant Not to Compete (a) Sellers shall not, for a period
of three (3) years following the Closing Date (the "Restricted Period"),
compete, directly or indirectly, with Purchaser by engaging in the development
or sale of software related to an electronic, on-line, internet, and/or
web-enabled auction system, or the sale through an electronic, on-line,
internet, and/or web-enabled auction system of any products or services related
to (i) the animal science industry, including without limitation cattle, swine,
poultry or other animals produced for consumption by humans and other animals
("Livestock"), horses, third party Livestock feed or supplements, or third party
veterinary certifications relating thereto, (ii) the veterinary medicine
industry and/or the (iii) the agriculture industry. Nor shall any Seller compete
directly or indirectly with Purchaser by developing or offering for sale an
information system and/or data services of any kind for use in the animal
sciences, veterinary medicine or agriculture industries during the Restricted
Period.
(b) The foregoing prohibition against competition shall apply
to any area within North America provided however that nothing contained herein
shall prevent: (i) Dr. Duane Pankratz from operating and selling on line,
electronically or on the internet (but not
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<PAGE> 24
through an auction system) products developed by (A) Grand Laboratories, Inc.,
which is in the business of developing and selling vaccines for Livestock and
animals, (B) Roth Angus, Inc., which is in the business of raising and selling
its pure bred cattle, or (C) Black Hills Gold, which is in the business of
selling jewelry or otherwise operating the aforementioned businesses in the
manner each is being conducted as of the date hereof, or (ii) Mr. David Sanders
from conducting his cattle brokerage business in the manner such business is
being conducted as of the date hereof and selling his/his clients' cattle on
line, electronically or on the internet (but not through an auction system).
(c) A Seller shall be deemed to be competing as described in
paragraph (a) hereof if Seller shall engage, directly or indirectly, in any of
the business covered thereby, whether for its own account or that of any other
person, firm, corporation, partnership or other business entity, and whether its
participation shall be as a stockholder, general or limited partner, or investor
possessing an ownership interest exceeding one percent (1%) in any such entity,
or as a principal, agent, lender or in any other capacity.
(d) During the Restricted Period, no Seller shall, directly or
indirectly: (1) solicit, divert, take away or induce customers (wherever
located) of Purchaser, to avail themselves of the services or products of others
which are competitive with any of Purchaser's services or products or (2)
solicit, employ or in any other fashion hire any employee of Purchaser unless
such person shall have been discharged by Purchaser, or otherwise induce any
employee of Purchaser to leave the employ of Purchaser. The prohibition set
forth in paragraph 8.1(c)(1) shall not apply to customers who were customers of
a Seller as of the Closing date, or products or services which were being
offered by a Seller as of the Closing Date.
Each Seller expressly acknowledges that damages alone will be
an inadequate remedy for any breach or violation of any of the provisions of
this Section 8.1, and that Purchaser, in addition to all other remedies
available at law or hereunder, shall be entitled, as a matter of right, to
injunctive relief, including specific performance, with respect to any such
breach or violation, in any court of competent jurisdiction. If any of the
provisions of this Section 8.1 are held to be in any respect an unreasonable
restriction upon Seller, then they shall be deemed to extend only over the
maximum period of time, geographic area or range of activities as to which they
may be enforceable. In the event that Seller shall be in violation of the
restrictive covenants in this Section 8.1, then the Restricted Period shall be
extended for a period of time equal to the period of time during which such
breach shall occur; and, in the event that Purchaser should be required to seek
relief from such breach in any court, board of arbitration or other tribunal,
then the Restricted Period shall be extended for the period of time required for
the pendency of such proceedings, including all appeals.
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<PAGE> 25
Section 8.2 Post-Closing Conduct Generally; Further Assurances.
Purchaser and each Seller will cooperate upon and after the Closing Date in
effecting the orderly transfer of the operations of the Company to Purchaser. In
addition, after the Closing Date, at the request of any party and at the
requesting party's expense, but without additional consideration, the other
party shall execute and deliver from time to time such further instruments of
assignment, conveyance and transfer, shall cooperate in the conduct of
litigation and the processing and collection of insurance claims, and shall take
such other actions as may reasonably be required to convey and deliver more
effectively to Purchaser the Stock or to confirm and perfect the Purchaser's
title to the Stock, and otherwise to accomplish the orderly transfer of
ownership of the Company to Purchaser and the business assets and operations of
the Company as contemplated by this Agreement.
ARTICLE IX
SURVIVAL; INDEMNIFICATION; EXPENSES
Section 9.1 By Sellers. To the extent and in the manner herein
provided, each Seller shall, jointly and severally, indemnify, defend, and hold
harmless Purchaser or, after the Closing, the Company, from and against any and
all damages, losses, obligations, deficiencies, liabilities, claims,
encumbrances, penalties, costs, and expenses, including expenses related to
investigation and defense including reasonable attorneys' fees (collectively,
"Losses"), which Purchaser may suffer or incur, resulting from, related to, or
arising out of (i) any misrepresentation, breach of warranty or nonfulfillment
of any of the covenants of the Company or any Seller in this Agreement or from
any misrepresentation in or omission from any Schedule to this Agreement,
certificate, financial statement, or from any other document furnished or to be
furnished to Purchaser hereunder; (ii) any misrepresentation relating to the
Returns or Taxes; (iii) any and all distribution or transfer of assets of the
Company prior to Closing in violation of the spirit of this Agreement; and (iv)
any known but undisclosed suits, investigations, proceedings, demands,
assessments, audits, judgments, and claims (including employment-related claims)
arising out of the foregoing even though such proceeding or claim may not be
filed until after the Closing.
Section 9.2 By Purchaser. From and after the Closing Date (as defined
in Section 12.1), Purchaser agrees to indemnify, defend, and hold harmless each
Seller from and against (i) any and all Losses, which each Seller may suffer or
incur, resulting from, related to, or arising out of any misrepresentation,
breach of warranty, or nonfulfillment of any of the covenants or agreements of
Purchaser in this Agreement, (ii) any misrepresentation in or omission from any
certificate or document furnished or to be furnished to such Seller hereunder
and any and all suits, actions, investigations, proceedings, demands,
assessments, audits, judgments, and claims arising out of any of the foregoing,
and (iii) any and all Losses resulting from, related to, or arising out of the
operation of the Company's business after Closing.
Section 9.3 DeMinimus Exclusion and Limitation of Liability.
Notwithstanding either of the immediately preceding two subsections, it is
understood and agreed that with respect to inaccuracies or breaches of the
representations and warranties set forth in this Agreement, each
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<PAGE> 26
Sellers or Purchaser, as the case may be, shall be obligated to indemnify and
hold harmless, only to the extent that the aggregate sum of the liabilities,
damages, costs and expenses incurred or sustained by such other with respect to
all such inaccuracies or breaches shall exceed the sum of Twenty-Five Thousand
Dollars ($25,000.00). Notwithstanding this Section, in no event shall the
liability of Sellers under this Agreement for any and all causes of action
exceed Four Hundred Thousand Dollars ($400,000.00), in the aggregate and in no
event shall the liability of Purchaser under this Agreement for any and all
causes of action exceed Four Hundred Thousand Dollars ($400,000.00) in the
aggregate and including the value of the Purchase Price paid hereunder.
Section 9.4 Procedures. Promptly after acquiring knowledge of any such
Losses or Claims against which Indemnitors have indemnified Purchaser or against
which Purchaser has indemnified Seller, or as to which either Purchaser or
Seller (herein, a "Party") may be liable, Indemnitors or Purchaser, as the case
may be, shall give to the other Party written notice thereof; provided, however,
that failure to give notice shall not relieve the indemnifying Party of any
liability it may have to the indemnified Party if such failure does not
materially prejudice the indemnifying Party. In the event of any such Loss or
Claim, (i) the indemnifying Party shall have the right to assume the defense
thereof and shall not be liable to such indemnified Party for any legal expenses
of other counsel or any other expenses subsequently incurred by such indemnified
Party in connection with the defense thereof, provided however that the
indemnifying Party shall have waived its right to contest its obligation to
indemnify the indemnified Party for all Losses or damages with respect to such
Claim; (ii) if the indemnifying Party fails to assume such defense or counsel
for the indemnifying Party advises that there are issues which raise conflicts
of interest between the indemnifying Party, on the one hand, and the indemnified
Party, on the other hand, the indemnified Party may retain one counsel
satisfactory to it, and the indemnifying Party shall pay all reasonable fees and
expenses of such counsel promptly as statements therefor are received; (iii) the
indemnifying Party shall receive from the indemnified Party all necessary and
reasonable cooperation in said defense including, but not limited to, the
services of employees who are familiar with the transactions out of which any
such Loss or Claim may have arisen; and (iv) the indemnifying Party shall not be
liable for any settlement effectuated without its prior written consent.
ARTICLE X
TERMINATION
Section 10.1 Events of Termination. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated by written notice of
termination at any time before the Closing Date only as follows:
(a) Mutual Consent. By mutual consent of the Company, the
Sellers and the Purchaser;
(b) Breach. By the Sellers holding a majority of the Stock, on
the one hand, or by Purchaser, on the other hand, if the other party shall have
(a) misstated any representation or been in breach of any warranty contained
herein or (b) been in breach of any covenant,
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<PAGE> 27
undertaking or restriction contained herein and such misstatement of breach has
not been cured by the earlier of (i) five (5) days after the non-breaching party
gives notice to the breaching party of such misstatement or breach of (ii) the
Closing;
(c) By Purchaser. (i) if all of the conditions precedent set
forth in Section 7.1 hereof have not been met prior to March 29, 1999; and (ii)
if the results of its due diligence review of the Company and the Sellers is not
satisfactory in its sole discretion.
(d) By Sellers. if all of the conditions precedent set forth
in Section 7.2 hereof have not been met prior to March 29, 1999; and (ii) if the
results of its due diligence review of the Purchaser is not satisfactory in
their sole discretion
(e) By Either Party. Provided that such party is not in
material default hereunder, by either party if the Closing does not occur on or
before April 6, 1999;
Section 10.2 Consequences of Termination. If this Agreement is validly
terminated pursuant to Article 10 and the transactions contemplated hereby are
not consummated as described above, this Agreement shall become void and of no
further force and effect; provided, however, that if Purchaser terminates this
Agreement because any of the conditions contained in Section 7.1 (except for
Section 7.1(a))have not been satisfied, or if Seller terminates this Agreement
because any of the conditions contained in Section 7.2 have not been satisfied
then the terminating party shall have the right to pursue all of its legal
remedies for breach of contract and damages; provided further that if this
Agreement is validly terminated pursuant to Section 10.1 and the transactions
contemplated hereby are not consummated as described above, the provisions of
Sections 5.2 and 6.2 relating to the obligation of the parties to keep
confidential and not to use certain information obtained by it from the other
party and the provisions of Section 10.3 relating to responsibility for expenses
shall survive. No party hereto shall have any liability to any other party in
respect of a valid termination of this Agreement pursuant to Section 10.1,
except to the extent set forth above.
Section 10.3 Expenses if No Closing. If the Closing does not
occur and the transactions contemplated hereby are not consummated, then,
subject to the right of a non-defaulting party to recover damages, costs and
expenses from a defaulting party pursuant to Section 10.2, all costs and
expenses incurred in connection with this Agreement shall be paid by the person
incurring such expenses; i.e., by Purchaser if incurred by Purchaser and by
Seller if incurred by Seller.
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ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made by Seller and Purchaser in this
Agreement or pursuant hereto shall survive the Closing (as defined in Section
12.1) hereunder, notwithstanding any investigation made by or on behalf of
Seller or Purchaser prior to or after the Closing Date (as defined in Section
12.1).
ARTICLE XII
THE CLOSING
Section 12.1 Time and Place. The closing (the "Closing") of the
transactions contemplated hereby (the "Closing Date") shall be held on March 18,
1999, at 10:00 a.m., at the offices of the Purchaser, or at such other time and
at such other place as shall be mutually agreeable to the Purchaser and the
Sellers.
Section 12.2 Conduct at Closing
(a) As to Seller. Subject to the fulfillment of all of the
conditions set forth in Section 7.1 and the delivery of all certificates and
opinions required thereby, except such conditions as may be waived by the Seller
in writing, on the Closing Date Purchaser shall deliver to Sellers:
(i) Certificates evidencing eVS Stock, as provided for in
Section 1.1;
(ii) The certificate required by Section 7.2(b) hereof;
(iii) The opinion of counsel required by Section 7.2(c)
hereof; and
(iv) A certificate dated the Closing Date and signed on behalf
of Purchaser by its Secretary attaching (A) a true and correct copy of Purchaser
Certificate of Incorporation, (B) a true and correct copy of the by-laws of
Purchaser, (C) the resolutions by the Board of Directors of Purchaser
authorizing the actions taken and authorizing the officers of Purchase to
execute all documents and instruments to be executed and delivered by Purchaser
in connection with the purchase of the eVS Shares, and (D) certificates of good
standing certified by the Secretary of State of Delaware; and (E) specimen
signatures of the incumbent officers of Purchaser executing this Agreement and
the documents executed and delivered pursuant to or in connection with this
Agreement.
Section 12.3 As to Purchaser. Subject to the fulfillment of all of the
conditions set forth in Section 7.2 and the delivery of all certificates
required thereby, except such conditions, certificates and as may be waived by
Purchaser in writing, Seller shall deliver to Purchaser:
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<PAGE> 29
(a) The stock certificates evidencing Seller's ownership of
the Stock, together with stock powers duly executed in blank, and all other good
and sufficient instruments of transfer and conveyance as may be necessary in
Purchaser's opinion to vest in Purchaser good, absolute, and marketable title to
the Stock;
(b) The books and records required by Section 1.2 hereof;
(c) The written resignations of those directors and officers
of the Company required by Section 1.3 hereof;
(d) The certificate required by Section 7.2(a) hereof;
(e) The opinion of counsel required by Section 7.2(b) hereof;
and
(f) A certificate dated the Closing Date and signed on behalf
of the Company by its Secretary attaching (a) (i) a true and correct copy of the
Company's Articles of Incorporation, (ii) a true and correct copy of the by-laws
of the Company, (iii) the resolutions by the Board of Directors and the
stockholders of the Company authorizing the actions taken and authorizing the
officers of the Company to execute all documents and instruments to be executed
and delivered by the Company in connection with the purchase of the Stock, and
(iv) certificates of good standing certified by the Secretaries of State or
other appropriate officials of those states in which the Company does business;
and (b) specimen signatures of the incumbent officers of the Company executing
this Agreement and the documents executed and delivered pursuant to or in
connection with this Agreement.
ARTICLE XIII
GENERAL
Section 13.1. No Tax Representations. Seller and Purchaser agree that
no representation or warranty has been made by them as to the tax consequences
of the transactions contemplated by this Agreement or the results of the
allocation of the amount of, or the consideration comprising, the Transaction
Consideration, that each is engaging separate counsel with respect to such tax
consequences, and that each is assuming its own respective tax liability, if
any, arising out of this Agreement or the consummation of the transactions
contemplated hereunder.
Section 13.2. Regarding the Representations and Warranties. Each of the
representations and warranties made by each Seller and the Company in Article II
is independent of the other representations and warranties made therein, and
each of the representations and warranties made by Purchaser in Article III is
independent of the other representations and warranties made therein.
Section 13.3. Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by each of the
parties and their respective successors and assigns. This Agreement may not be
assigned by either party without the prior
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<PAGE> 30
written consent of the other party.
Section 13.4. Waiver. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
Section 13.5. Dispute Resolution
(a) Good-Faith Negotiations. If any dispute arises under this
Agreement that is not settled promptly in the ordinary course of business, the
parties shall seek to resolve any such dispute between them, first, by
negotiating promptly with each other in good faith in face-to-face negotiations.
These face-to-face negotiations shall be conducted by the respective designated
senior management representative of each party. If the parties are unable to
resolve the dispute between them through these face-to-face negotiations within
20 days (or such period as the parties shall otherwise agree) following the date
of notification (the "Notice Date") by one party to the other of the existence
of such dispute, then any such disputes shall be resolved in the following
manner. For purposes of this Section 13.5(a), Seller and Subsidiary shall be
deemed to be a single "party."
(b) Mediation. The parties shall endeavor to resolve any
dispute arising out of or relating to this Agreement by mediation under the CPR
Mediation Procedures for Business Disputes. Unless otherwise agreed, the parties
will select a mediator from the CPR Panels of Neutrals and shall notify CPR to
initiate the selection process.
(c) Resolution of Disputes
(i) The controversy or claim shall be settled by
arbitration conducted on a confidential basis, under the U.S. Arbitration Act,
if applicable, and the then current Commercial Arbitration Rules of the American
Arbitration Association (the "Association") strictly in accordance with the
terms of this Agreement and the substantive law of the State of Florida,
including such law in respect of the statute of limitations. The arbitration
shall be conducted at the Association's regional office located in Orlando,
Florida by three arbitrators, at least one of whom shall be knowledgeable in
e-commerce and web software design, programming and implementation, one of whom
shall be an attorney and one of whom shall be a member of a "Big Six" accounting
firm familiar with businesses engaged in software design, programming and
implementation. The arbitrators are not empowered to award damages in excess of
compensatory damages and each party hereby irrevocably waives any right to
recover such damages with respect to any such disputes. Judgment upon the
arbitrators' aware may be entered and enforced in any court of competent
jurisdiction.
(d) Neither party shall be precluded hereby from securing
equitable remedies in courts of any jurisdiction, including, but not limited to,
temporary restraining orders and preliminary injunctions to protect its rights
and interests but shall not be sought as a means to avoid or stay arbitration.
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<PAGE> 31
(e) Each party is required to continue to perform its
obligations under this contract pending final resolution of any dispute arising
out of or relating to this contract, unless to do so would be impossible or
impracticable under the circumstances.
Section 13.6. Notices. All notices, requests, demands, waivers,
consents, approvals, or other communications which are required or permitted
hereunder shall be in writing and shall be deemed given if delivered personally,
sent by reputable overnight courier service (such as Federal Express), sent by
telecopier, or sent by registered or certified mail, return receipt requested,
postage prepaid, to the addresses set forth below:
If to Purchaser:
eMERGE Vision Systems, Inc.
10315 102nd Terrace
Sebastian, FL 32958
Phone: 561/589-5310
Fax: 561/589-3779
Attention: Charles L. Abraham
With a copy to:
Karen M. Keating, Esquire
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Telephone: 610/254-4106
Fax: 610/293-1658
If to Seller:
<TABLE>
<S> <C>
Scott Sanders David Sanders
104 Southwood Street 1680 Valley Hills Circle
Starkville, MS 39759 Starkville, MS 39759
Phone: 601-323-2954 Phone: 601-323-7083
Fax: 601-320-3999 Fax: 601-323-1325
Scott Calhoun Dr. Duane Pankratz
1 Research Boulevard 44130 279th Street
Suite 201-B Freeman, SD 57029
Starkville, MS 39759 Fax: 605-925-4354
Phone: 601-323-1877 Phone: 605-925-4354
Fax: 601-320-3999
</TABLE>
With a copy to:
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<PAGE> 32
William F, Gillis, Esquire
Gholson, Hicks & Nickels
710 Main Street, 3rd Floor
Columbus, MS 39701
Phone: 601-243-7300
Fax: 601-327-6217
or to such other address or telecopier number as the party entitled to receive
such notice may, from time to time, specify in writing to the other party.
Section 13.7 Governing Law and Jurisdiction. This Agreement shall be
construed and enforced in accordance with the law of the State of Florida
without giving effect to the principles of conflicts of law of any jurisdiction.
In the event that a party to this Agreement perceives the existence of a dispute
with the other party concerning any right or duty provided for herein, the
parties will, as soon as practicable, confer in an attempt to resolve the
dispute in accordance with Section 13.5 herein. If the parties are unable to
resolve such dispute amicably, then the parties hereby submit to the exclusive
jurisdiction of and venue in the state and federal courts located in the
District of the State of Florida with respect to any and all disputes concerning
the subject of, or arising out of, this Agreement.
Section 13.8. No Third Party Beneficiaries. Notwithstanding anything to
the contrary contained herein, no provision of this Agreement is intended to
benefit any person other than the signatories hereto nor shall any such
provision be enforceable by any other person.
Section 13.9. Severability. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 13.10. Schedules All Schedules referred to in this Agreement
are intended to be and are specifically incorporated by reference herein.
Section 13.11. Section Headings All section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
Section 13.12. Contents of Agreement. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transaction
contemplated hereby and shall not be amended or terminated except by a written
instrument duly executed by each of the parties hereto. Any and all prior or
contemporaneous agreements or understandings between the parties regarding the
subject matter hereof are superseded in their entirety by this Agreement.
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<PAGE> 33
Section 13.13 Counterparts. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the same
instrument. The execution of this Agreement by any party hereto will not become
effective until counterparts hereof have been execute by all the parties hereto.
It shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
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<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
eMERGE VISION SYSTEMS, INC.
/s/: Charles L. Abraham
By: Charles L. Abraham
Title: Chief Executive Officer
CYBERSTOCKYARD, INC.
/s/: Scott Sanders
By: Scott Sanders
Title:President
/s/: J. Scott Sanders
J. Scott Sanders
/s/: David Sanders
David Sanders
/s/: Dr. Duane Pankratz
Dr. Duane Pankratz
/s/: Scott Calhoun
Scott Calhoun
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<PAGE> 1
Exhibit 10.9
PURCHASE AGREEMENT
AMONG
eMERGE VISION SYSTEMS, INC.
NUTRI-CHARGE
J TECHNOLOGIES, LLC
AND
THE BIEGERT FAMILY IRREVOCABLE TRUST
DATED: JULY 29, 1998
<PAGE> 2
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is made this 29th day of
July, 1998, by and among eMERGE VISION SYSTEMS, INC., a Delaware corporation
("Buyer"), NUTRI-CHARGE, a South Dakota partnership (the "Partnership"), J
TECHNOLOGIES, LLC, a South Dakota limited liability company ("J Technologies")
and Judith Ackland and Larry Cox, Co-Trustees of The Biegert Family Irrevocable
Trust dated June 11, 1998 ("Biegert Trust") (J Technologies and The Biegert
Family Irrevocable Trust are collectively referred to as the "Sellers" and each
as "Seller").
BACKGROUND
STS Agriventures, Ltd. ("STS") is a licensee under a license in North
America from Her Majesty the Queen in Right of Canada (the "Canadian
Government") for the sale and distribution in North America (with the exception
of Canada) of electrolyte therapy products known as "Nutri-Charge" (the
"Nutri-Charge License") and a worldwide master license from the Canadian
Government for the manufacture of Nutri-Charge Premix for livestock (the
"Pre-Mix License"). STS is also licensee under a master license from the
Canadian Government for the promotion, development, manufacture, sublicense,
distribution, use, lease and sale of infra-red detection technology (the
"Detection Technology License"). STS is in the business of sub-licensing its
rights under the Nutri-Charge License and Detection Technology License to
others. STS has sublicensed certain rights under the Nutri-Charge License and
Detection Technology License to the Partnership.
Buyer has expertise with respect to the use of infrared technology in
the biological sciences ("Buyer's Technology").
As part of a single transaction, Buyer will purchase all of the capital
stock of STS pursuant to a Stock Purchase Agreement dated July 29, 1998 (the
"STS Stock Purchase Agreement") and all of the partnership interests of the
Partnership pursuant to this Agreement, surrender the Nutri-Charge License, the
Pre-Mix License and the Detection Technology License to the Canadian Government,
enter into a new expanded license with the Canadian Government covering the same
technologies (the "New Canadian License"), and combine these technologies with
Buyer's Technology to develop the business of non invasive scanning livestock
with infrared technology to determine health, meat quality and meat grading
together with manufacturing, distributing and selling electrolyte therapy
products alone or in conjunction with infra-red detection technology products to
identify and treat the effects of stress and other potentially value-reducing
infirmities in cattle, swine, poultry and other livestock and other applications
derived from the New Canadian License (such combination to be referred to as
"eVS Business").
Sellers own all of the partnership interests of the Partnership (the
"Interests"). Buyer desires to purchase the Interests from Sellers and Sellers
desire to sell the Interests to Buyer, all upon the terms and subject to the
conditions set forth herein.
2
<PAGE> 3
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants herein contained, and intending to be legally bound, the
parties agree as follows:
ARTICLE 1
PURCHASE OF INTERESTS
1.1 Sale and Purchase. Subject to the terms and conditions set forth in
this Agreement, and in reliance upon the joint and several representations and
warranties made by the Partnership and each of the Sellers to the Buyer in this
Agreement, each of the Sellers shall sell to the Buyer and the Buyer shall
purchase and receive from each of the Sellers, the percentage of Interests set
forth opposite each Seller's name in the Partnership Interest Table set forth on
Schedule 1.1 hereto (the "Partnership Interest Table").
1.2 Books and Records. At the Closing, as defined in Section 10.1,
Sellers shall cause the Partnership to deliver to Buyer, or turn over to Buyer's
representatives, all partnership agreements of the Partnership, and the original
copies of all books of account, leases, other agreements, securities, customer
lists, files and other documents, instruments and papers of all kind and nature
belonging to or relating to the business of the Partnership and necessary or
desirable in Buyer's judgment for the on-going conduct of the Partnership and
its business, whether in the possession of Sellers or the Partnership.
ARTICLE 2
CONSIDERATION
2.1 Consideration; Payment. The consideration to be paid by Buyer to
Seller for the Interests shall be equal to 2,000,000 shares of common stock of
Buyer (the "eVS Shares") payable as follows:
(i) 1,000,000 eVS Shares to be issued at the Closing to
Biegert Trust;
(ii) 1,000,000 eVS Shares to be issued at the Closing to J
Technologies;
(iii) 400,000 of the eVS Shares to be issued to Biegert Trust
and all 1,000,000 eVS Shares to be issued to J Technologies shall
initially be "Restricted Shares" (as defined below) and shall remain
such until the earlier of (A) the seventh anniversary of the Closing or
(B) in seven (7) 200,000 share increments,
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(iv) the first time during the term of this Agreement that
Annual Gross Sales (as defined below) reach or exceed the following
milestones:
(v) $12,000,000 - 200,000 eVS Shares will no longer be
Restricted Shares;
(vi) $15,000,000 - an additional 200,000 eVS Shares will no
longer be Restricted Shares;
(vii) $18,000,000 - an additional 200,000 eVS Shares will no
longer be Restricted Shares;
(viii) $21,000,000 - an additional 200,000 eVS Shares will no
longer be Restricted Shares;
(ix) $24,000,000 - an additional 200,000 eVS Shares will no
longer be Restricted Shares;
(x) ($27,000,000 - an additional 200,000 eVS Shares will no
longer be Restricted Shares; and
(xi) $30,000,000 - the final 200,000 eVS Shares will no longer
be Restricted Shares.
"Annual Gross Sales" is defined as the gross revenues (net of
discounts, rebates and returns) of Buyer and Buyer's Affiliates (as defined
below) from sales of products that are a result of or derived from the
technology which is part of the eVS Business, earned in the 12 month period
commencing on January 1, 1999, and each 12 month period thereafter (each such
period, a "Calendar Year").
Within 30 days after the end of a Calendar Year, eVS will advise
Biegert Trust and J Technologies of the Annual Gross Sales and Biegert Trust and
J Technologies shall have the right to deliver eVS notice of the allocation of,
and the share certificate for, the number of shares that will no longer be
restricted shares pursuant to this section, and eVS will remove the appropriate
legend from the share certificate(s) with respect to such shares. For purposes
of the Agreement, "Buyer's Affiliates" shall mean any regularly-owned subsidiary
of Buyer and any other entity in which Buyer owns, directly or indirectly, at
least 50% of the voting control of or equity in and any other entity that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control by Buyer.
So long as the eVS Shares are Restricted Shares, neither Seller shall
have any right to, and shall not, sell, pledge, encumber, dispose of or
otherwise transfer such Restricted Shares or any interest therein, except J
Technologies may transfer its eVS Shares to (x) John Johanns or (y) to any
permitted assignee of John Johanns' rights under the Put Option (as defined
below) if with regard to (y) either, (i) such transfer is made
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concurrently with the exercise by the transferee of the Put Option or (ii) if
prior to such transfer Buyer is delivered an opinion of counsel reasonably
satisfactory to Buyer confirming the enforceability of the foregoing
restrictions on transfer on the proposed transferee; provided in each event, any
such transferee first executes the Stockholders Agreement. Each Seller and any
permitted transferee shall grant to Buyer an irrevocable proxy to vote such
Restricted Shares on all matters submitted to a vote of holders of eVS Shares,
except matters that will amend such Stockholders Agreement, abrogate or diminish
the rights of Sellers under this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARTNERSHIP AND SELLERS
Partnership and Sellers, jointly and severally, represent and warrant
to Buyer as follows:
3.1 Organization, Power, Standing and Qualification. The Partnership is
a general partnership consisting of two equal partners, namely, Sellers.
Partnership is duly organized, validly existing, and in good standing under the
laws of the state of South Dakota, and has full power and authority to carry on
its business as it is now being conducted and to own and operate the properties
and assets now owned and operated by it. Except as set forth in Schedule 3.1,
the Partnership is duly qualified to do business and is in good standing in all
jurisdictions where its operations or the ownership or use of its assets
requires such qualification.
3.2 Authorization for Agreement.
(i) The Partnership. The Partnership's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Partnership: (i) are within the
Partnership's powers and (ii) do not (A) require any action by or in
respect of, or filing with, any governmental or regulatory authority,
(B) violate or constitute, with or without the passage of time or the
giving of notice or both, a breach or default under, any requirement of
law applicable to the Partnership or any of its properties or any
contract to which the Partnership or any of its properties is bound or
subject or (C) result in the creation of any adverse claim on any of
the Interests.
(ii) Individual Sellers. Each Seller's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by each of the Sellers (i) are within the corporate
powers and authority of and have been duly authorized by all necessary
corporate and shareholder action by each of the Sellers and (ii) do not
(A) require any action by or in respect of, or filing with, any
governmental or regulatory authority, (B) contravene, violate or
constitute, with or without the passage of time or the giving of notice
or both, a breach or default under, any requirement of law applicable
any of them or any of their respective properties or any contract to
which any of them
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or any of their respective properties is bound or subject or (C) result
in the creation of any adverse claim on any of the Interests.
3.3 Validity of Contemplated Transactions. Except with respect to those
consents required to be obtained in connection with the following and set forth
in Schedule 3.3 hereto, all of which have been obtained, the execution, delivery
and performance of this Agreement and the collateral documents and the
consummation of the transactions contemplated hereby and thereby do not and will
not contravene any provision of the Partnership Agreement or other governing
documents of the Partnership; nor violate, be in conflict with, or constitute a
default under, cause the acceleration of any payments pursuant to, or otherwise
impair the validity or effectiveness of any agreement, contract, indenture,
lease, or mortgage, or subject any property or asset of the Partnership, or any
Seller to any indenture, mortgage, contract, commitment, or agreement, other
than this Agreement, to which the Partnership, or any Seller is a party or by
which the Partnership or any of its assets is bound; or violate any provision of
law, rule, regulation, order, permit, or license to which the Partnership or any
Seller is subject.
3.4 Partnership. All of the Interests of the Partnership are
collectively owned by the Sellers as set forth in the Partnership Interest
Table. All of the Interests are validly issued, fully paid and non-assessable
and have not been issued in violation of applicable securities laws or of any
preemptive rights or other rights to subscribe for, purchase or otherwise
acquire securities. There are no outstanding options, warrants, conversion
privileges, subscription, calls commitments or rights of any character relating
to the Interests of the Partnership.
3.5 Ownership of Interests. Each Seller is the record and beneficial
owner of the Interests as set forth in the Partnership Interest Table and has
good, marketable and valid title to such Interests, free and clear of all liens,
security interests, pledges, negative pledges, encumbrances, restrictions or
options. Upon delivery of the assignment of the Interests to the Buyer, the
Buyer shall acquire good, marketable and valid title to such Interests, free and
clear of all liens, security interests, pledges, negative pledges, encumbrances,
restrictions or options.
3.6 Title to Properties. The Partnership neither owns nor leases,
whether beneficially or of record, any tangible properties or assets, personal
or real.
3.7 Real Property. The Partnership neither owns nor leases, whether
beneficially or of record, any real property.
3.8 Financial Statements. The Partnership and the Sellers have
delivered or caused to be delivered to Buyer financial statements consisting of
a fiscal year end balance sheet for the Partnership and income statements of the
Partnership for the years then ended (collectively, the "Financial Statements").
The Financial Statements are true and correct in all material respects, are in
accordance with the applicable books and records of the Partnership and, have
been prepared in conformity with generally accepted accounting principles,
consistently applied during the related periods, and present fairly
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the financial condition of the Partnership and the results of its operations for
the respective periods ended on such dates.
3.9 Absence of Undisclosed Liabilities. The Partnership has no
liabilities or obligations of any nature, whether fixed or contingent, direct or
indirect, matured or unmatured, except for those which are specifically
disclosed in Schedule 3.9 hereto (the "Disclosed Liabilities").
3.10 Conduct of Business in the United States. Partnership has
conducted its business in the United States only, except for matters dealing
with the Canadian government in developing, promoting and facilitating the
testing of the subject intellectual properties.
3.11 Subsidiaries. The Partnership has no subsidiaries or interests in
other entities.
3.12 Compensation Arrangements. The Partnership has no (and has never
had any) employees and, except as disclosed in detail on Schedule 3.12, there
are no (and have never been any) officers, consultants, agents or other persons
performing services for the Partnership for compensation. All consultants,
agents and other persons performing services for the Partnership have been paid
in full. The Partnership has never adopted any benefit plans.
3.13 Certain Tax Matters. For any period ending on or before the
Closing, the Partnership has duly and timely filed or will file all federal,
state, and local tax returns, declarations, and reports, estimates, information
returns and statements (collectively, "Returns") required to be filed or sent by
it or on its behalf and all such Returns are or will be true, correct and
complete, true, correct and complete copies of which Returns have been delivered
to Buyer prior to the date hereof. The Partnership has paid in full all Taxes
(as defined hereafter) and any penalties with respect to the Returns and any
penalties entered with respect thereto, due and payable for any period ending on
or before the Financial Statement Date. For all tax periods which commence after
the Closing, to the extent any Taxes are due and payable the Partnership shall
use its best efforts to determine a good faith estimate of the Taxes, shall
properly reserve the full amount of such estimate on any Financial Statement
delivered to Buyer covering periods after the date of the Financial Statement.
The Partnership's federal income tax liabilities, if any, have never been
audited by the Internal Revenue Service and have been satisfied for all taxable
years up to and including the taxable year ended December 31, 1997. Neither the
Internal Revenue Service nor any state or local taxing authority has asserted
that additional taxes are owed by the Partnership.
As used herein, the term "Taxes" shall include all federal, state, and
local taxes, including income, excise, withholding, property, franchise, gross
receipt and other taxes.
3.14 Litigation; Compliance with Laws. Except as set forth in Schedule
3.14 attached hereto, there is no suit, action, claim, arbitration,
administrative or legal or other
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proceeding, or to Partnership's and Sellers' knowledge, governmental or other
investigation pending or, to Partnership's and Sellers' knowledge, threatened
against or affecting the Partnership, whether or not covered by insurance; nor
to Partnership's and Sellers' knowledge does there now exist any failure by the
Partnership to comply with, nor any default by the Partnership under any law,
ordinance, requirement, regulation, or order applicable to the Partnership, nor
any violation by the Partnership or default by the Partnership with respect to
any order, writ, injunction, judgment, or decree of any court or federal, state
or local department, official, commission, authority, board, bureau, agency, or
other instrumentality issued or pending against the Partnership which might have
a material adverse effect on the financial condition, business, results of
operations, properties, or assets of the Partnership, or Buyer's purchase or
ownership of the Interests. To Partnership's and Sellers' knowledge, the
Partnership has obtained all permits, licenses, zoning variances approvals, and
other authorization necessary for the complete operation of its business as
presently operated. Specifically, except as set forth in Schedule 3.14, the
Partnership has obtained all approvals, including without limitation, all US
Federal Drug Administration and Department of Agriculture regulatory approvals
necessary and proper for the manufacture and sale of electrolyte therapy
products manufactured pursuant to the Nutri-Charge License, Nutri-Charge Premix
manufactured pursuant to the Pre-Mix License and infra-red detection technology
manufactured pursuant to the Detection Technology License. There have been no
illegal kickbacks, bribes or political contributions made by the Partnership.
3.15 Intellectual Property.
(a) Schedule 3.15.1 sets forth a complete and accurate list
and full description of all patents, trademarks, service marks, trade names,
copyrights, and similar intangible rights and all applications or registrations
thereof owned by the Partnership or used in respect of the Partnership's
business (collectively, the "Listed Rights"). With respect to any registrations
of the Listed Rights owned or licensed by the Partnership, Schedule 3.15.1 also
sets forth, as to each such item of the Listed Rights, the (i) relevant
application or registration number, (ii) relevant filing, registration, issue or
application date, (iii) record owner, (iv) country, (v) title or description and
(vi) remaining life thereof. In addition, Schedule 3.15.1 identifies whether
each item of the Listed Rights is owned by the Partnership or is possessed and
used by the Partnership under the applicable license, contract, agreement or
other commitment. With respect to each such commitment, the identity of the
parties thereto, the term thereof and all amounts payable thereunder together
with the payment terms therefor are listed on Schedule 3.15.1. Except as set
forth on Schedule 3.15.1, the Listed Rights comprise all of the patent rights,
trademark and service mark rights, trade names, copyrights and all licenses that
are necessary for the conduct of the Partnership's business as now being
conducted and as proposed to be conducted. Except as set forth on Schedule
3.15.1, to the best of the Partnership's and Sellers' knowledge, the Partnership
owns and possesses (under license) all of the proprietary rights, know-how and
trade secrets not included in the Listed Rights (the "Other Proprietary Rights"
and, together with the Listed Rights, the "Intellectual Property") necessary for
the business as now being conducted and as proposed to be conducted.
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(b) Each item of the Intellectual Property constitutes a valid
and enforceable right of the Partnership and does not infringe or conflict with
the rights of any other person or entity, except as to the contractual rights of
the Canadian government and STS under the license and sublicense agreements.
Except as otherwise provided in Schedule 3.15.2, the Partnership has no
obligation to compensate, or to obtain the consent of, any third party for the
use of any item of the Intellectual Property. There is neither pending nor, to
the best of the Partnership's and Sellers' knowledge, threatened (except as
disclosed on Schedule 3.15.2) any suit, action, claim, arbitration, grievance,
litigation, administrative or legal or other proceeding, or investigation,
against the Partnership or its licensors contesting the validity of, or the
Partnership's rights to use, any of the Intellectual Property. Except as
otherwise provided in Schedule 3.15.2, the Partnership has not granted any
license or other right to use, in any manner, any item of the Intellectual
Property, whether or not requiring the payment of royalties, and no third party
has any right to use any of the Intellectual Property, to the best of the
Partnership's and Sellers' knowledge, no person or entity is infringing upon any
of the Partnership's rights to the Intellectual Property. The Partnership has
not received notice or infringement upon, misappropriation of or conflict with
any asserted right of any third party, and to the best of the Partnership's and
Sellers' knowledge, there is no basis for any such notice.
3.16 Specific Patent/USFDA Representations.
(xii) The Partnership and the Sellers have provided all
paperwork they possess concerning the U.S. Food and Drug Administration
("FDA").
(xiii) Aurora Co-op Elevator Company was the manufacturer of
the Nutri-Charge product used in the FDA trials undertaken on behalf of
the Partnership ("FDA Trials") and the Partnership has been advised
that its FDA Registration Number is 1916267.
(xiv) Jeffrey Biegert and his affiliates as sponsor of the FDA
Trial will assign all right, title and interest that he and they may
have in the FDA application process and FDA Trial results. He and they
will cooperate in the FDA application process as the sponsor to
expeditiously seek FDA approval. The assignment and cooperation of
Jeffrey Biegert is contingent upon agreement by Buyer that he and they
will be saved and held harmless from any and all costs and expense he
or they may incur by reason of being a sponsor to the FDA application
process.
(xv) John Johanns has had no direct contact with the FDA
regarding the Nutri-Charge product other than the initial meeting in
Washington, D.C. with Al Schaefer and Rick Stanley present, and except
for signing the FDA Trial report as an investigator. Jeffrey Biegert
has had no contact with the FDA
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regarding the Nutri-Charge product other than signing the FDA
application to manufacture the Nutri-Charge product for the FDA Trial.
3.17 Contracts
Except as listed and described on Schedule 3.17(a) or any other
Schedule attached hereto, the Partnership is not a party to any written or oral
agreement, contract or commitment (the "Contracts.")
Except as disclosed on Schedule 3.17(b), (i) each of the Contracts is
valid and enforceable in accordance with its terms, (ii) is in compliance with
the provisions thereof, (iii) Partnership and, to the best of the Partnership's
and Sellers' knowledge, each other party is not in default in the performance,
observance or fulfillment of any obligation, covenant or condition contained
therein, (iv) no event has occurred which with or without the giving of notice
or lapse of time, or both, would constitute a default by the Partnership, or to
the best of the Partnership's or Sellers' knowledge, by any other party
thereunder and (v) the Partnership's rights under the Contracts are transferable
by the Partnership to Buyer without restriction except for the Consents. To the
Partnership's and Sellers' knowledge, none of the terms or provisions of any of
the Contracts materially adversely affects the prospects, conditions, affairs,
or operations of the Partnership or its business, including restrictions on the
Partnership's ability to compete.
3.18 Other Transactions. Except as disclosed on Schedule 3.18 hereto,
the Partnership has not, since the date of the most recent Financial Statements,
(a) operated its business except in the ordinary course of business, (b)
incurred any debts, liabilities or obligations except in the ordinary course,
(c) discharged or satisfied any liens or encumbrances, or paid any debts,
liabilities or obligations, except in the ordinary course of business, (d)
mortgaged, pledged or subjected to lien or other encumbrance any of its assets,
tangible or intangible, except in the ordinary course of business, (e) sold or
transferred any of its tangible assets, or canceled any debts or claims, except,
in each case, in the ordinary course of business, or (f) suffered any
extraordinary losses or waived any rights of substantial value.
3.19 Product Liability Claims. To Partnership's and Sellers' knowledge,
there have been no incidents, events or claims relating to the Partnership in
the nature of products liability claims, breach of warranty claims or other
claims alleging failure of product performance. There is no product liability
insurance.
3.20 Bank Accounts. Schedule 3.20 hereto lists the names and addresses
of every bank and other financial institution in which the Partnership maintains
an account (whether checking, savings or otherwise), lock box or safe deposit
box, and the account numbers and names of persons having signing authority or
other access thereto.
3.21 No Changes. Since the date of the most recent Financial
Statements, and except as disclosed to Buyer in writing as soon as any such
events have occurred, there has not been:
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(a) Any materially adverse change in the financial or other
condition, assets, liabilities or business of the Partnership, except changes
described in Section 3.20 hereto, none of which individually or in the aggregate
has been materially adverse to the Partnership;
(b) Any damage, destruction or loss (whether or not covered by
insurance) or any condemnation by governmental authorities which has or may
adversely affect the business, prospects or any property of the Partnership;
(c) Any strike, lockout, labor trouble or any event or
condition of similar character adversely affecting the business or prospects of
the Partnership;
(d) Any declaration, setting aside or payment of any
distribution in respect of any of the Partnership's Interests or any direct or
indirect redemption, purchase or other acquisition of any such Interests; or
(e) Any increase in the compensation payable or to become
payable by the Partnership to any of its officers, employees or agents, or any
known payment or arrangement made to or with any thereof, other than salary
reviews and increases taking effect after the Financial Statement Date, all of
which were consistent with the Partnership's past practices, except as disclosed
to Buyer in writing as soon as any such events have occurred.
3.22 Copies of Partnership Agreement. The Partnership's Restated
Partnership Agreement (certified by the general partners of the Partnership) to
which Buyer has been provided a copy, is correct and remains in effect as at the
date of this Agreement. Except as set forth in Schedule 3.22, there are no other
material books and records of the Partnership to which Buyer has not been
provided access [in which the Partnership has access.]
3.23 Tangible Assets; Inventory. There are no tangible assets or
inventory owned, leased or licensed, whether beneficially or of record, by the
Partnership.
3.24 Accounts Receivable. There are no accounts receivable.
3.25 Hazardous Substances. Except as listed on Schedule 3.25, (i) none
of the assets of the Partnership has been used for the manufacture, storage,
transportation, deposit, disposal, treatment, handling, production, processing
or recycling of toxic, dangerous or hazardous substances; (ii) the Partnership
has engaged in no activity which would subject the Partnership or the Buyer to
liens, damages, penalties, injunctive relief or cleanup costs under any federal,
state or local law, or under any civil action respecting hazardous substances;
(iii) the Partnership has complied with each, and is not in violation of any,
United States federal, state, or local law, statute, regulation, permit
provision or ordinance, relating to the generation, handling, storage,
transportation, treatment or disposal of chemicals, substances (the
"Environmental Laws"); and (iv) the Partnership has obtained and complied with
all necessary permits and other approvals, including interim status under the
Reserve Conservation and Recovery Act, as amended ("RCRA"),
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necessary to store, treat, dispose of and otherwise handle hazardous wastes and
hazardous substances. A "hazardous substance" shall mean that term as defined in
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601, et seq., as amended, and dangerous, regulated toxic or
hazardous substances, petroleum products, or similar terms under any other
applicable United States federal, state, or local law and any regulations
thereunder.
3.26 Relationship With Licensees. Schedule 3.26 hereto contains an
accurate list of the Partnership's licensees. None of such licensees has given
the Partnership notice terminating or canceling any license, or materially
reducing any payment or royalty, or threatening to terminate or cancel, any
license or materially reduce any payment or royalty or relationship with the
Partnership, and Seller is not aware of any material deterioration of any such
relationship. None of the Partnership's licensees for the past two fiscal years
has given the Partnership notice terminating or canceling any license, or
materially reducing any payment or royalty, or threatening to terminate or
cancel any license, or materially reduce any payment or royalty or supply
relationship with the Partnership and the Partnership and Sellers are not aware
of any material deterioration of any such relationship.
3.27 Transactions With Affiliates. Except as set forth in Schedule
3.27, no General Partner or affiliate of the Partnership, nor any officer or
director of any General Partner or any affiliate of the Partnership, (i) owns or
has a material interest in any asset used by the Partnership in the operation of
its business, (ii) has any direct or indirect interest of any nature whatsoever
in any person which markets or provides the same type of services as those which
Buyer will provide by purchasing the business of the Partnership, (iii) provides
or causes to be provided any assets, services or facilities used or held for use
in connection with the business of the Partnership.
3.28 Veracity of Statements. No representation or warranty by the
Partnership or any Seller contained in this Agreement and no statement contained
in any certificate, schedule or other instrument furnished to Buyer pursuant
hereto or in connection with the transactions contemplated hereby, contains any
untrue statement of a material fact or omits to state a material fact.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers and the
Partnership as follows:
4.1 Organization. The Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation,
(ii) has the power and authority to own and operate its properties and assets
and to transact its business as currently conducted and (iii) is duly qualified
and authorized to do business and is in good standing in all jurisdictions,
which are identified on Schedule 4.1 hereto, where the failure to be duly
qualified, authorized and in good standing would have a
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material adverse effect upon the Buyer's businesses, prospects, operations,
results of operations, assets, liabilities or condition (financial or
otherwise).
4.2 Authorization for Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Buyer (i) are within the Buyer's corporate powers and
duly authorized by all necessary corporate action on the part of the Buyer and
(ii) do not (A) require any action by or in respect of, or filing with, any
governmental body, agency or official, except as set forth in this Agreement or
(B) contravene, violate or constitute, whether with or without the passage of
time or the giving of notice or both, a breach or a default under, any
requirement of law applicable to the Buyer or any of its properties or any
Contract to which the Buyer or any of its properties is bound.
4.3 Enforceability. This Agreement has been duly executed and delivered
by the Buyer and constitutes the legal, valid and binding obligation of the
Buyer, enforceable against the Buyer in accordance with its terms.
4.4 Litigation. There is no legal proceeding or order pending against
or, to the knowledge of the Buyer, threatened against or affecting, the Buyer or
any of its properties or otherwise that could adversely affect or restrict the
ability of the Buyer to consummate fully the transactions contemplated by this
Agreement or that in any manner draws into question the validity of this
Agreement.
4.5 Hazardous Substances. (i) none of the assets of the Buyer has been
used for the manufacture, storage, transportation, deposit, disposal, treatment,
handling, production, processing or recycling of toxic, dangerous or hazardous
substances; (ii) the Buyer has engaged in no activity which would subject the
Buyer or the Partnership to liens, damages, penalties, injunctive relief or
cleanup costs under any federal, state or local law, or under any civil action
respecting hazardous substances; (iii) the Buyer has complied with each, and is
not in violation of any, United States federal, state, or local law, statute,
regulation, permit provision or ordinance, relating to the generation, handling,
storage, transportation, treatment or disposal of chemicals, substances (the
"Environmental Laws"); and (iv) the Buyer has obtained and complied with all
necessary permits and other approvals, including interim status under the
Reserve Conservation and Recovery Act, as amended ("RCRA"), necessary to store,
treat, dispose of and otherwise handle hazardous wastes and hazardous
substances. A "hazardous substance" shall mean that term as defined in the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section9601, et seq., as amended, and dangerous, regulated toxic or hazardous
substances, petroleum products, or similar terms under any other applicable
United States federal, state, or local law and any regulations thereunder.
4.6 Product Liability Claims. There have been no incidents, events or
claims relating to the Buyer in the nature of products liability claims,
breaches of warranty claims or other claims alleging failure of product
performance.
4.7 Conflict With Authority, Bylaws, Etc. Neither the execution and
delivery of this Agreement and the Collateral Documents to which Buyer is a
party, nor the
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consummation of the transactions contemplated hereby and thereby in the manner
herein provided will violate, be in conflict with, constitute a default under,
cause the acceleration of any payments pursuant to, or otherwise impair the good
standing, validity, and effectiveness of any lease, license, permit,
authorization, or approval applicable to Buyer; or violate any provision of law,
rule, regulation, order, or permit to which Buyer is subject.
4.8 Acquisition of Interests for Investment. Buyer is acquiring
ownership of the Partnership for investment for its own account and not with a
view to the resale or distribution thereof in violation of any federal or state
securities laws. Buyer or such assignees will not offer, sell, transfer, assign,
pledge or hypothecate any portion of the Interests in the absence of
registration under, or pursuant to an applicable exemption from all applicable
federal and state securities laws.
4.9 Capitalization of Buyer. The authorized capital stock of Buyer
consists of 20,000,000 shares of a single class of common stock having $0.01 par
value per share and
4.10 10,000,000 shares of blank check preferred stock. Upon the Closing
and the closing of the transactions contemplated in the STS Stock Purchase
Agreement, Buyer's issued and outstanding capital will be as set forth in
Buyer's Capitalization Table attached as Schedule 4.9 hereto, and such shares
will be validly issued, fully paid and non-assessable and will not have been
issued in violation of applicable securities laws or of any preemptive rights or
other rights to subscribe for, purchase or otherwise.
4.11 Financial Statements. Buyer has delivered or caused to be
delivered to the Sellers financial statements consisting of a fiscal year end
balance sheet for the Buyer for __________ and income statements and statements
of cash flow of the Buyer, for the years then ended (collectively, the
"Financial Statements"). The Financial Statements are true and correct in all
material respects, are in accordance with the applicable books and records of
the Buyer and, have been prepared in conformity with generally accepted
accounting principles, consistently applied during the related periods ("GAAP"),
and present fairly the financial condition of the Buyer and the results of its
operations for the respective periods ended on such dates.
4.12 Absence of Undisclosed Liabilities. At the date of the Financial
Statements, Buyer had no liabilities or obligations of any nature, whether fixed
or contingent, direct or indirect, matured or unmatured, required by GAAP to be
reflected on the Financial Statements which was not so reflected.
4.13 Certain Tax Matters. For any period ending on or before the
Closing, the Buyer has duly and timely filed or will file all federal, state and
local tax returns, declarations, and reports, estimates, information returns and
statements (collectively, "Buyer Returns") required to be filed or sent by it or
on its behalf and all such Buyer Returns are or will be true, correct and
complete. Buyer has paid in full all Taxes and any penalties entered with
respect to the Buyer Returns and any penalties entered into with respect
thereto, due and payable for any period ending or before the date of the
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Financial Statements. Buyer's federal income tax liabilities, if any, have never
been audited by the Internal Revenue Service. Neither the Internal Revenue
Service nor any state or local taxing authority has asserted that additional
taxes are owed by Buyer.
4.14 Litigation: Compliance with Laws. Except as set forth in Schedule
4.13 attached hereto, there is no suit, action, claim, arbitration,
administrative or legal or other proceeding, or to Buyer's knowledge,
governmental or other investigation pending or, to Buyer's knowledge, threatened
against or affecting the Buyer, whether or not covered by insurance; nor to
Buyer's does there now exist any failure by Buyer to comply with, nor any
default by Buyer under any law, ordinance, requirement, regulation or order
applicable to Buyer, nor any violation by Buyer or default by Buyer with respect
to any order, writ, injunction, judgment or decree of any court or federal,
state or local department, official, commission, authority, board, bureau,
agency, or other instrumentality issued or pending against Buyer which might
have a material adverse effect on the financial condition, business, results of
operations, properties, or asset of Buyer or Buyer's purchase of ownership of
the Interests. To Buyer's knowledge, the Buyer has obtained all permits,
licenses, zoning variances approvals, and other authorization necessary for the
complete operation of its business as presently operated, except for the
approvals of FDA as to which no representations are made.
4.15 Property. Except as set forth on Schedule 4.14, to the best of the
Buyer's knowledge, the Buyer owns or possesses (under license) prior to or
contemporaneously with this agreement all of the proprietary rights, know-how
and trade secrets necessary for the business as presently conducted, excluding
the eVS Business. To the best of Buyer's knowledge, each item such intellectual
property constitutes a valid and enforceable right of the Buyer and does not
infringe or conflict with the rights of another person or entity. There is
neither pending nor, to the best of the Buyer's knowledge, threatened (except as
disclosed on Schedule 4.14) any suit, action, claim, arbitration, grievance,
litigation, administrative or legal or other proceeding, or investigation,
against the Buyer or its licensors contesting the validity of, or the Buyer's
rights to use, any of such intellectual property. To the best of Buyer's
knowledge, no person or entity is infringing upon any of the Buyer's rights to
the intellectual property. The Buyer has not received notice or infringement
upon, misappropriation of or conflict with any asserted right of any third
party, and to the best of Buyer's knowledge, there is no basis for any such
notice.
4.16 No Changes. Since the date of the Financial Statements, and except
as disclosed to Sellers in writing as soon as any such events have occurred,
there has not been:
(a) Any materially adverse change in the financial or other
condition, assets, liabilities or business of Buyer, none of which individually
or in the aggregate has been materially adverse to Buyer;
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(b) Any damage, destruction or loss (whether or not covered by
insurance) or any condemnation by governmental authorities which has or may
adversely affect the business, prospects or any property of Buyer; or
(c) Any strike, lockout, labor trouble or any event or
condition of similar character adversely affecting the business or prospects of
Buyer.
4.17 Veracity of Statements. No representation or warranty by Buyer
contained in this Agreement and no statement contained in any certificate,
schedule or other instrument furnished to Sellers pursuant hereto or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact.
ARTICLE 5
ACTIVITIES PRIOR TO CLOSING BY SELLER
5.1 Operation of Business. Prior to the Closing, the Partnership shall
conduct its business only in the ordinary course and in connection therewith
and, to the extent consistent therewith, the Partnership shall use its best
efforts to preserve its business organization intact and maintain its existing
relations with customers, suppliers, employees and business associates. Except
as set forth in Schedule 5.1, the Partnership shall:
(a) Organizational Documents. Not amend its partnership
agreement, except as may be necessary to carry out this Agreement or as required
by law;
(b) Partnership Name. Not change its partnership name or
permit the use thereof by any other person or entity;
(c) Compensation, Bonuses. Not hire or pay or agree to hire or
pay any employee, independent contractor, officer, or director of the
Partnership, without the consent of Buyer.
(d) Management. Not make any changes in its management without
the consent of Buyer;
(e) Mergers, Etc. Not merge or consolidate the Partnership
with any entity or allow it to acquire or agree to acquire or be acquired by any
corporation, association, partnership, joint venture, or other entity; except
JLB, Inc. has sold its interest in the Partnership to the Biegert Trust and
Nutri-Search, Inc. has sold its interest in the Partnership to J Technologies.
(f) Disposition of Assets. Not sell, transfer, or otherwise
dispose of any assets of the Partnership without the prior written consent of
Buyer;
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(g) Indebtedness. Not create, incur, assume, or guarantee any
indebtedness for money borrowed arising out of or in connection with the
Partnership's business except in the ordinary course of business; create or
suffer to exist any lien on any of the Partnership's assets, except those in
existence on the date hereof; or increase the amount of any indebtedness
outstanding under any loan agreement, mortgage, or other borrowing arrangement
in existence on the date hereof arising out of or in connection with the
Partnership's business;
(h) Payables. Pay when due, in accordance with past practices,
all of its accounts payable and trade obligations;
(i) Contracts and Permits. Maintain in full force and effect
all Contracts and permits necessary for or related to the operation of the
Partnership's business in all material respects and in all places as such
business is now conducted and renew or revalidate any permits which may become
void, expired, terminated, canceled or withdrawn between the date hereof and the
Closing;
(j) Litigation, Etc. Promptly advise Buyer in writing of the
commencement of, and of any known threat to commence any, suit, claim, action,
arbitration, legal or administrative proceeding, governmental investigation, or
tax audit against it;
(k) Interests. Not issue sell, pledge, dispose of or encumber
any additional Interests of, or rights convertible or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
Interests.
5.2 Access to Information. Prior to Closing, Seller will cooperate
fully with Buyer and shall provide Buyer and its accountants, counsel, and other
representatives, during normal business hours, full access to the books,
records, Contracts, other assets owned or leased by the Partnership, and full
opportunity to discuss the Partnership's business, affairs, assets, industrial
processes, and trade secrets with its officers, employees, customers, suppliers
and independent accountants, and furnish to Buyer and its representatives copies
of such documents, records, and information with respect to the affairs of the
Partnership as Buyer or its representatives may reasonably request. Buyer and
Seller, and their respective principals agree that they will hold in confidence,
trade secret or proprietary information or data supplied by the other in
conjunction with this Agreement. In the event that the transaction contemplated
by this Agreement is not consummated for any reason, each party will return to
the other all documents and other materials provided to it relating to the other
party, without retaining copies thereof.
5.3 Best Efforts. Subject to the other provisions of this Agreement,
Sellers will use their best efforts to cause the conditions listed in Section
7.1 hereof to be satisfied on the Closing Date (as defined in Section 10.1).
5.4 Benefit Plans. The Partnership shall not adopt, terminate, amend,
extend, or otherwise change any benefit plan without the prior written consent
of Buyer, and the Partnership shall give Buyer prior written notice of the
Partnership's intention to take any
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such action required by law or necessary to continue the qualified status of any
benefit plans as they pertain to the Partnership's employees or its former
employees.
5.5 Notice of Change. The Partnership will promptly notify Buyer of the
existence or happening of any fact, event or occurrence prior to the Closing
Date and of which the Partnership or any of the Partnership's employees,
partners, or other representatives has knowledge which may alter the accuracy or
completeness of any representation or warranty contained in Article 3 of this
Agreement.
5.6 No Discussions. Unless and until this Agreement is terminated
pursuant to Article 14 hereof, Seller will not, and will not authorize or permit
the Partnership or any of its employees, officers, directors, or other
representatives to, enter into, participate in, request, solicit or engage in
any discussions, negotiations, understandings, agreements or other
communications with any person or entity other than Buyer relating to offers,
inquiries, negotiations or proposals with respect to the sale of the assets or
any capital stock of the Partnership, or any type of business combination
transaction. Seller and the Partnership will promptly notify Buyer of any such
offer, inquiry, negotiation or proposal which either Seller or the Partnership
may receive.
5.7 Publicity. No party shall issue any press releases or otherwise
make public statements with respect to the terms of this Agreement or the
transactions contemplated hereby, without the consent of the other parties,
except as may be required by any national, state, provincial or local
governmental or regulatory agency. The parties hereto shall not issue any such
press release or make any such public statement or filing prior to such
consultation, except as may be required by law.
ARTICLE 6
ACTIVITIES PRIOR TO CLOSING BY BUYER
6.1 Best Efforts. Subject to the other conditions of this Agreement,
Buyer will use its best efforts to cause the conditions listed in Section 7.2
hereof to be satisfied on the Closing Date (as defined in Section 10.1).
6.2 Access to Information. Buyer shall provide Seller with information
reasonably requested by Seller regarding Buyer's ability to consummate the
transactions contemplated herein, as may be. Seller shall not disclose any such
information to any other person or entity without the prior written consent of
Buyer.
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ARTICLE 7
CONDITIONS PRECEDENT TO CLOSING
7.1 Conditions to Obligation of Buyer to Close. The obligation of Buyer
to consummate the transaction contemplated under this Agreement on the Closing
Date (as defined in Section 10.1) shall be subject to the satisfaction or the
waiver by Buyer of the following conditions on or prior to the Closing Date:
(a) Representations and Warranties; Compliance with Agreement.
The representations and warranties of the Partnership and Sellers set forth in
this Agreement shall be true and correct as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date, and the
Partnership and Sellers shall have performed all covenants and agreements to be
performed by it under this Agreement on or prior to the Closing Date and shall
have delivered to the Buyer a certificate to such effect, dated the Closing
Date, which certificate shall be in form and substance satisfactory to Buyer and
its counsel;
(b) Opinion of Counsel for the Partnership and Sellers. Frank
C. Heinisch, counsel for the Partnership and Sellers, shall have delivered to
Buyer their favorable opinion, dated the Closing Date and in the form set forth
in Exhibit 7.1.2;
(c) Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might result in any
such suit, action or proceeding shall be pending or threatened;
(d) Required Consents. The parties (other than the
Partnership) to any other contract, commitment or agreement to which the
Partnership is a party, any governmental agency or body or any other person,
firm or corporation which owns or has authority to grant any franchise, license,
permit, easement, right or other authorization necessary for the business or
operations of the Partnership, and any governmental body or regulatory agency
having jurisdiction over Buyer or the Partnership, to the extent that their
consent or approval is required under the pertinent debt, lease, contract,
commitment or agreement or other document or instrument or under applicable
laws, rules or regulations for the consummation of the transaction contemplated
hereby in the manner herein provided, shall have granted such consent or
approval, which shall include all Consents; provided however the parties
acknowledge that Sellers and Partnership shall not be responsible to procure the
consent and approval of the Canadian Government and STS;
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(e) No Material Damage to Business. The assets, properties and
business of the Partnership shall not have been and shall not be threatened to
be materially adversely affected in any way as a result of fire, explosion,
earthquake, disaster, accident, labor dispute, any action by any governmental
authority, flood, drought, embargo, riot, civil disturbance, uprising, activity
of armed forces or act of God;
(f) Approval of Buyer; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved by Buyer, in the exercise of its reasonable judgment, and Buyer or
its counsel shall have been furnished with certified copies, satisfactory in
form and substance to Buyer in the exercise of its reasonable judgment, of all
such records of the Partnership, and of the proceedings of such persons
authorizing the execution, delivery and performance of this Agreement as Buyer
shall reasonably require;
(g) Other Transactions. The closing of the transactions
contemplated by the New Canadian License and the STS Stock Purchase Agreement
shall have been completed on the Closing Date.
(h) Stockholders Agreement. The Stockholders Agreement, by and
among Buyer, the Partnership and certain other stockholders of Buyer and the
Partnership (the "Stockholders Agreement"), shall have been executed and
delivered by the parties thereto.
(i) Put Option Agreement. A Put Option Agreement, by and among
John R. Johanns and XL Vision, Inc. (the "Put Option") in the form attached
hereto as Schedule 7.1.9 shall have been executed and delivered by the parties
thereto.
7.2 Conditions to Obligation of Sellers to Close. The obligation of
Sellers to consummate the transfer of the Interests on the Closing Date (as
defined in Section 10.1) shall be subject to the satisfaction of the following
conditions on or prior to the Closing Date:
(a) Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date, Buyer shall have performed all covenants and agreements to
be performed by it under this Agreement on or prior to the Closing Date, and
Buyer shall have delivered to Seller a certificate to such effect, dated the
Closing Date, which certificate shall be in form and substance satisfactory to
Seller and its counsel;
(b) Opinion of Counsel of Buyer. Pepper Hamilton LLP, counsel
for Buyer, shall have delivered to Sellers their opinion, dated the Closing Date
and in the form set forth in Exhibit 7.2.2;
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(c) Litigation Affecting Closing. On the Closing Date, no
proceeding shall be pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transaction contemplated hereby, and no investigation that might eventuate in
any such suit, action or proceeding shall be pending or threatened;
(d) Approval of Sellers; Corporate Matters. All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Closing Date by Sellers, in the exercise of their
reasonable judgment, and Sellers shall have been furnished with certified
copies, satisfactory in form and substance to Sellers in the exercise of their
reasonable judgment, of all such records of Buyer and the Partnership and of the
proceedings of Buyer and the Partnership authorizing their execution, delivery
and performance of this Agreement as Sellers shall reasonably require; and
(e) Stockholders Agreement. The Stockholders Agreement and Put
Option shall have been duly executed and delivered by the parties thereto.
ARTICLE 8
INDEMNIFICATION
8.1 By Sellers and Individual Indemnitors. To the extent and in the
manner herein provided, each of John Johanns and Jeffrey Biegert each being
called an "Indemnitor" and collectively, the "Indemnitors") shall, jointly and
severally, indemnify, defend, and hold harmless Buyer and, after the Closing,
the Partnership, from and against any and all damages, losses, obligations,
deficiencies, liabilities, claims, encumbrances, penalties, costs, and expenses,
including expenses related to investigation and defense including reasonable
attorneys' fees (collectively, "Losses"), which Buyer may suffer or incur,
resulting from, related to, or arising out of
(a) any misrepresentation, breach of warranty or
nonfulfillment of any of the covenants of the Partnership or any Seller in this
Agreement or from any misrepresentation in or omission from any Schedule to this
Agreement, certificate, financial statement, or from any other document
furnished or to be furnished to Buyer by Sellers hereunder;
(b) any claims relating to the Returns or Taxes of the
Partnership;
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(c) any claims based upon alleged injuries to persons,
property or business by reason of alleged defectiveness, improper design, or
manufacture or malfunction or otherwise of any product manufactured by a third
party under license or sub-license from the Partnership, where such claim or
injury is actually known to the Partnership or Sellers, or is currently asserted
or threatened against the Partnership; (Indemnitors shall not be assumed or
imputed to have actual knowledge of design or manufacture in which they did not
directly participate nor supervise.)
(d) any and all Losses not disclosed on Schedule 3.9 resulting
from, related to or arising out of the operation of the Partnership's business
prior to the Closing; and
(e) any and all actions, suits, investigations, proceedings,
demands, assessments, audits, judgments, and claims (including
employment-related claims) arising out of the foregoing even though such
proceeding or claim may not be filed until after the Closing.
Notwithstanding the foregoing, the obligations of either Indemnitor to indemnify
Buyer hereunder shall be limited to $250,000. Either Indemnitor shall have the
right to defer payment of any Losses indemnifiable hereunder until the fourth
anniversary of the Closing Date, provided if an Indemnitor elects so to defer
payment of any such Loss, the Indemnitor shall, pay Buyer the amount of the Loss
(subject to the aggregate limitation set forth in the preceding sentence) plus
interest at the rate of 12% per annum from the date of the Loss to the date paid
(interest will be without regard to the aggregate limitation set forth in the
preceding sentence.)
8.2 By Buyer. From and after the Closing Date (as defined in Section
10.1), Buyer agrees to indemnify, defend, and hold harmless each Seller from and
against (i) any and all Losses, which each Seller may suffer or incur, resulting
from, related to, or arising out of any misrepresentation, breach of warranty,
or nonfulfillment of any of the covenants or agreements of Buyer in this
Agreement, (ii) any misrepresentation in or omission from any certificate or
document furnished or to be furnished to such Seller hereunder and any and all
suits, actions, investigations, proceedings, demands, assessments, audits,
judgments, and claims arising out of any of the foregoing, and (iii) any and all
Losses resulting from, related to, or arising out of the operation of the
Partnership's business after Closing.
8.3 Procedures. Promptly after acquiring knowledge of any such Losses
against which Sellers have indemnified Buyer or against which Buyer has
indemnified Seller, or as to which either Buyer or Seller (herein, a "Party")
may be liable, Sellers or Buyer, as the case may be, shall give to the other
Party written notice thereof; provided, however, that failure to give notice
shall not relieve the indemnifying Party of any liability it may have to the
indemnified Party if such failure does not materially prejudice the indemnifying
Party. In the event of any such Losses, (i) the indemnifying Party shall have
the right to assume the defense thereof and shall not be liable to such
indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by such indemnified Party in connection with the defense
thereof, provided however that
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the indemnifying Party shall have waived its right to contest its obligation to
indemnify the indemnified Party for all such Losses; (ii) if the indemnifying
Party fails to assume such defense or counsel for the indemnifying Party advises
that there are issues which raise conflicts of interest between the indemnifying
Party, on the one hand, and the indemnified Party, on the other hand, the
indemnified Party may retain one counsel satisfactory to it, and the
indemnifying Party shall pay all reasonable fees and expenses of such counsel
promptly as statements therefor are received; (iii) the indemnifying Party shall
receive from the indemnified Party all necessary and reasonable cooperation in
said defense including, but not limited to, the services of employees who are
familiar with the transactions out of which any such Losses may have arisen; and
(iv) the indemnifying Party shall not be liable for any settlement effectuated
without its prior written consent.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made by Seller and Buyer in this
Agreement or pursuant hereto shall survive the Closing (as defined in Section
10.1) hereunder, notwithstanding any investigation made by or on behalf of
Seller or Buyer prior to or after the Closing Date (as defined in Section 10.1).
ARTICLE 10
THE CLOSING
10.1 Time and Place. The closing (the "Closing") of the transactions
contemplated hereby (the "Closing Date") shall be held on July 29, 1998 at 1:00
p.m., at the offices of Pepper Hamilton LLP, 3000 Two Logan Square, Eighteenth
and Arch Streets, Philadelphia, Pennsylvania 19103-2799, or at such other time
and at such other place as shall be mutually agreeable to the Buyer and the
Sellers.
10.2 Conduct at Closing.
(a) As to Sellers. Subject to the fulfillment of all of the
conditions set forth in Section 7.1 and the delivery of all certificates and
opinions required thereby, except such conditions as may be waived by the
Sellers in writing, on the Closing Date Buyer shall deliver to Sellers:
(xvi) certificates evidencing eVS Stock, as provided for in
Section 2.1;
(xvii) the certificate regarding representations and
warranties required by Section 7.2.1 hereof;
(xviii) a certificate dated the Closing Date and signed on
behalf of Buyer by its Secretary attaching (A)(i) a true and correct
copy of Buyer's Articles
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of Incorporation, (ii) a true and correct copy of the by-laws of Buyer,
(iii) the resolutions by the Board of Directors of Buyer authorizing
the actions taken and authorizing the officers of Buyer to execute all
documents and instruments to be executed and delivered by Buyer in
connection with the purchase of the Interests, and (iv) certificates of
good standing certified by the Secretary of State of Delaware; and (B)
specimen signatures of the incumbent officers of Buyer executing this
Agreement and the documents executed and delivered pursuant to or in
connection with this Agreement;
(xix) the opinion of counsel as required by 7.2.2 hereof; and
(xx) the executed Stockholders Agreement and Put Option as
required by 7.2.5.
(b) As to Buyer. Subject to the fulfillment of all of the conditions
set forth in Section 7.2 and the delivery of all certificates and opinions
required thereby, except such conditions, certificates, and opinions as may be
waived by Buyer in writing, Seller shall deliver to Buyer:
(xxi) assignments of Sellers' Interests and all other good and
sufficient instruments of transfer and conveyance as may be necessary
in Buyer's opinion to vest in Buyer good, absolute, and marketable
title to the Interests;
(xxii) the books and records required by Section 1.2 hereof;
(xxiii) the certificate required by Section 7.1.1 hereof;
(xxiv) the opinion of counsel required by Section 7.1.2
hereof;
(xxv) a certificate dated the Closing Date and signed on
behalf of the Partnership by its Sellers attaching (a) (i) a true and
correct copy of the Partnership's Partnership Agreement and (ii)
certificates of good standing and/or fictitious name certificates
certified by the Secretaries of State or other appropriate officials of
those states in which the Partnership does business; and (b) specimen
signatures of the incumbent officers of the Sellers executing this
Agreement and the documents executed and delivered pursuant to or in
connection with this Agreement;
(xxvi) the executed Stockholders Agreement and Put Option as
required by Section 7.1.8;
(xxvii) irrevocable proxies signed by Sellers; and
(xxviii) Consulting Agreement to be signed by John Johanns.
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ARTICLE 11
CONDUCT OF SELLER AND BUYER AFTER CLOSING
11.1 Post-Closing Conduct Generally. Buyer and each Seller will
cooperate upon and after the Closing Date in effecting the orderly transfer of
the operations of the Partnership to Buyer. In addition, after the Closing Date,
at the request of any party and at the requesting party's expense, but without
additional consideration, the other party shall execute and deliver from time to
time such further instruments of assignment, conveyance and transfer, shall
cooperate in the conduct of litigation and the processing and collection of
insurance claims, and shall take such other actions as may reasonably be
required to convey and deliver more effectively to Buyer the Interests or to
confirm and perfect the Buyer's title to the Interests, and otherwise to
accomplish the orderly transfer of ownership of the Partnership to Buyer and the
business assets and operations of the Partnership as contemplated by this
Agreement.
11.2 Non-Competition. For a period of five (5) years from and after the
Closing Date (the "Restricted Period"), each Seller and each of John Johanns,
and Jeffery Biegert, and any Seller Affiliate covenants and agrees and shall
sign and deliver to Buyer at Closing an Acknowledgment and Agreement to that
effect that, without the prior written consent of Buyer, such person shall not
do any of the following directly or indirectly without the prior written consent
of the Partnership:
(a) engage or participate in any business activity in the
United States or Canada, competitive with the eVS Business, as same are
conducted by the Buyer and its affiliates during the Restricted Period (business
activity competitive with eVS Business shall not restrict or limit the Sellers,
John Johanns and Jeffrey Biegert, and the Seller Affiliates from continuing to
conduct in the ordinary course of their business their present activities of
manufacturing and marketing feed products and supplements owning and feeding
cattle, cow\calf operations, ranches, feed lots and similar aspects of the
cattle industry of a nature not similar to the eVS Business) provided that Buyer
acknowledges and consents to either John Johanns and/or Jeffrey Biegert
individually and/or entities of which either one or both own 20% or more may
continue to produce feed and feed supplement with electrolytes in the ordinary
course of business in substantially the same mode as is presently being
marketed); provided, however, that notwithstanding the foregoing exemptions and
proviso, none of either Seller, John Johanns, Jeffrey Biegert or any Seller
Affiliate shall be permitted to engage in the sale of any feed supplement or
other product which either (i) is advertised or marketed as, or in respect of
which claims are asserted that it constitutes, a product which is intended for
use, or can be used, either alone or in conjunction with infra-red technology
products, in an antemortem environment (i.e., either at the slaughterhouse
facilities or within 24 hours prior to shipping to slaughterhouse facilities) to
identify and/or treat the effects of stress and other value reducing infirmities
in cattle or (ii) a majority of which product is, in fact, fed or administered
to cattle in an antemortem environment (i.e., within 24 hours prior to either
arriving at the slaughtering facilities or shipping to the slaughtering
facilities.)
For purpose of this Agreement, the term "Seller's Affiliate"
means any entity in which either John Johanns and/or Jeffrey Biegert owns,
directly or indirectly, at
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least 20% of the voting control of or equity in and any other entity that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control by John Johanns and/or Jeffrey Biegert.
(b) become interested in (as owner, stockholder, lender,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise) any person, firm, corporation, association or other entity engaged in
any business that is competitive with the eVS Business as conducted by the Buyer
and its affiliates during the Restricted Period or become interested in (as
owner, stockholder, lender, partner, co-venturer, director, officer, employee,
agent, consultant or otherwise) any portion of the business of any person, firm,
corporation, association or other entity where such portion of such business is
competitive with the eVS Business as conducted by the Buyer and its affiliates
during the Restricted Period with respect to any employment hereunder with
respect to any period thereafter, (business activity competitive with eVS
Business shall not restrict or limit the Sellers, John Johanns and Jeffrey
Biegert, and the Seller's Affiliates from continuing to conduct in the ordinary
course of their business their present activities of manufacturing and marketing
feed products and supplements owning and feeding cattle, cow\calf operation,
ranches, feed lots and similar aspects of the cattle industry of a nature not
similar to the eVS Business provided that Buyer acknowledges and consents to
either John Johanns and/or Jeffrey Biegert individually and/or entities of which
either one or both own 20% or more may continue to produce feed and feed
supplements with electrolytes in the ordinary course of business in
substantially the same mode as is presently being marketed), provided, however,
that notwithstanding the foregoing exemptions and proviso, none of either
Seller, John Johanns, Jeffrey Biegert or any Seller Affiliate shall be permitted
to engage in the sale of any feed supplement or other product which either (i)
is advertised or marketed as, or in respect of which claims are asserted that it
constitutes, a product which is intended for use, or can be used, either alone
or in conjunction with infra-red technology products, in an antemortem
environment (i.e., either at the slaughterhouse facilities or within 24 hours
prior to shipping to slaughterhouse facilities) to identify and/or treat the
effects of stress and other value reducing infirmities in cattle or (ii) a
majority of which product is, in fact, fed or administered to cattle in an
antemortem environment (i.e., within 24 hours prior to either arriving at the
slaughtering facilities or shipping to the slaughtering facilities).
Notwithstanding the foregoing, Seller may not hold more than five percent (5%)
of the outstanding securities of any class of any publicly-traded securities of
a Partnership that is engaged in activities referenced in Section 11.2 hereof.
(c) influence or attempt to influence any supplier, customer
or potential customer of the Buyer and its affiliates to terminate or modify any
written or oral agreement or course of dealing with the Buyer and its
affiliates; or
(d) influence or attempt to influence any person to either (i)
terminate or modify his employment, consulting, agency, distributorship or other
arrangement with the Buyer and its affiliates, or (ii) employ or retain, or
arrange to have any other person or entity employ or retain, any person who has
been employed or retained by the Partnership or Buyer as an employee,
consultant, agent or distributor of the Buyer and its affiliates at
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<PAGE> 27
anytime during the twelve (12) month period immediately preceding the
termination of the Restricted Period.
It is further understood and agreed that the obligations under
this Section shall remain in effect for the entire five-year period indicated,
notwithstanding any termination of this Agreement during such period due to a
breach hereof by the Sellers.
It is also understood and agreed that, in the event of a
continuing material breach by a Seller of this Section, Buyer shall be entitled
to an injunction restraining such breach. The exercise by Buyer of any or all
such rights shall not be construed as prohibiting Buyer from pursuing any other
right or remedy it may have with respect to such breach, including the recovery
of damages.
If any of the provisions of this Section 11.2 are held to be
in any respect an unreasonable restriction upon either Seller, then they shall
be deemed to extend only over the maximum period of time, geographic area, or
range of activities as to which they may be enforceable. In the event that
either Seller shall be in violation of the restrictive covenants in this Section
11.2, then the Restricted Period shall be extended with respect to such Seller
for a period of time equal to the period of time during which such breach shall
occur; and, in the event that Buyer should be required to seek relief from such
breach in any court, board of arbitration or other tribunal, then the Restricted
Period shall be extended for the period of time required for the pendency of
such proceedings, including all appeals.
ARTICLE 12
SECURITIES LAW MATTERS
12.1 Investment. Each Seller represents, covenants and agrees as
follows:
(a) Seller has had access to such information relating to the
business and affairs of Buyer which Seller has reasonably requested, and all
additional information which Seller has considered necessary to verify the
accuracy of the information so received. Seller has had the opportunity to ask
questions of and receive answers from the Buyer concerning the terms and
conditions of the transactions contemplated by this Agreement. On the basis of
the foregoing, Seller is familiar with the operations, business plans and
financial condition of Buyer.
(b) Seller understands that Buyer will issue and deliver to
such Seller the number of eVS Shares indicated on Schedule 1.1, pursuant to this
Agreement, without compliance with the registration requirements of the United
States Securities Act of 1933 (the "Securities Act"); that for such purpose
Buyer will rely upon the representations, warranties, covenants and agreements
contained herein; and that such non-compliance with registration is not
permissible unless such representations and warranties are correct and such
covenants and agreements performed. Seller represents that he/she is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.
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<PAGE> 28
(c) Seller understands that, under existing rules of the
United States Securities and Exchange commission (the "SEC") he/she may be
unable to sell the Interests except to the extent that the Interests may be sold
(i) pursuant to an effective registration statement covering such Interests
pursuant to the Securities Act or (ii) in a bona fide private placement to a
purchaser who shall be subject to the same restrictions on any resale or (iii)
subject to the restrictions contained in Rule 144 under the Securities Act
("Rule 144"). Seller understands that Buyer is under no obligation to effect a
registration of the eVS Shares under the Securities Act.
(d) Seller is familiar with the provisions of Rule 144 and the
limitations upon the availability and applicability of such rule.
(e) Seller is a sophisticated investor familiar with the type
of risks inherent in the acquisition of restricted securities such as the eVS
Shares and its financial position is such that it can afford to retain the eVS
Shares for an indefinite period of time without realizing any direct or indirect
cash return on its investment.
(f) Seller is acquiring the eVS Shares for his/her own account
and not with a view to, or for sale in connection with, the distribution thereof
within the meaning of the Securities Act.
12.2 Legends on Certificates. During the term of this Agreement, each
certificate representing eVS Shares shall, if applicable, contain upon its face
or upon the reverse side thereof legends to the following effect:
"This Certificate represents securities which are
restricted and which are subject to the terms and conditions
of a Stockholders Agreement dated July 29, 1998 by and among
eMerge Vision Systems, Inc. ("eVS") and the stockholders
identified therein (a copy of which is on file at the
principal office of eVS) and the rights, privileges and
options therein contained. No sale, transfer, assignment,
pledge, hypothecation or other disposition of this Certificate
or any of the securities represented thereby shall be made
except in compliance with the terms and conditions of said
agreement.
the Shares represented by this Certificate have not
been registered under the Securities Act of 1933, as amended
(the "Act"), but have been issued pursuant to an exemption
from such registration. Neither such Shares nor any interest
therein may be sold, transferred, pledged, hypothecated or
otherwise disposed of until either (i) the holder thereof
shall have received an opinion of counsel for eVS that
registration thereof under the act is not required or (ii) a
registration statement under the Act covering such
28
<PAGE> 29
Shares or such interest and the disposition thereof shall have
become effective under the Act."
ARTICLE 13
BROKERAGE; EXPENSES; TAXES
None of the parties, nor, where applicable, any of their respective
shareholders, officers, directors, or employees, has employed or will employ any
broker, agent, finder, or consultant or has incurred or will incur any liability
for any brokerage fees, commissions, finders' fees, or other fees, in connection
with the negotiation or consummation of the transactions contemplated by this
Agreement.
Except as otherwise expressly provided in this Agreement, each party
agrees to bear all the respective costs, fees and expenses of any character
incurred by such party including all attorneys' fees and expenses, in connection
with this Agreement or the transactions contemplated hereby, except that any
such costs, fees and expenses incurred by the Partnership in connection with the
transactions contemplated herein shall be paid by the Sellers.
Sellers shall pay any applicable sales, documentary, use, filing,
transfer, and other taxes payable as a result of the transfer of the Interests.
ARTICLE 14
TERMINATION
14.1 Events of Termination. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated by written notice of
termination at any time before the Closing Date only as follows:
(a) Mutual Consent. By mutual consent of the Partnership, the
Sellers and the Buyer;
(b) Breach. By the Sellers holding a majority of the
Interests, on the one hand, or by Buyer, on the other hand, if the other party
shall have (a) misstated any representation or been in breach of any warranty
contained herein or (b) been in breach of any covenant, undertaking or
restriction contained herein and such misstatement of breach has not been cured
by the earlier of (i) ten (10) days after the non-breaching party gives notice
to the breaching party of such misstatement or breach of (ii) the Closing;
(c) By Buyer. Provided that the Buyer is not in material
default hereunder, if all of the conditions precedent set forth in Section 7.1
hereof have not been met prior to 60 days from the execution hereof;
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<PAGE> 30
(d) By Sellers. Provided that the Sellers are not in material
default hereunder, if all of the conditions precedent set forth in Section 7.2
hereof have not been met prior to 60 days from the execution hereof;
(e) By Either Party. Provided that such party is not in
material default hereunder, by either party if the Closing does not occur on or
before 60 days from the execution hereof;
14.2 Consequences of Termination. If this Agreement is validly
terminated pursuant to Section 14.1 and the transactions contemplated hereby are
not consummated as described above, this Agreement shall become void and of no
further force and effect; provided, however, that if Buyer terminates this
Agreement because any of the conditions contained in Section 7.1 have not been
satisfied or if Seller terminates this Agreement because any of the conditions
contained in Section 7.2 have not been satisfied then the terminating party
shall have the right to pursue all of its legal remedies for breach of contract
and damages; provided further that if this Agreement is validly terminated
pursuant to Section 14.1 and the transactions contemplated hereby are not
consummated as described above, the provisions of Section 6.2 relating to the
obligation of Buyer to keep confidential and not to use certain information
obtained by it from Seller and the provisions of Section 14.3 relating to
responsibility for expenses shall survive. No party hereto shall have any
liability to any other party in respect of a valid termination of this Agreement
pursuant to Section 14.1, except to the extent set forth above.
14.3 Expenses if No Closing. If the Closing does not occur and the
transactions contemplated hereby are not consummated, then, subject to the right
of a non-defaulting party to recover costs and expenses from a defaulting party
pursuant to Section 14.2, all costs and expenses incurred in connection with
this Agreement shall be paid by the person incurring such expenses, i.e., by
Buyer if incurred by Buyer and by Seller if incurred by Seller or the
Partnership.
ARTICLE 15
OPTION TO PURCHASE TECHNOLOGY
15.1 Option to Purchase Technology. Subject to compliance with the
provision of the New Canadian License, or any time after the seventh anniversary
of the Closing, if Buyer has not previously consummated a public offering of its
securities pursuant to a registration statement filed under the Securities Act,
and Buyer's Board of Directors determines in its good faith judgment that Buyer
should not commercialize the technologies licensed under the New Canadian
License, Sellers shall have the right to purchase from Buyer all of the
Technology then comprising the eVS Business by transferring to Buyer all of the
eVS Shares other than any eVS Shares previously sold to XL Vision, Inc. pursuant
to the Put Option.
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<PAGE> 31
ARTICLE 16
MISCELLANEOUS
16.1 Entire Agreement; Amendments. This Agreement, together with the
Stockholders Agreement by and among the Buyer and Sellers of even date herewith,
and the collateral documents, constitutes the entire understanding among the
parties with respect to the subject matter contained herein and supersedes any
prior understandings and agreements among them respecting such subject matter.
This Agreement may be amended, supplemented, and terminated only by a written
instrument duly executed by all of the parties.
16.2 Headings. The headings in this Agreement are for convenience of
reference only and shall not affect its interpretation.
16.3 Gender; Number. Words of gender may be read as masculine,
feminine, or neuter, as required by context. Words of number may be read as
singular or plural, as required by context.
16.4 Exhibits and Schedules. Each Exhibit and Schedule referred to
herein is incorporated into this Agreement by such reference.
16.5 Severability. If any provision of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity, or unenforceability will
not affect any other provision hereof. This Agreement shall, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.
16.6 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given to the person if delivered personally or
upon sending a copy thereof by first class or express mail, postage prepaid, or
by telegram (with messenger service specified), or reputable courier services,
charges prepaid, or by facsimile, to such party's address (or to such party's
facsimile number).
If to Buyer, to:
eMerge Vision Systems, Inc.
1305 102nd Terrace
Sebastian, FL 32958
Attention: Chuck Abraham, President
Fax Number: (561) 589-2049
With a copy to:
Pepper Hamilton LLP 3000 Two Logan Square
Philadelphia, PA 19103 U.S.A.
Attention: Elam M. Hitchner, III, Esquire
Fax Number: (215) 981-4750
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<PAGE> 32
If to Sellers or the Partnership, to:
Judith Ackland
P.O. Box 197
Shickley, NE 68436
With a copy to:
Frank C. Heinisch, Attorney at Law
P.O. Box 311
Geneva, NE 68361-0311
Larry Cox, CPA
P.O. Box 88
Henderson, NE 68371
Jim Titus, Attorney at Law
121 S. 13th Street, #601
P.O. Box 81849
Lincoln, NE 68501-1849
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
16.7 Waiver. The failure of any party to insist upon strict performance
of any of the terms or conditions of this Agreement will not constitute a waiver
of any of its rights hereunder.
16.8 Assignment. No party may assign any of its rights or delegate any
of its obligations hereunder without the prior written consent of the other
parties hereto.
16.9 Successors and Assigns. This Agreement binds, inures to the
benefit of, and is enforceable by the successors and assigns of the parties, and
does not confer any rights on any other persons or entities.
16.10 Governing Law. This Agreement shall be construed and enforced in
accordance with the law of the State of Delaware.
16.11 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their successors and assigns, and they shall not be construed
as conferring and are not intended to confer any rights on any other persons.
16.12 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when
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<PAGE> 33
executed and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same instrument.
The execution of this Agreement by any party hereto will not become effective
until counterparts hereof have been executed by all the parties hereto. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
ATTEST eMERGE VISION SYSTEMS, INC.
By: By: /s/ Charles L. Abraham
---------------------------- ----------------------------
Name: Name: Charles L. Abraham
--------------------------- --------------------------
Title: Title: Chief Executive Officer
-------------------------- -------------------------
[EXECUTIONS CONTINUED]
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<PAGE> 34
ATTEST NUTRI-CHARGE, by each of its general
partners:
ATTEST ATTEST
/s/: Judith Ackland /s/: Larry Cox
- -------------------------------- --------------------------------
Judith Ackland, Co-Trustee of The Larry Cox, Co-Trustee of The
Biegert Family Irrevocable Trust Biegert Family Irrevocable Trust
dated June 11, 1998, as Seller dated June 11, 1998, as Seller
ATTEST J TECHNOLOGIES, LLC, as Seller
By: /s/: Heidi Johanns
----------------------------
Heidi Johanns, Member
WITNESS:
- ----------------------------
The following persons, intending to be legally bound hereby, execute this
Agreement and agree to its terms with respect only to Article 8, Indemnification
and, as applicable, Section 11.2, Non-Competition:
WITNESS:
/s/: John Johanns
- ---------------------------- ----------------------------
John Johanns
WITNESS:
/s/: Jeffrey L. Biegert
- ---------------------------- ----------------------------
Jeffrey L. Biegert
34
<PAGE> 35
SCHEDULE 1.1: PARTNERSHIP INTEREST TABLE:
<TABLE>
<S> <C> <C>
a. J TECHNOLOGIES, LLC, a South Dakota 50%; 1,000,000 shares eMERGE VISION
limited liability company SYSTEMS, INC. common stock
b. Judith Ackland and Larry Cox, /Co-Trustees 50% 1,000,000 shares eMERGE VISION
of The Biegert Family Irrevocable Trust SYSTEMS, INC. common stock
dated June 11, 1998;
</TABLE>
35
<PAGE> 36
SCHEDULE 3.1: ORGANIZATION, POWER, STANDING AND QUALIFICATION
Nutri-Charge is not actively doing business. Nutri-Charge is a South Dakota
partnership registered in Nebraska. Recently Amended Certificates of Partnership
of Nutri-Charge have been signed evidencing the change of partners. The
certificates have not yet been filed in Nebraska and South Dakota. The filing
will be done shortly. A Continuation of Certificate of Assumed Business Name was
recently filed in Idaho and a Trade Name Registration was recently filed in
Colorado. There are no other states in which Nutri-Charge has filed to do
business. Nutri-Charge knows of no requirement to qualify to do business in any
other states.
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SCHEDULE 3.3 CONTEMPLATED TRANSACTIONS
None, except for the consents required by the collaborative research agreement,
license and sublicense agreements with the Canadian Government and STS
Agriventures, Inc.
37
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SCHEDULE 3.9 ABSENCE OF UNDISCLOSED LIABILITIES
There are no liabilities except those future liabilities created with the
Sublicenses with the Canadian Government and STS Agriventures, Inc. Kelly F.
Lechtenberg, Midwest Veterinary Services Inc. recently presented a bill for
$35,000 for services rendered in a field trial. The bill was presented to John
Johanns and Nutri-Charge. The bill will be paid by John Johanns and/or Jeffrey
Biegert or an affiliate in the ordinary course of business.
Nutri-Charge will not be responsible for the bill. The bill is not in dispute.
38
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SCHEDULE 3.12 COMPENSATION ARRANGEMENTS
In conducting the field tests, affiliates of Nutri-Charge have retained agents
and consultants to manufacture the electrolyte product solely for testing
purposes and not for marketing. Agents and consultants have been retained by
Nutri-Charge affiliates to assist with field tests under the supervision of
Ag-Canada. All such agents and consultants have been paid in full and no further
obligation is owed to such agents and consultants except for ongoing field
trials of the infrared detection technology at Logan Valley Feed Lot under the
control of Dr. Kelly Lechtenberg and under the supervision of Ag-Canada. See
response in Schedule 3.9.
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SCHEDULE 3.14 LITIGATION, COMPLIANCE WITH LAWS (INCLUDING REGULATORY APPROVALS)
Litigation: None.
Compliance with Laws. Jeffrey Biegert (Biegert Feeds) obtained approvals from US
Federal Drug Administration for the field trials of the Nutri-Charge product. Dr
Allan L. Schaefer of Ag Canada has been in charge of all such applications. No
final approval has been received from FDA and Department of Agriculture for the
manufacture and sale of electrolyte therapy products manufactured pursuant to
the Nutri-Charge License, Nutri-Charge Premix manufactured pursuant to the
Pre-Mix License and infra-red detection technology manufactured pursuant to the
Detection Technology License. Nutri-Charge has relied on STS Atriventures, LTD
and the Canadian government to procure such approvals, Nutri-Charge has not
obtained any approvals except they assisted in procuring approval for the
Nutri-Charge product field trials that were conducted. Nutri-Charge has
cooperated and will assist in such application process, but Dr Schaefer has done
all the work in making the applications. There has been no application process
by Nutri-Charge and no approvals concerning the Infrared Detection Technology.
40
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SCHEDULE 3.15.1 LISTED RIGHTS
The Canadian government owns all patents and intellectual property in accordance
with the sublicenses by and between Nutri-Charge, STS and Ag-Canada. STS and
Ag-Canada records are a superior primary source of such information. US patent
number 5,505,968 for Antemortem Nutrient Supplement for Livestock was issued
April 9, 1996 and assigned to Canada. The Method for Detecting Poor Meat Quality
in Live Animals, (Infrared Detection Technology) was the subject of Patent
applications, US 08/084,993 and Canada 2,099,529. The Canadian trade mark
application for NUTRI-CHARGE, is application 727,395. See schedule 3.1 above.
The Nutri-Charge trade name is registered in the State of Nebraska.
41
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SCHEDULE 3.15.2 LICENSES
All intellectual property is owned by the Canadian government and Nutri-Charge's
rights are created by and subject to the License and Sub-license Agreements.
42
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SCHEDULE 3.17(A) CONTRACTS
"Contracts" include only Collaborative Research Agreements, License and
Sublicense Agreements with the Canadian government and STS Agriventures LTD..
43
<PAGE> 44
SCHEDULE 3.17(b)
None
44
<PAGE> 45
SCHEDULE 3.18 OTHER TRANSACTIONS
None
45
<PAGE> 46
SCHEDULE 3.20 BANK ACCOUNTS
US Bank, P.O. Box 64799, St. Paul, MN 55164; Office Used: US Bank 17th & Farnam,
Omaha, NE 68102; Account Name: Nutri-Charge Partnership; Account Number: 1 057
0068 5123
46
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SCHEDULE 3.22 MATERIAL ADVERSE CHANGE IN FINANCE
None
47
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SCHEDULE 3.25 HAZARDOUS SUBSTANCES
None to Partners and Seller's knowledge. No permits or other approvals have been
procured under the Reserve Conservation and Recovery Act.
48
<PAGE> 49
SCHEDULE 3.26 RELATIONSHIP WITH LICENSEES
None, Nutri-Charge has not licensed its sub-license.
49
<PAGE> 50
SCHEDULE 3.27 TRANSACTIONS WITH AFFILIATES.
Jeff Biegert and John Johanns own in their own right and work together through
various organizations in the cattle industry. Directly and indirectly they own
or control cow calf operations, ranch operations, feed lot operations, feed
cattle, buy, sell cattle, manufacture and market feed and feed supplements and
generally deal in and with all aspects of beef production to the point of
slaughter. The feed supplements that are produced in the ordinary course of
business contain electrolyte substances. Without specifically listing all the
entities involved this schedule is a reservation for Jeff Biegert and John
Johanns and their numerous and various business entities to continue in the
normal and customary course of business their cattle businesses in their current
relationships and to create new entities and relationships to continue the same
or similar business activities, subject only to any restrictions contained in
Section 11.2 hereof.
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SCHEDULE 4.13
[None]
51
<PAGE> 52
SCHEDULE 4.14
[None]
52
<PAGE> 53
SCHEDULE 5.1
None.
53
<PAGE> 54
SCHEDULE 7.1.9
Copy of the Put Option letter agreement is attached hereto.
54
<PAGE> 55
EXHIBIT 7.1.2
Opinion of Counsel for the Partnership. Frank C. Heinisch
55
<PAGE> 56
EXHIBIT 7.2.2
Opinion of Counsel of Buyer. Pepper Hamilton LLP
56
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
BACKGROUND 2
ARTICLE 1 PURCHASE OF INTERESTS.............................................. 3
1.1 Sale and Purchase ................................................. 3
1.2 Books and Records ................................................. 3
ARTICLE 2 CONSIDERATION...................................................... 3
2.1 Consideration; Payment ............................................ 3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARTNERSHIP AND SELLERS.......... 5
3.1 Organization, Power, Standing and Qualification ................... 5
3.2 Authorization for Agreement ....................................... 5
3.3 Validity of Contemplated Transactions ............................. 6
3.4 Partnership ....................................................... 6
3.5 Ownership of Interests ............................................ 6
3.6 Title to Properties ............................................... 6
3.7 Real Property ..................................................... 6
3.8 Financial Statements .............................................. 6
3.9 Absence of Undisclosed Liabilities ................................ 7
3.10 Conduct of Business in the United States .......................... 7
3.11 Subsidiaries ...................................................... 7
3.12 Compensation Arrangements ......................................... 7
3.13 Certain Tax Matters ............................................... 7
3.14 Litigation; Compliance with Laws .................................. 8
3.15 Intellectual Property. ............................................ 8
3.16 Specific Patent/USFDA Representations ............................. 9
3.17 Contracts ......................................................... 10
3.18 Other Transactions ................................................ 10
3.19 Product Liability Claims .......................................... 10
3.20 Bank Accounts ..................................................... 11
3.21 No Changes ........................................................ 11
3.22 Copies of Partnership Agreement ................................... 11
3.23 Tangible Assets; Inventory ........................................ 11
3.24 Accounts Receivable ............................................... 11
3.25 Hazardous Substances .............................................. 12
3.26 Relationship With Licensees ....................................... 12
3.27 Transactions With Affiliates ...................................... 12
3.28 Veracity of Statements ............................................ 12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ 13
4.1 Organization ...................................................... 13
4.2 Authorization for Agreement ....................................... 13
4.3 Enforceability .................................................... 13
4.4 Litigation ........................................................ 13
4.5 Hazardous Substances .............................................. 13
4.6 Product Liability Claims .......................................... 14
</TABLE>
57
<PAGE> 58
<TABLE>
<S> <C>
4.7 Conflict With Authority, Bylaws, Etc .............................. 14
4.8 Acquisition of Interests for Investment ........................... 14
4.9 Capitalization of Buyer ........................................... 14
4.10 10,000,000 shares of blank check preferred stock .................. 14
4.11 Financial Statements .............................................. 15
4.12 Absence of Undisclosed Liabilities ................................ 15
4.13 Certain Tax Matters ............................................... 15
4.14 Litigation: Compliance with Laws .................................. 15
4.15 Property .......................................................... 16
4.16 No Changes ........................................................ 16
4.17 Veracity of Statements ............................................ 16
ARTICLE 5 ACTIVITIES PRIOR TO CLOSING BY SELLER.............................. 16
5.1 Operation of Business ............................................. 17
5.2 Access to Information ............................................. 18
5.3 Best Efforts ...................................................... 18
5.4 Benefit Plans ..................................................... 18
5.5 Notice of Change .................................................. 18
5.6 No Discussions .................................................... 18
5.7 Publicity ......................................................... 19
ARTICLE 6 ACTIVITIES PRIOR TO CLOSING BY BUYER............................... 19
6.1 Best Efforts ...................................................... 19
6.2 Access to Information ............................................. 19
ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING.................................... 19
7.1 Conditions to Obligation of Buyer to Close ........................ 19
7.2 Conditions to Obligation of Sellers to Close ...................... 21
ARTICLE 8 INDEMNIFICATION.................................................... 22
8.1 By Sellers and Individual Indemnitors ............................. 22
8.2 By Buyer .......................................................... 23
8.3 Procedures ........................................................ 23
ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................... 24
ARTICLE 10 THE CLOSING........................................................ 24
10.1 Time and Place .................................................... 24
10.2 Conduct at Closing ................................................ 24
ARTICLE 11 CONDUCT OF SELLER AND BUYER AFTER CLOSING.......................... 25
11.1 Post-Closing Conduct Generally .................................... 25
11.2 Non-Competition ................................................... 26
ARTICLE 12 SECURITIES LAW MATTERS............................................. 28
12.1 Investment ........................................................ 28
12.2 Legends on Certificates ........................................... 29
ARTICLE 13 BROKERAGE; EXPENSES; TAXES......................................... 30
ARTICLE 14 TERMINATION........................................................ 30
14.1 Events of Termination ............................................. 30
14.2 Consequences of Termination ....................................... 31
14.3 Expenses if No Closing ............................................ 31
ARTICLE 15 OPTION TO PURCHASE TECHNOLOGY...................................... 31
15.1 Option to Purchase Technology ..................................... 31
</TABLE>
58
<PAGE> 59
<TABLE>
<S> <C>
ARTICLE 16 MISCELLANEOUS...................................................... 32
16.1 Entire Agreement; Amendments ...................................... 32
16.2 Headings .......................................................... 32
16.3 Gender; Number .................................................... 32
16.4 Exhibits and Schedules ............................................ 32
16.5 Severability ...................................................... 32
16.6 Notices ........................................................... 32
16.7 Waiver ............................................................ 33
16.8 Assignment ........................................................ 33
16.9 Successors and Assigns ............................................ 33
16.10 Governing Law ..................................................... 33
16.11 No Benefit to Others .............................................. 34
16.12 Counterparts ...................................................... 34
</TABLE>
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<PAGE> 1
EXHIBIT 10.10
ASSET PURCHASE AGREEMENT
PRIVATE
THIS ASSET PURCHASE AGREEMENT (THIS "AGREEMENT") IS DATED AS OF JANUARY 15,
1999 BY AND AMONG EMERGE VISION SYSTEMS, INC. (FORMERLY ENHANCED VISION
SYSTEMS, INC.), A DELAWARE CORPORATION ("SELLER"), AND SPERRY MARINE
INC., A DELAWARE CORPORATION ("BUYER").
BACKGROUND
Seller is engaged in the manufacture, sale and distribution of
the infrared systems that are more particularly described in specifications
attached hereto as Schedule 1 (the "IR Systems") for use on marine vessels (the
"Marine Business"). The parties hereto wish to provide for the sale by Seller,
and the purchase by Buyer, of certain of the assets of Seller and for certain
other matters, all as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1.
SALE OF PURCHASED ASSETS
1.1 Sale and Purchase. At the "Closing" (as defined in Section 2.1) of
this Agreement, Seller shall sell, assign, deliver and transfer to Buyer, and
Buyer shall purchase from Seller, all of the assets of Seller specifically set
forth below (the "Purchased Assets"). Notwithstanding any other provision
hereof, Seller shall not sell to Buyer, and the Purchased Assets shall not
include, any asset of the Seller not set forth below ("Excluded Assets"). The
Purchased Assets are:
(a) all of Seller's inventory of IR Systems, including all
constituent and unassembled parts owned by Seller at Closing, other than the
Purchased IR Systems (as defined below) (the "Inventory");
(b) all of Seller's rights, to the extent assignable, under
the Hardware/Software License Agreement, dated July 12, 1996 (the "License
Agreement"), between Digital Imaging Inc. ("Digital") and Seller;
(c) all tooling owned by Seller used in the manufacture of the
IR Systems that is listed or described on Schedule 2 (collectively, "Vendor
Tooling"), whether located at Seller's facilities or located at the vendor
facility listed on such Schedule;
(d) all equipment owned by Seller which is used to test the
performance and functionality of the IR Systems that is listed on Schedule 3
(collectively, "Test Equipment"); and
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(e) all goodwill associated with the Marine Business.
1.2 Excluded Assets. Seller shall not sell, and Buyer shall not
purchase, pursuant to this Agreement, any of the following assets:
(a) any of the IR Systems (the "Purchased IR Systems") that
Seller is selling to Buyer pursuant to the terms of one or more Purchase Orders
(including Purchase Order #302388 dated November 23, 1998), as the same may be
amended or supplemented from time to time after the date hereof (the "Purchase
Order"), between Seller and Buyer, and all Inventory required by Seller to
manufacture such Purchased IR Systems;
(b) any parts or assemblies that would otherwise be included
in the Inventory but which are not required for the manufacture of up to 100 IR
Systems and which are identified in writing by Buyer prior to Closing;
(c) any other Inventory reasonably determined prior to
Closing to be defective that is identified in writing by Buyer prior to Closing;
(d) any Test Equipment that Buyer may elect in writing prior
to Closing to exclude from the Purchased Assets; and
(e) any other asset of Seller not expressly specified in
Section 1.1 hereof.
1.3 Assumed and Excluded Liabilities. From and after the Closing, Buyer
shall assume and be liable for all of Seller's obligations to be performed after
the Closing under the License Agreement, including, without limitation the
payment when due of all fees and royalties due Digital thereunder. Except as
provided in the immediately preceding sentence, Buyer shall not assume and shall
not become liable or responsible in any way for any liabilities or obligations
whatsoever, direct or indirect, contingent or otherwise, of Seller or any
affiliate of Seller (including, without limitation, any partner, officer,
employee, director or agent of Seller) to any person, or for any reason, known
or unknown, actual or inchoate, and whether arising from facts or events
occurring prior to, on or after the Closing (collectively, the "Excluded
Liabilities").
1.4 Purchase Price. The aggregate purchase price for the Purchased
Assets (the "Purchase Price") shall be One Million Eight Hundred Ninety Thousand
Nine Hundred Seventy Six Dollars and Sixty Two Cents ($1,890,976.62). Such
amount does not include any amounts payable to Seller by Buyer in accordance
with the terms of the Purchase Order. Payment of the Purchase Price shall be
made by wire transfer of immediately available funds, to such account as shall
be specified in writing by Seller to Buyer, and shall be paid, and allocated by
the parties for tax purposes, in accordance with the following schedule:
Payment Amount Due Date Allocation
PRIVATE
1.
$200,000
Closing
Inventory
2.
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$1,000,000
August 1, 1999
Inventory
3.
$412,390
September 1, 1999
Inventory
4.(a)
$278,585.62
October 1, 1999
Vendor Tooling and Test Equipment
(b)
$1
October 1, 1999
Goodwill
The Purchase Price shall be adjusted, up or down, based on the difference, if
any, between (a) $1,612,390 and the book value of the Inventory on the date of
Closing, and (b) $285,999 and the book value of the Vendor Tooling and Test
Equipment, each as determined by Seller in accordance with generally accepted
accounting principles, consistently applied with the determination of the value
of such Inventory on Seller's financial statements. Any necessary adjustment to
the Purchase Price on account of subsection (a) above shall be made to the
payment due on September 1, 1999 and shall be allocated to the Inventory. Any
necessary adjustment to the Purchase Price on account of subsection (b) above
shall be made to the payment due on October 1, 1999 and shall be allocated to
the Vendor Tooling and Test Equipment. Buyer and Seller shall file all tax
returns consistently with the allocations set forth above.
SECTION 2.
THE CLOSING
Section 2.1. Closing. The closing of the purchase and sale of the
Purchased Assets hereunder, subject to the terms and conditions set forth herein
(the "Closing"), shall take place on February 22, 1999 or such earlier date when
the Inventory is shipped to Buyer, at the offices of Seller, commencing at 10:00
A.M. or at such other date, place and time as may be mutually agreed by Buyer
and Seller (the "Closing Date"), provided, however, that Seller shall retain
possession of, and have the right to use for the manufacture and testing of the
Purchased IR Systems, the Vendor Tooling and Test Equipment until ten business
days after the all of the Purchased IR Systems are delivered to Buyer pursuant
to the Purchase Order. At the Closing, in addition to the other actions
contemplated elsewhere herein:
(a) Seller shall deliver to Buyer the following:
(i) the Purchased Assets to the
Charlottesville, Virginia
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location of Buyer;
(ii) the Purchase and License
Agreement in the form attached hereto as Exhibit A
(the "Purchase and License Agreement"), executed by
Seller; and
(iii) such bills of sale,
endorsements, assignments, certificates of title and
other instruments of transfer and conveyance as
shall be effective to vest title to each of the
Purchased Assets in Buyer.
(iv) Buyer shall deliver or cause to
be delivered the Purchase and License Agreement,
executed by Buyer.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that as of the date of this
Agreement and as of the Closing Date:
3.1 Legal Status. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all necessary corporate power and authority to own and lease the Purchased
Assets. Seller has not agreed, contingently or otherwise, to share any profits,
losses, costs or liabilities of the Marine Business with any other person or
entity. The Marine Business is and has been conducted solely by and through the
Seller and through or by no other person or entity.
3.2 No Conflict or Violation. Subject to obtaining the necessary
approval and consent pursuant to the License Agreement (the "Consent") and in
reliance upon Section 4.2 and 4.8 herein, the execution, delivery and
performance of this Agreement and the other agreements and instruments
contemplated hereby will not: (i) conflict with any of the terms, conditions or
provisions of the articles of incorporation or bylaws of Seller; (ii) violate
any provision of, or require any consent, authorization or approval under, any
law or administrative regulation or any judicial, administrative or arbitration
order, award, judgment, writ, injunction or decree, or any governmental permit,
license or authorization, applicable or issued to Seller; (iii) conflict with,
result in a breach of, constitute a default under (whether by notice or the
lapse of time or both), or accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or approval
under, any contract, indenture, mortgage, lien, lease, agreement or instrument
to which Seller is a party or by which it or any of the Purchased Assets is
bound; or (iv) result in the creation of any lien, charge, restriction or
encumbrance upon, or any loss of benefit with respect to any of the Purchased
Assets.
3.3 Authority and Binding Agreement. Subject to obtaining the Consent,
Seller has the full capacity, legal power and authority to execute, deliver and
perform this Agreement and its obligations hereunder. Seller has taken all
necessary legal and other action to authorize the execution, delivery and
performance of this Agreement. This Agreement and all other agreements and
instruments to be executed by Seller in connection herewith have been duly
executed and delivered by, and constitute the legal, valid and binding
obligations of Seller, enforceable against it in accordance with their
respective terms.
3.4 Consents, Authorizations and Permits. Except for obtaining the
Consent, no consent, waiver or approval of or notice to any person is or will be
necessary to
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consummate the transactions contemplated by this Agreement and permit Buyer to
employ the Purchased Assets following Closing without restriction, lien or
encumbrance.
3.5 Assets. Seller is the sole beneficial and record owner of and has
good title to the Purchased Assets, free and clear of all liens, encumbrances,
claims, restrictions, liabilities and rights of others, absolute or contingent,
against or affecting any of the Purchased Assets. Upon consummation of the
Closing, Buyer shall acquire all of Seller's right and title to the Pur chased
Assets, free and clear of all liens, encumbrances, claims, restrictions and
liabilities of any nature.
3.6 Litigation. There are no, and during the last three years there
have not been any claims, actions, suits, proceedings (arbitration or otherwise)
or investigations involving or affecting the Marine Business or any of the
Purchased Assets before or by any court or governmental agency or
instrumentality, or before any arbitrator of any kind. To the best of Seller's
knowledge, no such claim, action, suit, proceeding or investigation is presently
threatened or contemplated and there are no facts which could reasonably serve
as a basis for any such claim, action, suit, proceeding or investigation.
3.7 Contracts. Except for the Purchase Order, Seller has no contracts,
leases or agreements of any nature whatsoever (including, without limitation,
barter or similar arrangements), or any commitments obligating Seller to
purchase any equipment or other assets or to procure services, which relate to
the Purchased Assets. Buyer shall have no obligation under or with respect to
any such contracts, agreements, orders or obligations.
3.8 Product Warranties and Claims.
BUYER ACKNOWLEDGES THAT THE PURCHASED ASSETS ARE BEING ACQUIRED BY IT
"AS IS" AND THAT SELLER DOES NOT WARRANT THAT THE INVENTORY IS MERCHANTABLE OR
FIT FOR ANY PARTICULAR PURPOSE. THE PARTIES FURTHER AGREE THAT NEITHER THIS
AGREEMENT NOR ANY SALE MADE PURSUANT TO THIS AGREEMENT INCLUDES ANY WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. SELLER MAKES NO
WARRANTIES AS TO THE CONDITION OR QUALITY OF THE PURCHASED ASSETS.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that as of the date of
this Agreement and as of the Closing Date:
4.1 Legal Status. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
4.2 Registered U.S. Entity. Buyer's parent is registered with the U.S.
Department of State as a manufacturer and exporter of defense articles under
Category XII of the U.S. Munitions List. Buyer is not controlled by any foreign
organization, entity, interest or person. For the purpose of this Section, the
term "control" means the power, direct or indirect, whether or not exercised,
and whether or not exercised or exercisable through the ownership of a majority
or a dominate minority of the total
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outstanding voting securities of an issuer, or by proxy voting, contractual
arrangements or other means, to determine, direct or decide matters affecting an
entity.
4.3 Authority and Binding Agreement. Buyer has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. Buyer has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement. This Agreement has been
and all other agreements and instruments to be executed by Buyer in connection
herewith have been (or upon execution and delivery will have been) duly executed
and delivered by, and constitute (or upon execution and delivery will
constitute) legal, valid and binding obligations of Buyer, enforceable against
it in accordance with their respective terms.
4.4 No Conflict or Violation. Neither the execution nor delivery by
Buyer of this Agreement, the compliance by Buyer with the terms and conditions
hereof nor the consummation by Buyer of the transactions contemplated hereby
will: (i) conflict with any of the terms, conditions or provisions of the
certificate of incorporation or bylaws of Buyer; (ii) violate any provision of,
or require any consent, authorization or approval under, any law or
administrative regulation or any judicial, administrative or arbitration order,
award, judgment, writ, injunction or decree, or any governmental permit, license
or authorization applicable or issued to, Buyer; or (iii) conflict with, result
in a breach of, constitute a default under (whether by notice or the lapse of
time or both), or accelerate or permit the acceleration of the performance
required by, or require any consent, authorization or approval under any
indenture, mortgage, lien, lease, agreement or instrument to which Buyer is a
party.
4.5 Consents. No consent, approval or waiver of or notice to any person
is or will be necessary or required on the part of Buyer in connection with the
authorization, execution, delivery or performance of its obligations hereunder
or under the Purchase and License Agreement, or under any document or instrument
to be delivered by Buyer in connection herewith or therewith.
4.6 Litigation; Compliance with Laws. No action, suit, claim or
inquiry, proceeding or governmental investigation is pending or threatened
against or relating to Buyer that would adversely impact its ability to own the
Purchased Assets or operate the Marine Business as of the Closing. There is no
outstanding order, injunction or decree of any court or governmental agency or
authority or self-regulatory body that materially adversely affects Buyer or
Buyer's ability to own the Purchased Assets or operate the Marine Business or
that would prevent the consummation of the transactions contemplated hereby.
Buyer has not engaged in, or is now engaging in, any act of course of conduct in
violation of any material respect of any law, regulation, ordinance or other
requirement of any governmental body or court which could impair Buyer's ability
to consummate the transactions contemplated by this Agreement or the Purchase
and License Agreement, own the Purchase Assets or operate the Marine Business as
of the Closing, and no notice or claim alleging any such violation has been
received by Buyer.
4.7 Financial Capacity. Buyer has, and will maintain, sufficient assets
and cash flow to enable it to timely make all payments required under this
Agreement to Seller and to perform its obligations under the Purchase and
License Agreement.
4.8 Compliance with Export Laws. To the best of Buyer's knowledge,
Buyer is in compliance with all laws, rules, regulations, permits, licenses and
other requirements
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relating to the export from the United States of goods, technology and/or
information ("Export Laws"). To the extent that Buyer is or at any time during
the last five years was not in compliance with such Export Laws, Buyer
represents that any such noncompliance will have no adverse effect on Seller or
Seller's ability to consummate the transactions contemplated hereby and/or enter
into and perform its obligations under the Purchase and License Agreement.
SECTION 5.
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligation of Buyer to purchase the Purchased Assets under this
Agreement is subject to the satisfaction, at or before the Closing, of all of
the following conditions:
5.1 Accuracy of Representations and Warranties; Performance by Seller.
The representations and warranties of Seller contained in this Agreement shall
be true in all material respects, except for changes permitted or contemplated
by this Agreement, on and as of the time of Closing (except to the extent that
they expressly relate to an earlier date). Seller shall have performed and
complied with all material covenants, agreements and conditions required by this
Agreement to be performed or satisfied by it before or at the Closing. Seller
shall have delivered to Buyer a certificate signed by a duly authorized person,
dated the Closing Date, certifying to the foregoing effect.
5.2 Absence of Litigation. No action or proceeding before any court or
other governmental entity shall have been instituted or threatened by any person
or entity (other than Buyer) to restrain or prohibit the transactions
contemplated by this Agreement and shall not have been dismissed or resolved.
5.3 Consents. The Consent and to the extent required, any statutory and
regulatory consents, approvals, permits, orders and actions required by any
governmental entity shall have been obtained.
5.4 Purchase and License Agreement. Seller shall have entered
into the Purchase and License Agreement.
5.5 Waiver of Conditions. Notwithstanding the failure of any one or
more of the foregoing conditions, Buyer may proceed with the Closing without
satisfaction, in whole or in part, of any one or more of such conditions and
without written waiver. To the extent that Buyer proceeds with the Closing,
Buyer shall be deemed to have waived for all purposes any rights or remedies it
may have against Seller by reason of the failure of any such conditions.
SECTION 6.
CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
6.1 Accuracy of Representations and Warranties; Performance by Buyer.
The representations and warranties of Buyer contained in this Agreement shall be
true in all material respects, except for changes permitted or contemplated by
this Agreement, on and as of the time of Closing (except to the extent that they
expressly relate to an earlier date). Buyer shall have performed and complied
with all material covenants, agreements
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and conditions required by this Agreement to be performed or satisfied by it
before or at the Closing. Buyer shall have delivered to Seller a certificate
signed by a duly authorized officer of Buyer, dated the Closing Date, certifying
to the foregoing effect.
6.2 Absence of Litigation. No action or proceeding before any court or
other governmental entity shall have been instituted or threatened by any person
(other than Seller) to restrain or prohibit the transactions contemplated by
this Agreement and shall not have been dismissed or resolved.
6.3 Consents. The Consent and to the extent required, any statutory and
regulatory consents, approvals, permits, orders and actions required by any
governmental entity shall have been obtained.
6.4 Purchase and License Agreement. Buyer shall have entered into
the Purchase and License Agreement.
6.5 Financing Statement. Buyer shall have executed a financing
statement reflecting the security interest granted to Seller pursuant to Section
7.7.
6.6 Waiver of Conditions. Notwithstanding the failure of any one or
more of the foregoing conditions, Seller may proceed with the Closing without
satisfaction, in whole or in part, of any one or more of such conditions and
without written waiver. To the extent that Seller proceeds with the Closing,
Seller shall be deemed to have waived for all purposes any rights or remedies it
may have against Buyer by reason of the failure of any such conditions or the
breach of any such representations.
SECTION 7.
COVENANTS; CERTAIN AGREEMENTS
7.1 Use of Name. From and after the Closing, Seller shall not use for
any purpose the name "AMIRIS" or any similar sounding name or any variant
thereof.
7.2 Employee Access and Participation. Seller shall assist Buyer in the
training of its employees in the manufacture and testing of the Purchased IR
Systems by permitting designated employees of Buyer who have signed a
nondisclosure agreement in the form attached hereto as Exhibit B, to participate
in the manufacture and testing of the Purchased IR Systems at Seller's
Sebastian, Florida facility. Buyer shall be solely responsible for all expenses
(e.g., travel, lodging and compensation expenses) incurred by such employees in
traveling to and participating in such assembly.
7.3 Support Documentation. Seller shall, no later than seven days after
the date of execution hereof, provide Buyer with written copies of the latest
revision level of the following:
(a) the technical data packages applicable to the manufacture
of the IR Systems;
(b) the manufacturing assembly procedures related to the IR
Systems; and
(c) the test procedures used to determine the functionality
and performance of the IR Systems.
7.4 Engineering Support Personnel. For a 120 day period, commencing on
the Closing Date, Seller shall make available to Buyer the services of up to
three full-time engineers employed by Seller who shall, upon the written request
of Buyer, work at Buyer's Charlottesville, Virginia facility during normal
business hours to train and
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support the transfer of the manufacture and assembly processes of the IR Systems
to such facility. Seller shall be solely responsible for all compensation
expenses of such engineers and Buyer shall be responsible for all travel,
lodging and other similar expenses incurred by Seller and/or such engineers in
fulfilling their obligations under this Section 7.4.
7.5 Engineering and Drafting Services. For a one year period,
commencing on the date hereof, upon Buyer's reasonable written request,
accompanied by an appropriate statement of work specifying in reasonable detail
the work to be performed and the requested schedule for completion thereof,
Seller shall provide up to 4,160 hours of engineering and/or drafting services
at the following rates: (a) $100 per hour for services that are performed by an
engineer and (b) $50 per hour for services that are performed by a draftsman.
Within ten days after receipt of such statement of work and requested schedule,
Seller shall provide Buyer with an estimate of the number of hours required to
complete such work (which estimate Seller shall not exceed without Buyer's
consent) and a proposed schedule for completion of such work. Buyer shall also
pay any travel, lodging or other similar charges incurred by Seller during the
course of providing such services hereunder. After the end of such one-year
period, Seller may, in its sole discretion, agree to provide additional
engineering and drafting services to Buyer at such prices and on such other
terms and conditions as shall be determined solely by Seller.
7.6 Maintenance of Technical Information. Seller shall maintain and, as
requested by Buyer, upgrade, at Seller's cost, all schematics relating to the IR
Systems currently maintained by it, in electronic format, for a period not to
exceed one year from the date hereof. Seller shall have no obligation to perform
such maintenance and upgrades subsequent to the expiration of such one year
period.
7.7 Security Interest. Buyer hereby grants to Seller, to secure all of
Buyer's liabilities hereunder and under the Purchase and License Agreement, a
first and prior security interest under the Uniform Commercial Code, as adopted
in the State of Florida (the "UCC"), in (i) all of the Purchased Assets, (ii)
all proceeds of the Purchased Assets, and (iii) all products of the Purchased
Assets (collectively, the "Collateral"). So long as any liability to Seller is
outstanding hereunder or under the Purchase and License Agreement, Buyer will
not, without the prior written consent of Seller, which may be withheld in its
sole discretion, permit any lien or encumbrance to attach to the Collateral, or
any levy to be made thereon, or any financing statement (except Seller's
statement) to be on file with respect thereto. Buyer represents that the
location where the Collateral will be kept is 1070 Seminole Trail,
Charlottesville, Virginia 22901. Buyer will keep the Collateral, to the extent
applicable, in good condition and repair, reasonable wear and tear excepted, and
will keep the Collateral insured for the benefit of Seller (to which loss shall
be payable) in such amounts, with such companies and against such risks as may
be satisfactory to Seller, pay the cost of insurance and deliver certificates
evidencing such insurance to Seller. Buyer hereby assigns to Seller all right to
receive the proceeds of such insurance. Buyer will, upon Seller's request, join
with Seller in executing a financing statement, in form satisfactory to Seller,
and such continuation statements and other instruments as Seller may from time
to time request and pay the cost of filing the same in any public office deemed
advisable by Seller. Seller may, upon reasonable notice, inspect and check the
Inventory, Vendor Tooling and Test Equipment. If at any time, Buyer fails to pay
any amount due to Seller hereunder or under the Purchase and
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License Agreement, all liabilities of Buyer to Seller shall immediately become
due and payable, and Seller may (in addition to any other rights and remedies
which it may have) immediately and without demand exercise any and all of the
rights and remedies granted to a secured party upon default under the UCC.
7.8 Export Controls. Buyer acknowledges that certain of the Purchased
Assets that Buyer may receive from Seller under this Agreement are controlled
under laws and regulations of the U.S. Government that prohibit or restrict the
export of technology and certain other activities. Buyer further acknowledges
and agrees that such laws and regulations may require that Buyer obtain a
license from the U.S. Government before the Purchased Assets or products made
therefrom are sold, leased, sublicensed or otherwise transferred to a foreign
person. Seller shall be excused from performance under this Agreement or under
any other agreement, and shall not be liable or accountable to Buyer for any
loss or damage, including lost profits or other indirect or incidental damages,
to the extent that an act or omission of the U.S. Government (including acts or
omissions of Congress and the judiciary) or any law or regulation restricts,
prohibits or delays Seller's performance of an obligation under this Agreement
or restricts or limits Buyer's use or transfer of the Purchased Assets or any
product made therefrom. Notwithstanding anything to the contrary contained
herein, in the event Buyer is required to respond to inquiries from a U.S.
Government Agency relating to the export of the Purchased Assets, Seller shall
provide reasonable assistance to Buyer in responding thereto at Buyer's sole
expense.
SECTION 8.
INDEMNIFICATION
8.1 Indemnification by Seller. Seller shall indemnify and hold Buyer
and its officers, directors, shareholders and affiliates harmless from and
against and in respect of any and all losses, costs, expenses, claims, damages,
deficiencies, liabilities and obligations, including costs of investigation and
defense, and reasonable attorneys' fees and expenses but excluding incidental or
consequential damages ("Damages"), which Buyer or any such person may suffer,
incur, or become subject to, arising out of, based upon or otherwise in respect
of: (i) any liabilities or obligations of, or claims against, Seller, whether
accruing prior to or after Closing, known or unknown, of any nature whatsoever,
including, without limitation, Excluded Liabilities and liabilities of Seller to
its creditors; (ii) any breach of any representation or warranty of Seller under
this Agreement or the other documents and agreements contemplated hereby; or
(iii) non fulfillment of any covenant on the part of Seller under this Agreement
or the other documents and agreements contemplated hereby.
8.2 Indemnification by Buyer. Buyer shall indemnify and hold Seller,
and its officers, directors and partners harmless against and in respect of any
and all Damages which Seller or any such person may suffer, incur or become
subject to arising out of, based upon or otherwise in respect of (i) any breach
of any representation or warranty of Buyer, (ii) nonfulfillment of any covenant
on the part of Buyer under this Agreement, (iii) the Assumed Liabilities, and
(iv) any and all liabilities, obligations, or claims arising from facts or
events occurring after the Closing in connection with Buyer's ownership or
operation of the Marine Business.
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8.3 Indemnification Procedures.
(a) Any party seeking indemnification pursuant to this Section
8 (the "Indemnified Party") shall notify the other party or parties from whom
such indemnification is sought (the "Indemnifying Party") of the Indemnified
Party's assertion of such claim for indemnification, specifying the basis of
such claim. The Indemnified Party shall thereupon give the Indemnifying Party
reasonable access to the books, records and assets of the Indemnified Party
which evidence or support such claim or the act, omission or occurrence giving
rise to such claim.
(b) Each Indemnified Party shall promptly notify the
Indemnifying Party of the assertion by any third party of any claim with respect
to which the indemnification set forth in this Section 8 relates (which shall
also constitute the notice required by Section 8.3(a)). The Indemnifying Party
shall have the right, upon notice to the Indemnified Party within ten business
days after the receipt of any such notice, to undertake the defense of or, with
the consent of the Indemnified Party (which consent shall not unreasonably be
withheld or delayed), to settle or compromise such claim. The failure of the
Indemnifying Party to give such notice and to undertake the defense of or to
settle or compromise such a claim shall constitute a waiver of the Indemnifying
Party's rights under this Section 8.3(b) and shall preclude the Indemnifying
Party from disputing the manner in which the Indemnified Party may conduct the
defense of such claim or the reasonableness of any amount paid by the
Indemnified Party in satisfaction of such claim. The election by the
Indemnifying Party, pursuant to this Section 8.3(b) to undertake the defense of
a third-party claim shall not preclude the party against which such claim has
been made also from participating or continuing to participate in such defense,
so long as such party bears its own legal fees and expenses for so doing.
(c) All claims for breach of any representation or warranty
made by any party must be asserted not later than two years from the Closing
Date, and no party shall be entitled to indemnity hereunder or other relief at
law or in equity for any such claims asserted after that date.
(d) This Section 8 shall not impose any time limitation on the
assertion of claims for breach of covenant made by any party or for claims for
indemnification asserted by Buyer against Seller based upon the assertion
against Buyer of any claim with respect to an Excluded Liability or for claims
for indemnification asserted by Seller against Buyer based upon the assertion
against Seller of any claim with respect to an Assumed Liability or facts or
events occurring after the Closing in connection with Buyer's ownership or
operation of the Marine Business.
(e) The rights of indemnification hereunder are not exclusive
of any other rights a party hereto may have, whether at law or in equity.
SECTION 9.
MISCELLANEOUS
9.1 Further Assurances. Seller shall, from time to time at the request
of Buyer, and without further consideration, provide to Buyer such information
relating to
11
<PAGE> 12
the Purchased Assets, and execute and deliver to Buyer such further
instruments of assignment, transfer, conveyance and confirmation, and take such
other action as Buyer may reasonably request in order more effectively to
transfer title to the Purchased Assets or to effectuate the purposes of this
Agreement or the other documents and agreements contemplated hereby. To the
extent Seller is unable to obtain the Consent through the use of all reasonable
efforts prior to Closing, Seller shall (i) if permitted pursuant to the terms of
the License Agreement, use all reasonable efforts to provide Buyer with the full
benefit such agreement, (ii) cooperate in any lawful arrangement designed to
provide such benefits to Buyer and (iii) enforce at the request and expense of
Buyer any rights of Seller arising from the License Agreement. Buyer shall use
reasonable best efforts to obtain, on or before the Closing, a guarantee from
Litton Industries, Inc. of the full performance when due of all of Buyer's
obligations hereunder and pursuant to the Purchase and License Agreement, the
Purchase Order and each of the other agreements and transactions contemplated
hereby.
9.2 Survival of Representations and Warranties. The representations and
warranties made by each party in this Agreement or in any document delivered
hereto, shall survive the Closing for a period of one year, and notwithstanding
any investigation conducted before or after the Closing or the decision of any
party to complete the Closing, each party hereto shall be entitled to rely upon
the representations and warranties of the other party and to obtain
indemnification for any breach thereof.
9.3 Notices. All notices or other communications permitted or required
hereunder shall be in writing and shall be sufficiently given if and when hand
delivered to the persons set forth below or if sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested, or by telegram, telecopy or telex, receipt acknowledged,
addressed as set forth below or to such other person or persons and/or at such
other address or addresses as shall be furnished by any party hereto to the
others. Any such notice or communication shall be deemed to have been given as
of the date received, in the case of personal delivery, or on the date shown on
the receipt or confirmation therefor in all other cases.
If to Buyer:
Sperry Marine Inc.
1070 Seminole Trail
Charlottesville, Virginia 22901
Attention: Carlton Carrol
Telephone No.: 804-974-2539
Telecopier No.: 804-974-2480
With a copy to:
Gerald L. Lett, Esq.
Deputy Director, Intellectual Property Law
1500 PRC Drive
MS 6E2
12
<PAGE> 13
McLean, VA 22102-5050
Telephone No.: 703-556-2790
Telecopier No.: 703-556-2527
If to Seller:
eMerge Vision Systems, Inc.
c/o XL Vision, Inc.
10315 102nd Terrace
Sebastian, Florida 32958
Attention: Mike Janney
Telephone No.: 561-589-5310
Telecopier No.: 561-589-3779
With a copy to:
Karen M. Keating, Esq.
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Telephone No.: 610-254-4106
Telecopier No.: 610-254-4376
9.4 Assignment and Benefit. Neither Buyer nor Seller shall assign,
delegate or otherwise transfer any obligations under this Agreement without the
written consent of the other. Subject to the foregoing, this Agreement and the
rights and obligations set forth herein shall inure to the benefit of, and be
binding upon, the parties hereto and each of their respective permitted
successors and assigns. This Agreement shall not be construed as giving any
person other than the parties hereto and their permitted successors, heirs and
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any of the provisions herein contained. This Agreement is
intended to be for the sole and exclusive benefit of the parties hereto and
their permitted successors, heirs and assigns and for the benefit of no other
person or entity.
9.5 Entire Agreement. This Agreement, together with the Purchase and
License Agreement and all other agreements, exhibits, schedules and certificates
referred to herein or delivered pursuant to hereto, constitutes the entire
agreement between the parties hereto with respect to the matters contemplated
herein and supersedes all prior agreements and under standings with respect
thereto. Any amendment, modification, or waiver of this Agreement shall be in
writing. Unless expressly provided, the waiver by a party of any breach of any
provision of this Agreement shall not constitute or operate as a waiver of any
other breach of such provision or of any other provision hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof.
9.6 Fees and Expenses. Seller and Buyer shall each be responsible for
and bear all of their own costs and expenses incurred in connection with the
sale
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<PAGE> 14
of the Purchased Assets.
9.7 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with the internal laws of the State of
Florida, without giving effect to otherwise applicable principles of conflict of
law.
9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which,
when taken together, shall be deemed to constitute but one and the same
agreement.
9.9 Effect of Headings. The subject headings of this Agreement are
included for purposes of convenience only, and shall not affect the construction
or interpretation of any of its provisions.
9.10 Incorporation by Reference. The schedules and exhibits attached
hereto and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
[Intentionally left blank]
14
<PAGE> 15
IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement,
all as of the day and year first above written.
EMERGE VISION SYSTEMS, INC.
By: /s/: T. Michael Janney
---------------------------------
Name: T. Michael Janney
---------------------------
Title: Chief Financial Officer
---------------------------
SPERRY MARINE INC.
By: C. Graham
----------------------------
Name: C. Graham
----------------------
Title: Manager
---------------------
15
<PAGE> 16
SCHEDULE 1
IR SPECIFICATIONS
The IR System is comprised of the following:
AMIRIS System #105190000
NSK 1000 System #105190001
FROS System #105594000
Three Field of View Assembly #105235
CCD Overlay #105504
16
<PAGE> 17
SCHEDULE 2
VENDOR TOOLING
PRIVATE
ITEM #
PART NUMBER
DESCRIPTION
TOOL
VENDOR
VALUE
1
105097000
HEATSINK LID MACHINED
MILLING FIXTURE
RUOFF & SONS
$
376.00
2
105100000
ENDCAP, PAN & TILT
17
<PAGE> 18
MILLING FIXTURES
S. ENGINEERING
$
2,493.00
3
105149000
HOUSING, AZ-EL
MILLING FIXTURES
S. ENGINEERING
$
2,494.12
4
105224000
GEAR SECTOR
GEAR CUTTING FIXTURE
PEERLESS
$
313.00
5
105224000
GEAR SECTOR
GEAR HOB
PEERLESS
$
313.00
6
105224000
GEAR SECTOR
18
<PAGE> 19
GEAR MILLING FIXTURE
PEERLESS
$
314.00
7
105241000
MIRROR HOUSING CASTING
WAX INFECTION MOLD
AIC
$
5,580.00
8
105266000
CELL, LENS, 3X, CASTING
STRAIGHTENING MANDREL
NU CAST
$
650.00
9
105266000
CELL, LENS, 3X, CASTING
WAX INJECTION MOLD
NU CAST
$
7,250.00
10
105434000
19
<PAGE> 20
AZ-EL HOUSING CASTING
WAX INJECTION MOLD
AIC
$
12,870.00
11
105440000
CAMERA HOUSING CASTING
WAX INFECTION MOLD
NU CAST
$
16,950.00
12
105456000
LID, HEATSINK CASTING
STRAIGHTENING MANDREL
NU CAST
$
950.00
13
105456000
LID, HEATSINK CASTING
WAX INJECTION MOLD
NU CAST
$
12,050.00
20
<PAGE> 21
14
105457000
ENDCAP CASTING
WAX INJECTION MOLD
AIC
$
6,750.00
15
105458000
SHAFT, AZIMUTH-CASTING
1 CAVITY MANUAL DIE
SOUTHERN TOOL
$
3,100.00
16
105505000
CA, GIMBEL/CAMERA
CONNECTOR MOLD (10EA)
WPI
$
1,072.50
17
105560000
CA, GIMBEL/CAMERA, 25 PIN
CONNECTOR MOLD (10EA)
WPI
$
21
<PAGE> 22
1,170.00
Subtotal
$
74,695.62
Material Handling %
11.5%
Material Handling %
$
8,590.00
Total Cost for Tooling
$
83,285.62
22
<PAGE> 23
SCHEDULE 3
TEST EQUIPMENT
PRIVATE
Relay Lens Alignment Fixture
Auto Collimator
$ 10,000
Sissors Jack
$ 700
Misc Optical Mounts & Cables
$ 4,000
IR Optical Imager (105462)
$ 24,000
Power Supply (+15VDC @ 2 Amps)
$ 600
PC & Monitor & Video Monitor
$ 13,000
23
<PAGE> 24
6 inch collimator (included in above amount)
3 FOV IR and Visible Alignment Fixture
IR Target Wheel
$ 5,000
8" Collimator
$ 14,000
Sissors Jack
$ 700
Misc optical Mounts
$ 2,000
Power Supply (+24 VDC)
$ 600
Optical Bench (needed to mount both alignment fixtures)
$ 16,000
Quad Optical Bench Test Fixture
24
<PAGE> 25
$ 19,100
Leak Detector
Leak Detector
$ 21,000
Sterling Charging Station
$ 3,000
Power Supply Load Bank
$ 2,000
Camera Box Charging Station
$ 800
PRIVATE
PRIVATE
Flow Bench
$ 4,500
Engineering System
$ 54,300
PRIVATE
TOTAL
$ 195,300
25
<PAGE> 26
EXHIBIT A
PURCHASE AND LICENSE AGREEMENT
26
<PAGE> 27
EXHIBIT B
NONDISCLOSURE AGREEMENT
THIS NONDISCLOSURE AGREEMENT (this "Agreement") is made and entered
into as of the day of , 1999, by and between ___________________, a Delaware
corporation (the "Corporation"), and ("Disclosee").
BACKGROUND
Disclosee acknowledges that (i) Disclosee will acquire unique
knowledge of the business and operations of the Corporation, (ii) Disclosee will
develop or acquire during the term of his or her visit to the Corporation,
rights and information which are proprietary in nature to the Corporation, and
(iii) the provisions contained in this Agreement are required in order to
preserve for the Corporation the valuable and legitimate rights of the
Corporation.
NOW THEREFORE, in consideration of the premises, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
Section 1. Confidentiality. Disclosee acknowledges and agrees
that in the course of, or incident to, the performance of this Agreement, the
Corporation may provide to Disclosee or Disclosee may have access to, trade
secrets, proprietary and other confidential information of the Corporation. For
purposes of this Agreement, the term "confidential information" shall mean all
information concerning the business, technology or affairs of the Corporation
and/or its affiliates and all information received from third parties and held
in confidence by the Corporation and/or its affiliates, including, without
limitation, client lists and all other information relating to existing and
potential clients, suppliers, markets, contracts, prices, software,
requirements, strategies, products, technology, know-how, information, data,
processes, inventions, development, formulations, applications and methods of
design and development, except any information that is shown to have been
voluntarily disclosed to the public by the Corporation, to have been
independently developed and disclosed by third parties or to have otherwise
entered the public domain by lawful means. Disclosee recognizes and agrees that
the confidentiality of the confidential information is necessary to the ability
of the Corporation to compete effectively with its competitors. In light of the
foregoing, Disclosee agrees that:
(a) During the term of this Agreement and at all
times thereafter, Disclosee will hold confidential information in the strictest
confidence and will not, without the prior written consent of the Corporation,
disclose or publish, and shall take all reasonable precautions to prevent any of
Disclosee's employer's, partners, associates or agents from disclosing or
publishing, any portion thereof to any person or
27
<PAGE> 28
entity (which terms, as used in this Agreement, shall include, without
limitation, any individual, firm, corporation, association or group) except as
required by applicable law or legal process as to which he or she will give the
Corporation prompt notice and consult with it on the possibility of seeking a
protective order or other means to preserve the confidentiality of the
information required to be disclosed; and
(b) Upon expiration or termination of this Agreement
for any reason whatsoever, Disclosee will immediately return to the Corporation
all documents or other tangible records, and any and all copies thereof, within
Disclosee's possession, custody, or control, containing or reflecting any
confidential information.
Section 2. Breach of Conditions. Disclosee acknowledges that
upon the breach of any of the provisions of this Agreement the Corporation would
sustain irreparable harm, and, therefore, Disclosee agrees that in addition to
any other remedies which the Corporation may have under this Agreement or
otherwise upon such breach, the Corporation shall be entitled to apply to any
court of competent jurisdiction for equitable relief, including specific
performance and injunctions restraining Disclosee from committing or continuing
any such violation of this Agreement.
Section 3. Interpretation. If any provision of this Agreement
is held to be invalid or unenforceable by a judicial order for any reason, such
action shall not affect the enforceability of the remaining provisions hereof
and, without limiting the foregoing, any such holding shall in no event preclude
the Corporation from enforcing the provisions hereof for such term, in such
territory and to such extent not inconsistent with or prohibited by said
judicial order. If any provision, or part thereof, however, is held to be
unenforceable because of the duration thereof or the area covered thereby, the
parties agree that the court making such determination shall have the power to
reduce the duration and/or area of such provision and/or to delete specific
words or phrases, and in its reduced form such provision shall then be
enforceable.
Section 4. Binding Effect. This Agreement shall be binding on
the respective successors, assigns, heirs, executors and administrators of the
parties hereto.
Section 5. Entire Agreement. This Agreement constitutes the
entire understanding and agreement between the parties with respect to the
matters contemplated herein and shall not be modified or amended except by the
written agreement of the parties.
Section 6. Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of Florida, without
reference to the principles of conflicts of laws otherwise applicable therein.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
By:
Name:
Title:
[Signature]
[Print Name]
29
<PAGE> 1
EXHIBIT 10.11
PURCHASE AND LICENSE AGREEMENT
THIS PURCHASE AND LICENSE AGREEMENT (this "AGREEMENT") is made as of
January 15, 1999 by and between SPERRY MARINE, INC., a Delaware corporation
("SPERRY"), and eMERGE VISION SYSTEMS, INC. (formerly Enhanced Vision Systems,
Inc.), a Delaware corporation ("eVS").
BACKGROUND
WHEREAS, eVS is engaged in the manufacture, sale and distribution of the
infrared systems that are more particularly described in specifications attached
hereto as Schedule 1 (the "IR SYSTEMS") for use on marine vessels (the "MARINE
BUSINESS"); and
WHEREAS, Sperry and eVS have entered into an Asset Purchase Agreement (the
"PURCHASE AGREEMENT"), dated as of the date hereof (the "EFFECTIVE Date"),
whereby Sperry will purchase certain assets of eVS used in the Marine Business;
and
WHEREAS, eVS has developed and is the owner of information and technology
pertaining to the design, manufacture and assembly of the IR Systems; and
WHEREAS, Sperry desires and is willing to devote reasonable efforts to
design, manufacture, assemble and sell the IR Systems in the Territory (as
herein defined) using the information and technology owned by eVS; and
WHEREAS, as contemplated by the Purchase Agreement, eVS is willing to
grant to Sperry, and Sperry is willing to acquire from eVS, the right and
exclusive license to use and, subject to satisfaction of certain conditions, to
purchase the eVS technology and information to design, manufacture, assemble and
sell IR Systems in the Territory, subject to the terms and conditions herein
contained;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE 1
DEFINITIONS
1.1. Each reference in this Agreement to:
"Affiliate" shall mean any person or entity that directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with such person or entity, and shall be presumed to include any
other entity in which at least 20% of the equity interests are held, directly or
indirectly, by such person or entity.
<PAGE> 2
"Consent" shall have the meaning set forth in Section 2.6.
"Effective Date" shall have the meaning set forth in the Background
section.
"Errors" shall have the meaning set forth in Section 8.2.
"Field of Use" shall mean all applications except biological, medical and
human and animal health measurement and monitoring.
"Intellectual Property" means the proprietary information of eVS relating
to the assembly, design and manufacture of the IR Systems, including without
limitation, all lens prescriptions, electronic schematics, source code for all
software contained in an IR Systems, related manufacturing and engineering
documentation, formulae, processes, characteristics, raw material data, know
how, experience, and trade secrets which pertain to the use of the IR Systems or
other Proprietary Information of eVS relating to the design, assembly and
manufacture of the IR Systems.
"IR Systems" shall have the meaning set forth in the Background
section.
"License" shall have the meaning set forth in Section 4.1.
"Proprietary Information" shall have the meaning set forth in Section
7.1.
"Royalty" shall have the meaning set forth in Section 8.1.
"Sales Price" shall have the meaning set forth in Section 8.1.
"Term" shall have the meaning set forth in Section 11.1.
"Territory" means the entire world.
"Transfer" shall have the meaning set forth in Section 9.1.
"Units" shall have the meaning set forth in Section 8.1.
2
<PAGE> 3
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF eVS
eVS represents and warrants to Sperry as follows:
2.1. Power and Authorization. eVS has the full capacity, legal right, power and
authority to enter into and perform its obligations under this Agreement. This
Agreement has been duly and validly executed and delivered by eVS and
constitutes the legal, valid and binding obligation of eVS and is enforceable
against it in accordance with its terms.
2.2. Ownership. eVS legally and beneficially owns the entire right, title
and interest in and to the Intellectual Property, including the right to assign
rights thereto in accordance with this Agreement and the right to preclude the
use and disclosure of the Intellectual Property by third parties.
2.3. No Litigation. There are no judicial or administrative actions,
suits, claims, proceedings or governmental investigations pending or, to the
best of eVS' knowledge, threatened, against eVS with respect to any of the
Intellectual Property, either at law or in equity, before any court or
administrative agency or before any governmental department, commission, board,
bureau, agency or instrumentality of any jurisdiction, and eVS does not believe
or have reason to believe that there is any basis or grounds for any such
action, suit, claim, proceeding or investigation.
2.4. No Conflicts. Except for the consent required pursuant to the
Hardware/Software License Agreement dated July 12, 1996 between Digital Imaging
Inc. and Enhanced Vision Systems, Inc. (the "CONSENT") and in reliance on
Sperry's representations contained in Sections 3.6 and 3.7 herein, neither the
execution nor delivery of this Agreement, nor the consummation of the
transactions herein contemplated, nor the fulfillment of or compliance with the
terms and provisions hereof will (a) violate any provision of law,
administrative regulation or court decree applicable to eVS, or (b) conflict
with or result in a breach of any of the terms, conditions or provisions of or
constitute a default under any organizational document of eVS, or of any
agreement, commitment or instrument to which eVS is a party.
2.5. No Adverse Contracts. Except for the Consent, eVS is not subject to
any contract or agreement affecting the Intellectual Property that will preclude
or restrict in any way the performance of eVS' obligations, or adversely affect
Sperry's rights, under this Agreement.
3
<PAGE> 4
2.6. Trademark. To the best of eVS' knowledge, eVS has the right to use
without consideration the name "AMIRIS" in the regions in which it has been used
to date, free and clear of any lien, security interest, restriction, encumbrance
or other adverse claim. eVS has not granted or licensed to any person any rights
with respect to such name and no other person has any rights in or to such name.
2.7. Compliance with Export Laws. eVS is, and at all times during the last
five years has been, in compliance with all United States laws and regulations
relating to the export from the United States of the IR Systems.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SPERRY
Sperry represents and warrants to eVS as follows:
3.1. Power and Authorization. Sperry has the full capacity, legal right,
power and authority to enter into and perform its obligations under this
Agreement. This Agreement has been duly and validly executed and delivered by
Sperry and constitutes the legal, valid and binding obligation of Sperry and is
enforceable against it in accordance with its terms.
3.2. No Litigation. There are no judicial or administrative actions,
suits, claims, proceedings or governmental investigations pending or, to the
best of Sperry's knowledge, threatened, against Sperry that would adversely
impact its ability to operate the Marine Business as of the Effective Date,
either at law or in equity, before any court or administrative agency or before
any governmental department, commission, board, bureau, agency or
instrumentality of any jurisdiction, and Sperry does not believe or have reason
to believe that there is any basis or grounds for any such action, suit, claim,
proceeding or investigation.
3.3. No Default. Sperry is not in default with respect to any term or
provision of any organizational document, mortgage, indenture, statute, rule or
regulation applicable to it, or with respect to any order, writ, injunction,
decree, rule or regulation of any court or administrative agency, which could
preclude or in any way restrict the performance of Sperry's obligations, or
adversely affect eVS' rights, under this Agreement.
3.4. No Adverse Contracts. Sperry is not subject to any contract or
agreement that will preclude or restrict in any way the performance of Sperry's
obligations, or adversely affect eVS' rights, under this Agreement.
4
<PAGE> 5
3.5. No Conflicts. Neither the execution nor delivery of this Agreement,
nor the consummation of the transactions herein contemplated, nor the
fulfillment of or compliance with the terms and provisions hereof will (a)
violate any provision of law, administrative regulation or court decree
applicable to Sperry, or (b) conflict with or result in a breach of any of the
terms, conditions or provisions of or constitute a default under any
organizational document of Sperry, or of any agreement, commitment or instrument
to which Sperry is a party or by which it is bound. No consent or approval of
the shareholders of Sperry or of any public authority or other person that has
not been obtained is required as a condition to the validity or enforceability
against it of this Agreement.
3.6. U.S. Entity. Sperry's parent is registered with the U.S. Department
of State as a manufacturer and exporter of defense articles under Category XII
of the U.S. Munitions List. Sperry is not controlled by an foreign organization,
entity, interest or person. For the purpose of this Section, the term "control"
means the power, direct or indirect, whether or not exercised, and whether or
not exercised or exercisable through the ownership of a majority or a dominate
minority of the total outstanding voting securities of an issuer, or by proxy
voting, contractual arrangements or other means, to determine, direct or decide
matters affecting an entity.
3.7. Compliance with Export Laws. To the best of Sperry's knowledge,
Sperry is in compliance with all laws, rules, regulations, permits, licenses and
other requirements relating to the export from the United States of goods,
technology and/or information ("Export Laws"). To the extent that Sperry is or
at any time during the last five years was not in compliance with such Export
Laws, Sperry represents that any such noncompliance will have no adverse effect
on eVS or eVS's ability to consummate the transactions or perform its
obligations contemplated herein.
ARTICLE 4
GRANT OF LICENSE
4.1. Grant of License. Subject to the terms and conditions herein
contained, eVS hereby grants to Sperry, and Sperry hereby accepts, an exclusive,
nontransferable right and license to employ the Intellectual Property made
available under this Agreement to design, manufacture and assemble the IR
Systems within the Territory for sale exclusively in the Territory within the
Field of Use (the "LICENSE").
4.2. Restrictions on Grant. Nothing contained in this Agreement shall be
construed as granting Sperry any right or license to manufacture or otherwise
produce, cause to be manufactured or otherwise produced, or to sell or knowingly
cause to be sold, any of the other products currently produced or owned by eVS.
5
<PAGE> 6
ARTICLE 5
DISCLOSURE OF TECHNOLOGY BY eVS
5.1. Disclosure Obligations. Commencing on the Effective Date and to be
completed within 30 days thereafter, eVS shall disclose or cause to be disclosed
to Sperry such Intellectual Property in its current form and as necessary and
complete for Sperry to manufacture the IR Systems. Such disclosure shall include
the items listed in Schedule 2. For the purpose of imparting the Intellectual
Property, eVS agrees:
(a) to have employees and/or consultants of eVS experienced in the
use of the Intellectual Property impart to such employees of Sperry as Sperry
shall designate information relative to such Intellectual Property. To this end,
eVS and Sperry shall each appoint promptly upon execution of this Agreement, one
representative to interface with the representative appointed by the other; and
(b) to furnish Sperry with copies of reports and other available
technical data relative to the utilization of the Intellectual Property,
including existing descriptions of problems encountered, their solutions and
lessons learned concerning the manufacture and sale of the IR Systems.
ARTICLE 6
DEVELOPMENT AND SALES EFFORTS
6.1. Reasonable Efforts. Sperry agrees to use reasonable efforts to
develop and increase the market for the IR Systems within the Territory.
ARTICLE 7
RESTRICTIONS ON THE USE OF CERTAIN INFORMATION
7.1. Proprietary Information. (a) Sperry hereby agrees that in no event
shall it disclose to any third party or utilize for its behalf or that of any
third party any information relating to the design, manufacture and assembly of
the IR Systems, the Intellectual Property or other proprietary information
provided hereunder or any information derived therefrom (hereafter referred to
as the "PROPRIETARY INFORMATION"), and hereby agrees to take all reasonable
steps, including but not limited to at least those steps which Sperry takes to
protect its own proprietary or confidential property, to prevent any such
disclosure by any partner, employee or other agent of Sperry, without the prior
written consent of eVS, which may be granted or withheld in the sole discretion
of eVS. The foregoing provision shall not apply to any Proprietary Information
as to which Sperry or any of its partners, employees or other agents can
demonstrate that such information:
6
<PAGE> 7
(i) is now public knowledge through no action of Sperry
or such partner, employee or other agent; or
(ii) has been properly provided to Sperry or such
partner, employee or other agent without restriction by an
independent third party; or
(iii) has been developed independently by Sperry or such
partner, employee or other agent in the course of work by
employees of Sperry, such partners, employees or other agents
who have not had access to Proprietary Information pursuant to
this Agreement.
(b) The provisions of this Article 7 shall survive until the later
of the date of Transfer or five years after the termination of this Agreement.
7.2. Sperry Information.
(a) eVS hereby agrees that in no event shall it disclose to any third
party or utilize for its behalf or that of any third party any proprietary
information provided by Sperry hereunder or any information derived therefrom
(hereafter referred to as the "SPERRY INFORMATION"), and hereby agrees to take
all reasonable steps, including but not limited to at least those steps which
eVS takes to protect its own proprietary or confidential property, to prevent
any such disclosure by any partner, employee or other agent of eVS, without the
prior written consent of Sperry, which may be granted or withheld in the sole
discretion of Sperry. The foregoing provision shall not apply to any Sperry
Information as to which eVS or any of its partners, employees or other agents
can demonstrate that such information:
(i) is now public knowledge through no action of eVS or
such partner, employee or other agent; or
(ii) has been properly provided to eVS or such partner,
employee or other agent without restriction by an independent
third party; or
(iii) has been developed independently by eVS or such
partner, employee or other agent in the course of work by
employees of eVS, such partners, employees or other agents who
have not had access to Sperry Information pursuant to this
Agreement.
(b) The provisions of this Article 7 shall survive until the later of the
date of Transfer or five years after the termination of this Agreement.
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7.3. Confidentiality Agreement. Sperry and eVS shall require all partners,
employees or other agents to whom any Proprietary Information or Sperry
Information is to be disclosed to execute a confidentiality agreement with such
party, satisfactory in form and substance to eVS or Sperry, respectively.
ARTICLE 8
ROYALTY
8.1. Royalty Amount. (a) From the date hereof until the date of the
Transfer (as defined herein), Sperry agrees to pay eVS a royalty (the
"Royalty"), within 30 days after the end of each calendar quarter during such
period, an amount calculated as follows: R = 8% (S x U)
Where:
R equals the Royalty;
S equals the Net Sales Price (as defined herein); and
U equals the number of Units (as defined herein) sold for such
calendar quarter.
(b) As used herein:
(i) "Net Sales Price" shall mean Sperry's price to its
customers, resellers, foreign offices or agents, less
reasonable commissions, customary trade discounts,
transportation charges and value-added or sales taxes. Net
Sales Price shall not include prices reasonably allocated to
features not provided by the IR Systems.
(ii) "Units" shall mean any IR System and all related or
derivative products; provided, that, such term shall not
include any spare or replacement parts or additional features
of the IR Systems that are developed by or on behalf of Sperry
by third parties, or by eVS at Sperry's sole expense; and
further, provided that such term shall not include the IR
Systems to be purchased by Sperry pursuant to Purchase Order
#302388 dated November 23, 1998, between Sperry and eVS.
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8.2. Right of Set-off; Audit. Except as otherwise provided in Section 9.1,
Sperry's obligation to pay the Royalty is absolute and shall not be subject to
any right of set-off by Sperry for claims it may have against eVS. eVS may,
through an independent public accounting firm retained and paid by it, upon ten
days prior notice to Sperry and no more than once per year, inspect at each
place of business of Sperry those books and records of Sperry necessary to
determine the calculation of the Royalty. Such inspection shall be conducted
during normal business hours. Calculations of the Royalty which are not in
accordance with this Agreement ("Errors") shall be paid to eVS by Sperry, within
30 days of the conclusion of the audit, and shall include interest, which shall
accrue at a rate of eight percent (8%) per annum from the original due date
thereof. If any audit or inspection reveals Errors by Sperry in an amount of ten
(10%) or more with respect to any calendar quarter, Sperry shall promptly
reimburse eVS for the reasonable cost of such audit or inspection.
8.3. Survival of Royalty. Except as provided in Article 9, Sperry's
obligation to pay the Royalty due hereunder shall survive the expiration or
termination of this Agreement until the date of Transfer.
ARTICLE 9
TRANSFER
9.1. Transfer of Ownership of the Intellectual Property. If, within the
four year period beginning on the date hereof, eVS receives Royalty payments in
the aggregate amount of $4,250,000 from Sperry, Sperry's obligation to make
further Royalty payments shall cease and eVS shall, within 60 days of the date
on which it has received the final payment constituting such amount, transfer to
Sperry all of its rights, title and interest in and to the Intellectual Property
(the "Transfer"). If eVS has not received Royalty payments in the aggregate
amount of $4,250,000 within such four year period, Sperry shall continue to pay
the Royalty to eVS until such time as eVS has received an aggregate amount of
$5,000,000 in Royalty payments. Upon the receipt by eVS of such amount, Sperry's
obligation to make Royalty payments shall cease and eVS shall, within 60 days of
the date on which it has received the final payment constituting such amount,
effect the Transfer. At the time of the Transfer, eVS shall deliver to Sperry
all documents or other tangible records, including copies thereof, within eVS'
possession, custody or control, containing or reflecting any Proprietary
Information.
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ARTICLE 10
INDEMNIFICATION
10.1. By eVS. eVS shall indemnify and hold Sperry harmless against any
claims, losses, damages, actions, amounts paid in settlement and expenses,
including reasonable attorneys' fees and costs of investigation (other than
amounts paid in settlement of any claim without eVS' consent) resulting in whole
or in part from claims by third parties against Sperry for any alleged
infringement, prior to the Transfer, of any license, patent or other proprietary
rights of a third party as a result of the use or other exploitation of the
Intellectual Property pursuant to the license granted under this Agreement;
provided, that Sperry notifies eVS promptly in writing of any such claim. Sperry
shall permit eVS, in its sole discretion, to defend, compromise or settle such
claim and shall provide all information, assistance and authority to enable eVS
to do so. Sperry shall have no authority to settle any claim on behalf of eVS.
eVS shall have no liability for any claim of infringement based on the use or
combination of the Intellectual Property with hardware, software or other
materials or information not provided by eVS hereunder.
10.2. By Sperry. Sperry shall indemnify and hold eVS harmless against any
claims, losses, damages, actions, amounts paid in settlement and expenses,
including reasonable attorneys' fees and costs of investigation (other than
amounts paid in settlement of any claim without Sperry's consent) resulting in
whole or in part from claims by third parties against eVS for any alleged
infringement, after the Transfer, of any license, patent or other proprietary
rights of a third party as a result of the use or other exploitation of the
Intellectual Property; provided, that eVS notifies Sperry promptly in writing of
any such claim. eVS shall permit Sperry, in its sole discretion, to defend,
compromise or settle such claim and shall provide all information, assistance
and authority to enable Sperry to do so. eVS shall have no authority to settle
any claim on behalf of Sperry.
10.3. Remedies. Should the Intellectual Property become, or in the sole
opinion of eVS, be likely to become the subject of a claim of infringement, eVS
may, at its sole option and cost, (a) procure for Sperry the right to continue
to use the Intellectual Property, (b) replace or modify the Intellectual
Property to make such non-infringing, provided that the same function is
performed by the replacement or modified Intellectual Property, or (c) if the
right to continue to use cannot reasonably be procured or the Intellectual
Property cannot reasonably be replaced or modified, terminate both the License
and its obligation to effectuate the Transfer.
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ARTICLE 11
TERM AND TERMINATION
11.1. Term. This Agreement shall become effective on the date hereof and,
unless terminated at an earlier date, shall continue until the occurrence of the
Transfer (the "Term").
11.2. Termination.
(a) In the event either party hereto breaches this Agreement in any
material respect and fails to remedy such breach within 30 days after written
notice thereof by the other party, then said other party may terminate this
Agreement on written notice to the breaching party.
(b) In the event this Agreement is terminated pursuant to paragraph
(a) of this Section, Sperry shall promptly return to eVS (in no event later than
60 days after such termination) all Proprietary Information that Sperry has
received from eVS pursuant to this Agreement. Notwithstanding anything herein to
the contrary, the continuing obligations of the parties to make payments accrued
as of the date of termination and the obligations under Articles 7 and 8 hereof
shall survive the termination of this Agreement.
11.3. Upon termination of this Agreement upon the occurrence of the
Transfer, Sperry shall be entitled to continue to use Intellectual Property
purchased by it hereunder to produce the IR Systems and eVS shall have no
further obligations hereunder with respect thereto.
11.4. In order to protect eVS against the unauthorized use of the
Proprietary Information and trade secrets made available to Sperry hereunder,
Sperry hereby agrees that during the term hereof and for five years after
termination of this Agreement pursuant to Section 11.2(a), Sperry shall not sell
or transfer any Proprietary Information without the prior written consent of
eVS, which consent may be withheld in its sole discretion.
ARTICLE 12
MISCELLANEOUS
12.1. Export Controls. Sperry acknowledges that certain of the
Intellectual Property that Sperry may receive from eVS under this Agreement is
controlled under laws and regulations of the U.S. Government that prohibit or
restrict the export of technology and certain other activities. Sperry further
acknowledges and agrees that such laws and regulations may require that Sperry
obtain a license from the U.S. Government
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before the Intellectual Property or products made therefrom are sold, leased,
sublicensed or otherwise transferred to a foreign person. Until the date of
Transfer, if any, Sperry shall implement and follow all necessary procedures to
comply with applicable laws, regulations and administrative actions of the U.S.
Government, and shall not engage in any activity which it or eVS reasonably
believes could subject it to civil, criminal or administrative liability,
including but not limited to the sale, lease, transfer, or sublicensing of any
equipment or technical data without appropriate authorization. eVS shall be
excused from performance under this Agreement or under any other agreement, and
shall not be liable or accountable to Sperry for any loss or damage, including
lost profits or other indirect or incidental damages, to the extent that an act
or omission of the U.S. Government (including acts or omissions of Congress and
the judiciary) or any law or regulation restricts, prohibits or delays eVS'
performance of an obligation under this Agreement or restricts or limits
Sperry's use or transfer of the Intellectual Property or any product made
therefrom.
12.2. Information to be Provided by eVS. eVS shall, in its sole
discretion, determine the nature and extent of all information to be provided to
Sperry hereunder. eVS acknowledges and agrees, however, that it is obligated
hereby to provide all information in its possession, custody or control
necessary to manufacture the IR Systems.
12.3. Notices. Any notice or other communications required or permitted
hereunder to be given to a party to this Agreement shall be in writing and shall
be deemed to be delivered on the date received by such party. All notices and
documents mailed to a party shall be duly given when delivered personally or
transmitted by telex or telecopier, receipt acknowledged, or in the case of
documented overnight delivery service or registered or certified mail, return
receipt requested, postage prepaid, on the date shown on the receipt thereof.
All notices and other communications shall be given to the party at its
respective address set out opposite its name below, or at such other address as
it shall have theretofore specified by written notice similarly delivered:
eVS:
eMERGE Vision Systems, Inc.
c/o XL Vision, Inc.
10305 102nd Terrace
Sebastian, Florida 32958
Attention: Mike Janney
Telephone No.: 561-589-5310
Telecopier No.: 561-589-3779
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With a copy to:
Karen M. Keating, Esq.
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Telephone No.: 610-254-4106
Telecopier No.: 610-254-4376
Sperry:
Sperry Marine Inc.
1070 Seminole Trail
Charlottesville, Virginia 22901
Attention: Carlton Carrol
Telephone No.: 804-974-2539
Telecopier No.: 804-974-2480
With a copy to:
Gerald L. Lett, Esq.
Deputy Director, Intellectual Property Law
1500 PRC Drive
MS 6E2
McLean, VA 22102-5050
Telephone No.: 703-556-2790
Telecopier No.: 703-556-2527
12.4. Governing Law. The validity, performance, construction, and effect
of this Agreement shall be governed by the laws of the State of Florida for the
determination of any controversy whatsoever arising under or in connection with
this Agreement, without reference to the principles of conflicts of law
otherwise applicable therein.
12.5. Binding Effect; Assignment. This Agreement shall be binding upon the
successors or permitted assigns of the parties hereto, but shall not be
assignable by any party without the prior written consent of the other.
12.6. Cooperation. Sperry shall promptly notify eVS of any circumstances
surrounding any unauthorized possession, use or knowledge of information
relating to the Intellectual Property after Sperry has knowledge thereof, shall
cooperate with eVS in preventing the recurrence of such unauthorized possession,
use or knowledge, and shall cooperate with eVS in any litigation against third
parties brought by eVS to protect its proprietary rights.
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12.7. Relationship of the Parties. Each party shall be solely and entirely
responsible for its acts and for the acts of its agents, employees and
subcontractors during the performance of this Agreement. Nothing in or arising
out of this Agreement shall be deemed to constitute eVS or Sperry as a partner
of the other.
12.8. Injunctive Relief. eVS and Sperry expressly acknowledge that money
damages alone will be an inadequate remedy for any breach or violation of any of
the provisions of Article 7 of this Agreement, and that the nonbreaching party,
in addition to all other remedies under this Agreement, shall be entitled, as a
matter of right, to injunctive relief, including specific performance, with
respect to any such breach or violation.
12.9. Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter thereof and
may be amended only by a document in writing.
12.10. Waiver. Failure by either party to insist on compliance with this
Agreement by the other party to this Agreement shall not be deemed a waiver of
any term or condition of this Agreement, and such party may thereafter insist
upon compliance with all terms and conditions of this Agreement.
12.11. Binding Effect; Assignment. This Agreement shall be binding upon
the successors or permitted assigns of the parties hereto, but shall not be
assignable by any party without the prior written consent of the other.
12.12. Use of Competing Technologies. eVS shall not develop and use
competing technologies to manufacture or sell products in the marine
transportation field for a period of three years after the Effective Date.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
SPERRY MARINE INC.
By: /s/: C. Graham
--------------
Name: C. Graham
Title: President
EMERGE VISION SYSTEMS, INC.
By: /s/: T. Michael Janney
----------------------
Name: T. Michael Janney
Title:Chief Financial Officer
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SCHEDULE 1
IR SPECIFICATIONS
The IR System is comprised of the following:
AMIRIS System #105190000
NSK 1000 System #105190001
FROS System #105594000
Three Field of View Assembly #105235
CCD Overlay #105504
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SCHEDULE 2
INTELLECTUAL PROPERTY ITEMS TO BE TRANSFERRED
[TO BE PROVIDED.]
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EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into
this 14th day of May, 1999 by and among eMERGE Vision Systems, Inc., a Delaware
corporation ("Buyer") and Professional Cattle Consultants, L.L.C. an Oklahoma
Limited Liability Company ("Seller").
RECITALS
A. Seller is in the business of developing, and marketing, a data
network and/or software services for use in agriculture, veterinary medicine,
and animal food sciences markets (the "Business") including the network/software
product commonly referred to as "Benchmark" (the "Software Program"); and
B. Seller desires to sell, and Buyer desires to purchase, the Business
and substantially all of the tangible and intangible assets used in the
Business, including, but not limited to, the Software Program, on the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt, sufficiency, and adequacy of which are hereby acknowledged, Seller and
Buyer agree as follows:
ADDITIONAL DEFINITIONS
Buyer and Seller agree that the following defined terms shall have the
meanings stated below throughout this Agreement.
"Anderson" shall mean Arlen Anderson, an individual who is a co-manager
of Seller and officer of Lextron.
"Lextron" shall mean Lextron, Inc., a Colorado corporation. Lextron is
the investor in fifty percent of the outstanding membership units of Seller.
"To The Best Of Seller's Knowledge" shall mean to the actual knowledge
of Tom Tippens and Roberta Tippens after reasonable investigation and/or due
diligence, and shall not include any knowledge whatsoever (actual, imputed, by
estoppel, or otherwise) of Anderson or Lextron or any of Lextron's officers,
directors, representatives, employees or agents except as specifically provided
herein.
"VetLife Contract" shall mean the Agreement for Data Processing and
Management Services dated February 4, 1999 between Seller and VetLife, a
division of Ivy Animal Health, Inc., a Delaware corporation, a copy of which is
attached to this Agreement as Appendix One.
<PAGE> 2
AGREEMENTS
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Effective as of the close of business on the Closing Date (as
defined in Section 1.1.1) and subject to the terms and conditions hereof and in
reliance on the representations and warranties contained herein, Seller shall
sell, convey, transfer, assign, and deliver to Buyer at the Closing (as defined
in Section 1.1.1), and Buyer shall purchase from Seller, all of the properties,
business, and assets of Seller used in connection with the Business, of every
kind and description, personal and mixed, tangible and intangible, wherever
located (except the Excluded Assets, defined in Article II) (collectively, the
"Purchased Assets"). Without limiting the generality of the foregoing, the
Purchased Assets shall include the following:
1.1.1 all of Seller's inventory as of the Closing Date,
including, without limitation: (i) computer program code (in all media) and
materials, including the Software Program; (ii) computer program documentation,
including user materials; (iii) all other unused or reusable materials, stores,
supplies, works in progress, finished goods, product samples, packaging, and
shipping materials, as listed on Schedule 1(a) hereto (collectively, the
"Inventory");
1.1.2 all of Seller's technical and descriptive materials
(other than Inventory) if any relating to the acquisition, design, development,
use, or maintenance of computer code and program documentation and materials,
including, but not limited to, all technical and programming notes, if any (the
"Technical Documentation");
1.1.3 all of the rights and benefits accruing to Seller, if
any, under or pursuant to any and all contracts, agreements, licenses, and other
commitments and arrangements, oral or written, with any person or entity
relating to the ownership, license, acquisition, design, development,
distribution, marketing, use, or maintenance of computer program code, related
technical or user documentation, and databases, in each case relating to or
arising out of the Business, including, but not limited to: (i) licenses from
third parties; (ii) development contracts, work-for-hire agreements, and
consulting and employment agreements; (iii) distributorships and manufacturer's
representation contracts; (iv) licenses and sublicenses to others; and (v)
maintenance, support, or enhancement agreements, if any and as listed on
Schedule 1(c) hereto (collectively, the "Software Contracts");
1.1.4 all of Seller's equipment and devices (including data
processing hardware and related telecommunications equipment, media, and tools)
used in the Business, if any and as listed on Schedule 1(d) hereto (the
"Computer Equipment"), including, but not limited to, Seller's rights under all
related warranties if any;
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1.1.5 all of Seller's other equipment, including, but not
limited to, all furniture, office equipment, and other personal property, as
listed on Schedule 1(e) hereto;
1.1.6 all accounts receivable of Seller relating to the
Business, arising from sales of products in the ordinary course of business as
of the date of this Agreement, including all license fees and maintenance fees
and charges owing or to become owing to Seller under Software Contracts, as are
listed on Schedule 1(f) hereto (the "Accounts Receivable");
1.1.7 all operating data and records of Seller related to the
Business, including, but not limited to, all customer lists, vendor lists, price
lists, correspondence, customer files, account histories, customer
specifications, dealer and distributor lists, promotional materials, sales
literature, art work, sales data, and other historical and current information
relating to sales, financial, accounting, and credit records, correspondence,
budgets, and other similar documents and records, if any;
1.1.8 all of the rights and benefits accruing to Seller under
or pursuant to the Accounts Receivable, contracts, agreements, including, but
not limited to, all distributorship or sales representation agreements,
licenses, leases, arrangements, commitments, and unshipped, open, and blanket
purchase orders, other than the Software Contracts, all as identified on
Schedule 1(h) (the "Purchased Contracts");
1.1.9 all claims, if any, Seller may have against any person
relating to or arising from the Purchased Assets, the Software Contracts, the
Purchased Contracts, or the Business, including rights to recoveries for damages
or defective goods, refunds, insurance claims, and chooses in action;
1.1.10 all of Seller's right, title, and interest in and to,
if any, the name "PCC," and "Professional Cattle Consultants, L.L.C.", and all
variants thereof if any, all of Seller's right, title, and interest in and to
the Internet domain name "PCC-Online.Com" and all iterations or permutations
thereof and the registrations therefor if any, any and all trademarks, service
marks, trade names, and copyrights of Seller and all licenses, registrations,
and applications therefor, if any, and all Seller's other intellectual property
rights, rights to the data compiled through the use of the Software Program
technology, if any, know-how, trade secrets, computer software, code, slogans,
patents, formulae, processes, if any, and other similar intangible rights
relating to the Business if any (the "Intellectual Property"), as are listed on
Schedule 1(j) hereto; and
1.1.11 all of Seller's right, title, and interest in and to
the goodwill of Seller relating to the Business and all other assets of every
kind and description, wherever located, used or useful in, or related to the
Business if any.
ARTICLE II
EXCLUDED ASSETS
2.1 Notwithstanding Article I, Seller is not selling or assigning to
Buyer, and the Purchased Assets shall not include, any of the following
(collectively, the "Excluded Assets"):
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2.1.1 all cash consideration to be received by Seller, and
Seller's other rights, under this Agreement;
2.1.2 all limited liability company records, equity record
books, files, and other documentation of Seller, not relating to operation of
the Business or the Purchased Assets;
2.1.3 all of Seller's cash, cash equivalents, deposits in
banks, securities, and prepaid and deferred items, existing on the Closing Date
with respect to the Business;
2.1.4 any items of the Purchased Assets that Buyer expressly
elects not to accept or otherwise take;
2.1.5 any rights of Seller under covenants not to compete
between Seller and Lextron and Seller and Anderson both dated February 14, 1997,
which covenants not to compete shall be terminated prior to the Closing Date;
2.1.6 any rights of Seller under the following agreements:
a) Seller's Operating Agreement with its members
dated February 14, 1997;
b) Seller's Membership Interest Buy-Sell Agreement
dated February 14, 1997; and
c) Seller's Subscription Agreements with Lextron and
PCC Feedlot Investment Services Corporation both dated February 14, 1997; and
2.1.7 any tax refunds, tax deposits and similar rights with
respect to governmental and taxing authorities.
ARTICLE III
PURCHASE PRICE, LIABILITIES
AND OTHER RELATED MATTERS
3.1 Purchase Price. Subject to adjustment as provided herein, the
purchase price (the "Purchase Price") for the Purchased Assets shall be cash in
the amount of $1,800,000 payable by wire transfer to the following account and
the assumption of the Assumed Liabilities (as defined in Section 3.2): BancFirst
Weatherford, OK, ABA #103003632, Account # 0453012849, Professional Cattle
Consultants.
3.2 Assumed Liabilities. On the Closing Date, (i) Buyer shall assume
and agree to pay, perform, and discharge in full when due the accounts payable
and accrued expenses of Seller related solely and directly to the Business for
the month of May 1999, including trade accounts payable accrued employee
compensation and related payroll taxed and Seller's
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obligations under the Software Contracts and the Purchased Assets (hereafter
collectively referred to as the "Assumed Liabilities"), all as listed on
Schedule 3.2 hereto;
3.3 Non-Assumption of Liabilities and Obligations of Seller. Other than
the Assumed Liabilities, Buyer shall not assume or become liable for any
liabilities, obligations, or commitments of Seller of any nature whatsoever,
including, but not limited to (collectively, the "Excluded Liabilities"): (i)
any liabilities or obligations of Seller for Federal, state, local, foreign, or
other taxes, including, without limitation, income, sales, use, franchise, real
or personal property, or other taxes, assessments, duties, levies, or imposts,
or for any penalties or interest with respect to any of the foregoing, related
to any other period; (ii) any liabilities or obligations with respect of any
pension, profit sharing, medical insurance, or other employee benefit plan or
fringe benefit arrangement established or maintained by Seller, whether or not
any such plans or benefits thereunder relate to employees who may be employed by
Buyer following consummation of the transactions contemplated hereby, including,
without limitation, any health insurance benefits payable with respect to costs
incurred on or prior to the Closing Date, whether or not claims therefor are
submitted on or prior to the Closing Date, and any disability benefits payable
with respect to disabilities occurring on or prior to the Closing Date, all of
which shall be paid by Seller; (iii) any liabilities or obligations whatsoever
to or with respect to any employees or independent contractors of Seller,
specifically including, without limitation, any obligations to pay salaries,
wages, bonuses, commissions, vacation, severance, or termination pay, employee
benefits, health insurance benefits, or unemployment compensation for any period
other than May 1 through May 31, 1999; (iv) any liabilities or obligations
arising out of any workers' compensation claims relating to employment by
Seller, or product liability claims for personal injury, property damage, or
otherwise relating to products sold or distributed by Seller; (v) any
liabilities, obligations, or commitments for product warranty or returns or
exchanges of products sold or distributed by Seller; (vi) any liabilities or
obligations, whether or not known to Seller, based on, arising out of or
otherwise in respect to any act or omission of Seller, or any other party, or
any event or condition on or off any premises of Seller, occurring at any time
on or prior to the Closing Date; (vii) any liabilities, obligations, or expenses
to be borne by Seller in connection with the negotiation and documentation of
this Agreement; and (viii) any other liabilities or obligations of Seller,
known, unknown, fixed, contingent, accrued, absolute, or otherwise, except the
Assumed Liabilities.
3.4 Adjustment of Purchase Price. A post-Closing adjustment shall be
made to the Purchase Price, in the manner described below, to the extent that
the Assumed Liabilities are greater than or less than $25,000. For that purpose,
Buyer will, within sixty (60) days of the Closing Date, audit the books and
records of the Business to determine the actual value of the Assumed
Liabilities. The value of the Assumed Liabilities shall be the value as carried
on the books and records of the Business as of the Closing Date, prior to any
reduction thereof except that the Software Contracts and the Purchase Contracts
shall be deemed to have no value for the purposes of the adjustment under this
Section 3.4.
3.5 Allocation of Purchase Price. The Purchase Price shall be allocated
among each item, class, or category of the Purchased Assets, as reasonably
determined by Buyer and set forth on Schedule 3.5. Seller and Buyer shall
prepare and file their respective Federal and any state or
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local income tax returns based on such allocation of the Purchase Price. Seller
and Buyer shall prepare and file any notices or other filings required pursuant
to Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code")
and any such notices and filings shall be prepared based on such allocation of
the Purchase Price.
ARTICLE IV
THE CLOSING
4.1 Time and Place of Closing. The closing of the sale and purchase of
the Business and the Purchased Assets (the "Closing") shall take place at 12:00
p.m. local time on May 14, 1999 at the offices of Seller's counsel, Terry W.
Tippens, 100 North Broadway 1700 Bank One Tower, Oklahoma City, Oklahoma (the
"Closing Date").
4.2 Seller's Closing Deliveries. At the Closing, in addition to any
other documents specifically required to be delivered pursuant to this
Agreement, Seller shall execute and deliver, or cause to be executed and
delivered, as appropriate, to Buyer the following:
4.2.1 Bill of Sale and Assignment. A bill of sale
substantially in the form attached hereto as Exhibit A and such other forms of
assignment, endorsements, and other good and sufficient instruments of sale,
assignment, conveyance, and transfer, as may be necessary to sell, assign,
transfer, and deliver the Purchased Assets.
4.2.2 Assignment and Assumption Agreement. Assignment and
assumption agreement in the form attached hereto as Exhibit B, and consents of
the appropriate third parties, relating to the assignment and assumption of the
Software Contracts and the Purchased Contracts.
4.2.3 Assignment of Intellectual Property. Assignment
agreement in the form attached hereto as Exhibit C, relating to the assignment
of the Intellectual Property.
4.2.4 Certified Resolutions. Copies of the resolutions of the
managers and members of Seller authorizing the execution, delivery, and
performance of this Agreement and all related agreements, documents, and
certificates, and the transactions contemplated hereby and thereby, certified as
of the Closing Date by at least one of its managers.
4.2.5 Confidentiality and Non-Compete Agreement.
Confidentiality and non-compete agreement between Roberta Tippens and Buyer, in
the capacity as an independent contractor in the form attached hereto as Exhibit
D.
4.2.6 Certificate of Good Standing. Certificate of good
standing of Seller issued by the Secretary of State of Oklahoma, dated not more
than fourteen (14) days prior to the Closing Date.
4.2.7 Articles of Organization. A copy of the Articles of
Organization of Seller,
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and all amendments thereto, certified by the Secretary of State of Oklahoma not
more than fourteen (14) days prior to the Closing Date.
4.2.8 Secretary's Certificate. A certificate of a manager of
Seller, dated as of the Closing Date, certifying a copy of the Operating
Agreement of Seller and as to the incumbency and signatures of the authorized
manager of Seller executing this Agreement and all other agreements, documents,
or certificates contemplated or delivered under this Agreement.
4.2.9 Legal Opinion. No legal opinion of counsel is required
from either Seller's or Buyer's Counsel.
4.2.10 Lien Termination Statements. UCC-3 termination
statements with respect to the liens specified in Schedule 4.210 hereto, if any.
4.2.11 Other. Such other documents and certificates required
to be executed or delivered at the Closing in accordance with the terms of this
Agreement or as reasonably required by Buyer or its counsel, including, without
limitation, tax clearance certificates from the appropriate governmental
authorities if requested by Buyer in a reasonable period of time prior to the
Closing Date.
4.3 Buyer's Closing Deliveries. At the Closing, in addition to any
other documents specifically required to be delivered pursuant to this
Agreement, Buyer shall execute and deliver, as appropriate, to Seller the
following:
4.3.1 Purchase Price. Payment of the Purchase Price.
4.3.2 Assignment and Assumption Agreement. Assignment and
assumption agreement in the form attached hereto as Exhibit B relating to the
assignment and assumption of the Software Contracts and the Purchased Contracts.
4.3.3 Certified Resolutions. Unless waived by Seller,
resolutions of Buyer's directors authorizing the execution, delivery, and
performance of this Agreement and all related agreements, documents and
certificates, and the transactions contemplated hereby and thereby certified as
of the Closing Date by its Secretary or Assistant Secretary.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF SELLER
Seller, PCC Feedlot Investment Services Corporation, [AN OKLAHOMA
CORPORATION,] Tom Tippins and Terry Tippins jointly and severally represents and
warrants to Buyer, on and as of the date hereof and on and as of the Closing
Date, as follows:
5.1 Organization of Seller. Seller is an Oklahoma limited liability
company duly organized, validly existing, and in good standing under the laws of
the State of Oklahoma and is
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duly qualified to do business and is in good standing as a foreign limited
liability company in each jurisdiction in which the character of the properties
owned or held under lease by Seller or the nature of the businesses transacted
by Seller requires such qualification. In this regard, Seller has not qualified
to do business in any state except for Oklahoma.
5.2 Power and Authority. Seller has all requisite power and authority
to own, lease, and operate its properties, to conduct its business as it has
been and is now being conducted, to enter into this Agreement, and all other
agreements or documents to be executed or delivered in connection herewith, and,
subject to any required approvals or consents by other parties to contracts to
which Seller is a party (which shall be obtained by Seller prior to Closing), to
perform the obligations to be performed by it hereunder. All member and other
actions required to be taken by or on the part of Seller to execute, deliver,
and carry out the terms of this Agreement and all other agreements or documents
to be executed or delivered in connection herewith, and to authorize Seller to
sell, assign, transfer, convey, and deliver the Purchased Assets to Buyer, have
been duly and properly taken. This Agreement and all other agreements and
documents to be executed and delivered by Seller in connection herewith, when
executed and delivered, shall constitute the legal, valid, and binding
obligations of Seller enforceable against Seller in accordance with their
respective terms and this Agreement.
5.3 Subsidiaries. Seller does not own, directly or indirectly, any
outstanding capital stock, or securities convertible into capital stock, of any
other corporation or any participating interest in any partnership, joint
venture, or other business enterprise.
5.4 No Violation to Result. The execution and delivery of this
Agreement and all other agreements and documents to be executed or delivered in
connection herewith, and the consummation of the transactions contemplated
hereby and thereby:
5.4.1 are not in violation or breach of, do not conflict with
or constitute a default under, and will not accelerate or permit the
acceleration of the performance required by, any of the terms of the charter
documents or operating agreement of Seller or any note, debt instrument,
security agreement, or mortgage, or any other contract or agreement, written or
oral, to which Seller is a party or by which Seller or any of its properties or
assets are bound;
5.4.2 will not be an event that, after notice or lapse of time
or both, will result in any such material violation, breach, conflict, default,
or acceleration;
5.4.3 will not result in a material violation under any law,
judgment, decree, order, rule, regulation, or other legal requirement of any
governmental authority, court or arbitration tribunal, whether Federal, state,
or local (within the United States or otherwise) at law or in equity, and
applicable to Seller or any of its properties or assets;
5.4.4 will not result in the creation or imposition of any
lien, option, encumbrance, security agreement, restriction, charge, or claim of
any kind in favor of any third party upon any of the properties or assets of
Seller; and
5.4.5 will not result in the termination of any contract,
lease, or other
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commitment of Seller relating to the Business, including, without limitation,
any of the Software Contracts and Purchased Contracts.
5.5 No Existing Material Defaults. Seller is not in default of, and has
no notice or knowledge of any default under: (i) any of the terms of any note,
debt instrument, security agreement, mortgage, or under any other commitment,
contract, agreement, license, lease, or other instrument, whether written or
oral, to which it is a party or by which it or any of its properties or assets
is bound including, without limitation, any of the Software Contracts and
Purchased Contracts; or (ii) any law, judgment, decree, order, rule, regulation,
or other legal requirement of any governmental authority, court, or arbitration
tribunal whether Federal, state, or local (within the United States or
otherwise), at law or in equity, and applicable to it or to any of its
properties or assets. To The Best Of Seller's Knowledge, there exists no
condition or event that, after notice or lapse of time or both, would constitute
a material default under any of the foregoing.
5.6 Financial Statements. Attached hereto as Schedule 5.6 are Seller's
financial statements as of April 30, 1999.
5.7 Adverse Changes. From March 31, 1999 to the Closing Date, the
Business has been conducted only in the ordinary and regular course, and there
have not been any material adverse changes in the condition (financial or
otherwise), assets, liabilities, commitments, business prospects of the
Business, the Purchased Assets, or the Assumed Liabilities except that Seller
has or will terminate its covenants not to compete with Lextron and Anderson
prior to the Closing Date.
5.8 Taxes. Seller has prepared (or caused to be prepared) and timely
and properly filed (or caused to be timely and properly filed) with the
appropriate Federal, state, and local authorities (within the United States or
otherwise) all tax returns, information returns, and other reports required to
be filed and has paid (or caused to be paid) in full all taxes, interest,
penalties, assessments, or deficiencies, if any, currently due to, or claimed to
be currently due by, any taxing authority, excepting only any such taxes that
are being duly and timely contested in good faith by Seller and adequately
reserved on the books of Seller. Seller has not executed or filed with any
taxing authority any agreement extending the period for assessment or collection
of any taxes. Seller is not a party to any pending action or proceeding, nor is
To The Best Of Seller's Knowledge any such action or proceeding threatened
against Seller by any governmental authority for the assessment or collection of
taxes, and no claim for assessment or collection of taxes has been asserted
against Seller. During the course of any audit currently in process or not
completed, no issues have been suggested by any representative of any
governmental authority that, if asserted, would To The Best Of Seller's
Knowledge result in a proposed assessment of taxes, interest, or penalties
against Seller. Seller has not executed or filed any consent agreement to extend
the period for assessment or collection of any taxes.
5.9 Condition of Assets. All equipment and other items of tangible
personal property owned, leased, or otherwise used by Seller in the Business and
included in the Purchased Assets, are now and on the Closing Date shall be (i)
in the possession of Seller and in good, useable
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condition and repair for the current use, ordinary wear and tear excepted and
(ii) reasonably adequate for the conduct of the Business as currently conducted.
All equipment and other items of tangible personal property owned, leased, or
otherwise used by Seller in the Business and included in the Purchased Assets,
are located at the premises listed on Schedule 5.9.
5.10 Title to Assets. At the Closing, Seller shall have and shall
transfer to Buyer, good and marketable title to all of Seller's equipment,
computer equipment, accounts receivable, records, claims, and names constituting
a portion of the Purchased Assets, which shall be free and clear of any
mortgage, pledge, lien, conditional sale or other agreement, option,
encumbrance, restriction, charge, or claim of any kind. There are no assets used
in the operation of the Business that are not included in the Purchased Assets,
and the Purchased Assets include all of the assets and properties necessary to
operate the Business in the same manner as it is currently conducted.
5.11 Inventory. Schedule 1(a) constitutes a true and complete list of
all Inventory.
5.12 Licenses and Permits. To The Best Of Seller's Knowledge Seller
possesses all material licenses and other required governmental or official
approvals, permits, and authorizations, as to which the failure to so possess
would have a material adverse effect on the Business, financial condition, or
results of operations of Seller. To The Best Of Seller's Knowledge all such
licenses, approvals, permits, and authorizations are in full force and effect,
Seller is in material compliance with their requirements, and no proceedings are
pending or, To The Best Of Seller's Knowledge threatened, to revoke or amend any
of them. To The Best Of Seller's Knowledge, Schedule 5.12 hereto contains a
complete list of all such licenses, approvals, permits, and authorizations.
5.13 Consents. Some consents of third parties are required in
connection with the execution, delivery, and performance of this Agreement by
Seller.
5.14 Intellectual Property. Schedule 1(j) constitutes a true and
complete list of all Seller's Intellectual Property. Seller only has contract
rights and obligations to process data, which rights are included in the
Purchased Assets and Seller's rights to process the data are assignable to Buyer
at the Closing. Seller is not in default under any such licensing or similar
agreements, and has not received any notice of conflict with or infringement (or
alleged infringement) of any rights of others. To The Best Of Seller's Knowledge
Seller does not infringe upon any proprietary right of any third party. Seller's
use in the Business of any technical or proprietary data has not required and
does not require the payment of any royalty or similar payment to any Person,
and, on the Closing Date, Seller will transfer to Buyer Seller's rights to all
the Intellectual Property and its rights process data without the payment of any
royalty or other special consideration. In addition to, and without limiting the
generality of the foregoing, Seller has and will convey to Buyer at the Closing
Seller's rights if any, to use the names "P.C.C." and "Professional Cattle
Consultants, L.L.C." and any names similar thereto, and the rights to use the
Internet domain name "PCC-Online.Com" and all iterations and permutations
thereof, together with all logos, slogans, trademarks, and service marks
relating thereto or heretofore used by Seller in connection therewith. To the
Best Of Seller's Knowledge,
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there are no names similar to the names specified in the prior sentence, used in
the agriculture, veterinary medicine, and animal food sciences markets. Seller
has at all times maintained in reasonable and material confidence all data owned
by third parties. Seller owns exclusively otherwise or that it has not conveyed
to any third party any interest in, the rights (including copyright rights) to
the data compiled through the use of the Software Program (the "Data"). The Data
has been selected, coordinated, and arranged in a manner materially original
with Seller. No person has challenged Seller's use and manipulation of the Data.
To the Best Of Seller's Knowledge, there are no material Federal or state laws
or regulations, or restrictions of any third party, restricting such rights to
use, manipulate, or convey the Data. As used in this Agreement, the term
"Person" means any individual, sole proprietorship, corporation, partnership,
limited liability company, incorporated or unincorporated association, joint
venture, joint stock company, or other entity of any kind, as the context
requires.
5.15 Procedures for Copyright Protection. Seller has not filed for any
copyright protection.
5.16 Procedures for Trade Secret Protection. Seller has promulgated and
used its best efforts to retain its trade secrets. To The Best Of Seller's
Knowledge there have not been any material violation of its trade secrets by any
Person. The source code and system documentation relating to the Software
Program: (i) have at all times been maintained in reasonable confidence; and
(ii) have been disclosed by Seller only to employees and consultants having a
"need to know" the contents thereof in connection with the performance of their
duties to Seller and who are obligated to keep such information confidential.
5.17 Personnel Agreements. Anyone, including, but not limited to, all
employees, agents, consultants, and contractors, who have contributed to or
participated in the conception and development of the Software Program,
Technical Documentation, or Intellectual Property on behalf of Seller either:
(i) have been party to a "work-for-hire" arrangement or agreement with Seller,
in accordance with applicable Federal and state law that has afforded Seller
original ownership of any tangible and intangible property thereby arising; or
(ii) have executed appropriate instruments of assignment in favor of Seller as
assignee that have conveyed, in accordance with applicable Federal and state
law, to Seller full, effective, and exclusive ownership of all tangible and
intangible property thereby arising.
5.18 Adequacy of Technical Documentation. The Technical Documentation
includes the necessary source code, system documentation, statements of
principles of operation, and schematics for the Software Program, as well as any
necessary and pertinent commentary or explanation that may be necessary to
render such materials understandable and usable by a trained computer
programmer. To The Best Of Seller's Knowledge the Technical Documentation also
includes any necessary programs (including compilers), "workbenches," tools, and
higher level (or "proprietary") languages used for the development, maintenance,
and implementation of the Software Program.
5.19 Third-Party Components in the Software Program. Seller has validly
and effectively obtained the right and license to use, copy, modify, and
distribute the third-party
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programming and materials contained in the Software Program and the Technical
Documentation, pursuant to the Software Contracts identified as "licenses from
third parties" in Schedule 1(c). The Software Program and the Technical
Documentation contain no other programming or materials in which any third party
has claimed superior, joint, or common ownership, including any right or
license. The Software Program and the Technical Documentation do not contain
derivative works of any programming or materials not owned in their entirety by
Seller and included in the Purchased Assets.
5.20 Third-Party Interests or Marketing Rights in the Software Program.
Seller has not granted, transferred, or assigned any material right or interest
in the Software Program, the Technical Documentation, or the Intellectual
Property to any Person except to persons entitled to the same and except
pursuant to the Software Contracts identified in Schedule 1(c). Except as set
forth in Schedule 1(c), all Software Contracts identified in Schedule 1 (c)
describe the end-user agreements and, grants to the end-user thereunder. There
are no contracts, agreements, licenses, and other commitments and arrangements
in effect with respect to the marketing, distribution, licensing, or promotion
of the Software Program or any other independent salesperson, distributor,
sublicensor, or other remarketer or sales organization, except for the Software
Contracts identified in Schedule 1(c).
5.21 Year 2000 Compliance. To The Best Of Seller's Knowledge the
Software Product is materially Year 2000 Compliant.
5.22 Equipment. Schedules 1(d) and 1(e) hereto constitutes a true and
complete list of the Computer Equipment and other equipment owned by Seller or
with respect to which it may have ownership rights. Each such piece of equipment
is located at Seller's premises indicated on Schedule 0.
5.23 Litigation; Warranty Claims. Except as set forth on Schedule 5.23,
for the five (5) year period occurring immediately prior to the date of this
Agreement, there has not been and currently there is no litigation, suit,
proceeding, action, claim, or investigation, at law or in equity, pending or, To
The Best of Seller's Knowledge, threatened against or affecting Seller or
involving any property or assets of Seller, before any court, agency, authority,
or arbitration tribunal, including, but not limited to, any claims related to
processing data, any product liability, workers' compensation or wrongful
dismissal claims, or claims, actions, suits, or proceedings relating to toxic
materials, hazardous substances, pollution, or the environment. There is not any
such litigation, suit, proceeding, action, claim, or investigation that relates
to the Purchased Assets or the transactions contemplated hereby. Seller is not
subject to or in default with respect to any notice, order, writ, injunction, or
decree of any court, agency, authority, or arbitration tribunal. Schedule 5.3
lists all warranty claims asserted against Seller during the three (3) year
period occurring immediately prior to the date of this Agreement, relating to
products sold or distributed by Seller.
5.24 Compliance with Laws. To The Best Of Seller's Knowledge Seller and
the Purchased Assets are in compliance with all material laws, statutes, rules,
regulations, and other
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requirements imposed by Federal, state, local, and other governmental
authorities applicable to the operation or ownership of the Business or the
Purchased Assets.
5.25 Employee Benefits. Except as set forth on Schedule 5.25, Seller
has not established or maintained or is not obligated to make contributions to
or under or otherwise participate in, with respect to any current or former
employee, director, or independent contractor of the Seller: (i) any equity
option, restricted equity, equity appreciation rights, bonus, or other type of
incentive compensation plan, program, agreement, or arrangement; (ii) any
severance, pension, profit-sharing, thrift or savings, retirement, deferred
compensation, employee equity ownership, employee equity purchase, or
supplemental executive retirement plan, agreement, or arrangement; or (iii) any
life insurance, death benefit, health and hospitalization, disability, employee
assistance, education or tuition assistance, vacations benefit or fringe benefit
plan, or other employee benefit plan, program, agreement, or arrangement. All
such plans listed on Schedule 5.25 in which any of the Seller's employees
participate (collectively, the "Employee Benefit Plans") have been operated and
administered in all material respects in accordance with all applicable laws,
rules, and regulations and are fully funded. Seller has no obligation or
commitment (formal or informal) to create any new benefit plan or program, or to
amend any existing Employee Benefit Plan to increase the benefits thereunder.
5.26 Employee Matters; Labor Relations.
5.26.1 Employment Agreements. None of the employees of the
Business are covered by employment contracts, written or oral except that Tom
Tippens and Joe Young are subject to covenants not to compete and Anderson and
Lextron were subject to covenants not to compete that were terminated prior to
the Closing Date. None of the employees of the Business are members of any union
or covered by any union contracts. Seller is not aware of any plan or
solicitation of employees of the Business to form or join a union in the past
two (2) years. To The Best Of Seller's Knowledge Seller is not a party to or
bound by any employment agreement (written or oral) or any collective bargaining
or other labor agreement that has affected the Purchased Assets, or any
employees of the Business that Buyer may hire after the Closing Date except as
disclosed in the first sentence of this subsection 5.27.1.
5.27 Labor Laws. With respect to Seller's employees, To The Best Of
Seller's Knowledge Seller has complied in all material respects with the
Immigration Reform and Control Act of 1986, as amended, and all other applicable
Federal, state, or local laws relating to the employment of labor, including,
but not limited to, the provisions thereof relating to wages, non-discriminatory
hiring, promotional and employment practices and procedures, collective
bargaining and payment of Social Security, unemployment compensation, workers'
compensation, and similar taxes, and Seller is not presently liable to any
Person or governmental agency for any wage in arrears or subject to any
liabilities or penalties for failure to comply with any of the foregoing laws.
With respect to Seller's employees, there are no outstanding charges or claims
of a material nature against Seller or any of its managers, agents, or employees
involving any alleged or actual violation of Seller or any such Person of any
provision of the National Labor Relations Act, the Age Discrimination in
Employment Act, the Equal Employment Opportunity Act of 1964, or any other
material Federal, state, or local law
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concerning equal employment opportunities, equal pay legislation, or wage and
hour obligations contained in the Fair Labor Standards Act; nor, there been any
threat of any such claim or charge.
5.28 Insurance. Seller presently maintains and has at all times prior
to the date hereof maintained, liability casualty, property loss, and other
insurance coverage to the extent it deemed appropriate on the Purchased Assets
and with respect to the Business. Schedule 5.28 is a true and complete list of
all policies of insurance relating to the Business, the Purchased Assets, and
the Assumed Liabilities, whether currently in force or otherwise applicable to
any current or future liability, setting forth the type of coverage, policy
number, policy periods, and the status of premiums paid thereon.
5.29 Leases, Contracts, and Other Commitments.
5.29.1 Contracts and Other Commitments. Except for the
Purchased Contracts described in Schedule 1(h) attached hereto, the Software
Contracts described in Schedule 1(c), and the Property Leases, Seller has no
outstanding contracts or other commitments, written or oral, for the performance
or receipt of services, or for the payment of monies, or for the purchase, sale,
lease, license, use, or acquisition of real or personal property of any kind or
character relating to the Business, the Purchased Assets, or the Assumed
Liabilities, except for the purchase orders, sales orders, and other similar
commitments incurred in the ordinary course of business which (i) in the case of
contracts or commitments that involve the performance of services or the sale of
products by Seller, do not involve the payment to Seller of any amount in excess
of Five Thousand Dollars ($5,000.00) in any single case and Twenty-Five Thousand
Dollars ($25,000.00) in the aggregate, (ii) in the case of contracts or
commitments that involve the receipt of services or the purchase, lease, or
other acquisition of property by Seller, do not involve the payment of any
amount in excess of Five Thousand Dollar ($5,000.00) in any single case or
Twenty-Five Thousand Dollars ($25,000.00) in the aggregate, and (iii) in either
case, none of which, by its terms, cannot be performed within one (1) year from
the date of such contract or commitment. Specifically, without limiting the
generalities of the foregoing, Seller has no written or oral contract,
agreement, or understanding with any sales representative, commission agent,
distributor, consultant, or similar Person, nor any written or oral employment
contract, agreement, or understanding with any Person, that relates to the
Business, the Purchased Assets, or the Assumed Liabilities, except as may be
disclosed in the attached Schedule 1(h).
5.29.2 Property Leases. Schedule 5.29.2 identifies each of the
real properties in which Seller has a valid and subsisting leasehold interest
and describes each of the Property Leases thereto. Seller does not own any real
property that is used in or useful in the operation of the Business. The real
property which Seller leases is leased from Tom Tippens and Roberta Tippens who
are related parties to Seller.
5.29.3 Compliance with Contracts. Seller is in material
compliance with the provisions of all material contracts, leases, and other
commitments that relate to the Business, the Purchased Assets, and the Assumed
Liabilities, and no material default exists by any party to any such contract,
lease, or commitment; furthermore, To The Best Of Seller's Knowledge no event
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has occurred that, with the passage of time or giving of notice or both, would
constitute a material default under any such contract, lease, or commitment, and
To The Best Of Seller's Knowledge Seller is not aware of any event or
circumstance that caused such a default or event to occur. To The Best Of
Seller's Knowledge all such contracts, leases, and commitments are materially
valid, binding, and enforceable in accordance with their terms and are in full
force and effect. To The Best Of Seller's Knowledge no outstanding purchase
commitment of Seller is in excess of the normal, ordinary, and usual
requirements of the Business, and no contract price in any outstanding purchase
commitment of Seller is excessive of the current market prices for the relevant
materials, products, commodities or services. To The Best Of Seller's Knowledge
no outstanding sales or lease commitment by Seller in connection with the
Business obligates Seller to sell or lease any products or services at a price
which, in view are currently prevailing and projected costs of manufacturing,
overhead and administrative and general expenses applicable thereto, would
result in, when all such sales and lease commitments are taken in the aggregate,
any material loss.
5.30 Accounts Receivable. Schedule 1(f) constitutes a true and complete
list of all material Accounts Receivable. All Accounts Receivable arose from
bona fide transactions in the ordinary course of business and To The Best Of
Seller's Knowledge are not subject to any material offset, counterclaim, or
set-off. Since March 31, 1999, all Accounts Receivable have been collected only
in the ordinary course of business.
5.31 Accounts Payable. Schedule 3.2 constitutes a true and complete
list of all accounts payable and accrued expenses included within the Assumed
Liabilities. To The Best Of Seller's Knowledge all such accounts payable and
accrued expenses arose from bona fide transactions in the ordinary course of
business.
5.32 Customers. Attached hereto as Schedule 5.32, is a complete and
accurate list of Seller's material customers during the twelve (12) month period
ending as of the date hereof. There are no outstanding disputes with any
customer listed on Schedule 0 and no such customer has refused to, or stated its
intention not to, continue to do business with Seller any successor to Seller's
business or otherwise to materially change its arrangements with Seller.
5.33 Related Party Transactions. Except as stated below, and none of
the members, managers, or officers of Seller: (i) are currently a party to any
transaction with Seller, including, but not limited to, any contract, agreement,
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from, any such Person, or to or from any corporation,
partnership, limited liability company, trust, or other entity in which any such
Person owns in excess of five percent (5%) of the outstanding equity interest;
(ii) own, directly or indirectly, any interest in, excepting not more than five
percent (5%) equity holdings for investment purposes, securities of any publicly
held or traded company; (iii) are an officer, director, employee, or consultant
of any Person that is a competitor, customer, or supplier of Seller; (iv) own,
directly or indirectly, in full or in part, any copyright, trademark, trade
name, service mark, franchise, patent, invention, permit, license, trade secret,
or confidential information that Seller is using or the use of which is
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necessary for the Business; or (v) have any cause of action or other claim
whatsoever against, or owes any amount to Seller:
5.33.1 Operating Agreement between Sellers and its members
dated February 14, 1997;
5.33.2 Membership Buy-Sell Agreement between Seller and its
members dated February 14, 1997;
5.33.3 Subscription Agreement between Seller and Lextron dated
February 14, 1997;
5.33.4 Covenant Not to Compete between Seller and Lextron
dated February 14, 1997, which covenant not to compete will be terminated prior
to the Closing Date;
5.33.5 Covenant Not to Compete between Seller and Anderson
dated February 14, 1997, which covenant not to compete will be terminated prior
to the Closing Date;
5.33.6 Subscription Agreement between Seller and PCC Feedlot
Investment Services Corporation dated February 14, 1997;
5.33.7 Covenant Not to Compete between Seller and PCC Feedlot
Investment Services Corporation February 14, 1997;
5.33.8 Covenant Not to Compete between Seller and Tom Tippens
February 14, 1997;
5.33.9 Covenant Not to Compete between Seller and Roberta
"Bobbie" Tippens February 14, 1997; and
5.33.10 Lease pursuant to which Tom Tippens and Roberta
Tippens lease to Seller real property located at 211 Main Street, Weatherford,
Oklahoma.
5.34 Brokers. Except as stated in this Section 5.34, Seller has not
expressly or implicitly retained any broker, finder, investment banker, or
financial advisor in connection with this Agreement or the transactions
contemplated hereby. Except as provided below, Seller has not taken any actions
that will cause Buyer to incur or be required to pay, any broker, finder,
investment banker, financial advisor, or similar fee in connection with this
Agreement or any transaction contemplated hereby, to any Person acting as
broker, finder, investment banker, financial advisor, or in any similar capacity
on behalf of Seller. Seller has consulted with Doering & Eastwood and Seller
shall be solely responsible for paying all fees owed to Doering & Eastwood.
5.35 Full Disclosure. No representation or warranty of Seller, and none
of the material information furnished by Seller or by any of the authorized
managers, officers, employees, agents, accountants, or representatives of
Seller, to Buyer pursuant to this Agreement, or the information contained in the
Schedules to this Agreement, or any other information furnished to
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Buyer by Seller or by any of the authorized directors, officers, employees,
agents, accountants, or representatives of Seller at any time prior to the
Closing (pursuant to the request of Buyer or otherwise) contains any material
misstatement of a fact or omits any fact required to be stated herein or therein
or necessary to make all such statements and information not misleading.
5.36 True Copies. To The Best Of Seller's Knowledge all documents
furnished to Buyer by or on behalf of Seller are true and correct copies, and
there are no amendments or modifications thereto except as set forth in such
documents.
5.37 Lextron Representation and warranties. Lextron, as a fifty percent
owner of Seller, hereby joins Seller and the other parties identified in the
beginning of Article 5 in the following representations and warranties contained
herein: Section 5.1, 5.2, and 5.34.
5.38 Survival of Representations and Warranties. The representations
and warranties of Seller made in this Agreement are correct, true, and complete
in all material aspects as of the date hereof and will be correct, true, and
complete in all material aspects at the Closing Date with the same force and
effect as though such representations and warranties had been made at the
Closing Date, and shall survive the Closing only as provided in Article IX.
ARTICLE VI
REPRESENTATIONS AND
WARRANTIES OF BUYER
6.1 Buyer represents and warrants to Seller, on and as of the date
hereof and on and as of the Closing Date, as follows:
6.2 Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
6.3 Power and Authority. Buyer has all requisite power and authority to
enter into this Agreement, and all other agreements in connection herewith, and
to perform the obligations to be performed by it hereunder. All corporate and
other proceedings required to be taken by or on the part of Buyer to execute,
deliver, and carry out the terms of this Agreement, and all other agreements or
documents to be executed or delivered in connection herewith, and to perform its
obligations hereunder and thereunder, have been duly and properly taken. This
Agreement, and all other agreements and documents to be executed and delivered
by Buyer in connection herewith when executed and delivered, constitute the
legal, valid, and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms.
6.4 No Violation to Result. The execution and delivery of this
Agreement and all other agreements and documents to be executed and delivered in
connection herewith, and the consummation of the transactions contemplated
hereby and thereby:
6.4.1 are not in violation or breach of, do not conflict with
or constitute a default under, and will not accelerate or permit the
acceleration of the performance required by, any of
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the terms of the charter documents or bylaws of Buyer or any note, debt
instrument, security agreement, or mortgage, or any other contract or agreement,
written or oral, to which Buyer is a party or by which Buyer or any of its
properties or assets is bound;
6.4.2 will not be an event that, after notice or lapse of time
or both, will result in any such violation, breach, conflict, default, or
acceleration; and
6.4.3 will not result in a violation under any law, judgment,
decree, order, rule, regulation or other legal requirement of any governmental
authority, court, or arbitration tribunal whether Federal, state, or local
(within the United States or otherwise) at law or in equity, and applicable to
Buyer.
6.5 Brokers. Buyer has not expressly or implicitly retained any broker,
finder, investment banker, or financial advisor in connection with this
Agreement or the transactions contemplated hereby. Buyer has not taken any
actions that will cause Seller to incur or be required to pay, any broker,
finder, investment banker, financial advisor, or similar fee in connection with
this Agreement or any transaction contemplated hereby, to any Person acting as
broker, finder, investment banker, financial advisor, or in any similar capacity
on behalf of Buyer.
6.6 Special Representations Regarding Lextron and Anderson. Buyer fully
understands that Lextron is an inactive investor in Seller, and that Anderson is
Lextron's designated appointed manager of Seller. Buyer understands that Lextron
and Anderson have not been involved in the day to day management of Seller .
6.7 VetLife Contract. Buyer is familiar with the terms and provisions
of the VetLife Contract. Buyer acknowledges and agrees that to the extent any of
Seller's representations, warranties, covenants, and agreements in this
Agreement are inconsistent with or otherwise conflict with or contradict in any
respect the VetLife Contract, the representations, warranties, covenants, and
agreements of Seller herein are modified to be consistent with the terms of the
VetLife Contract.
6.8 Terminations and Covenants Not to Compete. Buyer understands and
agrees that prior to the Closing Date Seller intends to and will terminate its
Covenants Not to Compete with Lextron and Anderson. Seller acknowledges and
agrees that Lextron and Anderson reserve the right to compete in any and all
respects against Seller after the Closing Date.
ARTICLE VII
FURTHER AGREEMENTS AND ASSURANCES OF SELLER
7.1 Obligations to Employees. Seller shall terminate the employment of
each of its employees as of the Closing Date. To the extent any employee of
Seller rejects Buyer's offer of employment made pursuant to Section 7.1 hereof,
Seller shall be responsible for, and shall pay, all amounts (excluding any
amounts included in the Assumed Liabilities), including wages, salaries,
bonuses, commissions, vacation pay, and severance pay, if any, and all other
employee
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benefits due to any or all of Seller's employees or independent contractors.
Specifically, but not in limitation of the foregoing, Seller shall be
responsible for providing COBRA health continuation coverage under Section 4980B
of the Code to all of its employees to the extent required by law, as well as
complying with to the extent required by law all Federal, state, and local laws,
rules, and regulations promulgated thereunder, relating to the termination of
employees, including, but not limited to, the Worker's Adjustment and Retraining
Notification Act. Buyer does not assume and Seller shall with respect to matters
accruing prior to the Closing Date indemnify, defend, and hold harmless Buyer
against any and all obligations and responsibilities with respect to each and
every employee of Seller under any employment agreement, current or future
pension, retirement, deferred compensation, bonus, profit-sharing, insurance, or
similar plan, agreement, arrangement, or formal or informal understanding, for
the benefit of employees, in each case whether or not legally binding, that
Seller maintains or ever has maintained or to which Seller contributes or ever
has contributed or to which Seller is obligated to contribute including, but not
limited to, the Employee Benefit Plans. Buyer shall have no liability whatsoever
to employees of Seller with respect to accrued benefits under any Employee
Benefit Plans for employees' service with Seller prior to the Closing Date,
whether or not any of such employees are offered employment by, or become
employees of, Buyer. Seller shall be responsible for and shall indemnify,
defend, and hold harmless Buyer against all employee benefit claims (including
long-term disability and medical and hospitalization claims) of any nature
whatsoever and workers' compensation claims: (a) that have arisen on or before
the Closing Date for any and all employees of Seller; (b) for employees of
Seller who are or become retired on or before the Closing Date with respect to
disability, illness, or any other state of facts occurring before or after the
Closing Date; and (c) for any and all employees of Seller (or their eligible
dependents) with respect to events or situations that may lead to a
determination of eligibility or disability, illness, or any other state of facts
occurring before the Closing Date. Buyer shall have no liability whatsoever in
respect of any of the foregoing accruing or occurring prior to the Closing Date.
7.2 Non-Disclosure and Non-Competition Relating to the Business. From
and after the Closing Date, Seller, PCC Feedyard Investment Corporation, Tom
Tippens and Roberta "Bobbie" Tippens each shall not:
7.2.1 at any time or in any manner, either directly or
indirectly, divulge, disclose, or communicate to any Person, except the
authorized attorneys, accountants, or representatives of Seller who have a need
to know in connection with their respective services for Seller, in any manner
whatsoever, any Confidential Information (as defined in this Section);
7.2.2 for a period of five (5) years from and after the
Closing Date, in any manner, either directly or indirectly, as an owner,
partner, officer, director, consultant, agent, employee, independent contractor,
or equity holder (as applicable) of any Person, engage in the business of
developing, marketing, distributing, or selling services or software designed to
provide information services, imaging tools, or animal supplements (except for
the sale, prescription, or distribution of annual supplements in the ordinary
course of a bovine and equine veterinary practice) in the markets of veterinary
medicine, animal sciences, or human medicine, anywhere within the United States
of America;
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7.2.3 for a period of five (5) years from and after the
Closing Date, in any manner, either directly or indirectly, solicit any employee
of Buyer (or the Business) to work for any Person other than Buyer, or engage in
any activity that would cause any employee to violate any agreement with Buyer,
or dissuade, or attempt to dissuade, any such employee from faithfully
discharging such employee's contractual and fiduciary obligations to serve
Buyer's interests with undivided loyalty; and
7.2.4 induce or persuade any customer or supplier of Buyer (or
the Business) to terminate its relationship with Buyer (or the Business) or to
enter into any relationship with any other Person engaged in the business of
developing, marketing, distributing, or selling services or software designed to
provide information services, imaging tools, or animal supplements (except for
the sale, prescription, or distribution of annual supplements in the ordinary
course of a bovine and equine veterinary practice) in the markets of veterinary
medicine, animal sciences, or human medicine, anywhere within the United States
of America.
For purposes of this Section 7.2, "Confidential Information" means any
information not in the public domain concerning any matters affecting or
relating to the Business, including, but not limited to, inventions, trade
secrets, confidential knowledge, data, or other proprietary information relating
to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, source code, databases, other original
works of authorship, records, ideas and research relating to design, coding,
operation, use, installation, or maintenance of computer software or proposed
computer software products of the Business, any portion of any reports, analyses
or other materials generated or used in connection with the Business, the prices
Seller obtains or has obtained from the sale of, or at which it sells or has
sold, its products and services, and listings of any or all of the foregoing, in
whatever form, or any other information concerning the Business without regard
to whether all or any part of the foregoing matter would otherwise be deemed
"confidential" or "material," the parties hereto stipulating that, as between
them, the same are confidential and material and significantly affect the
effective and successful conduct of the Business. If any clause or provision of
this Section 7.2 be found unenforceable by a court of competent jurisdiction,
then such clause or provision shall be deemed to be enforceable to the extent
permitted by law and every other clause and provision shall continue in full
force and effect. Seller acknowledges that the restraints imposed upon it
pursuant to this Section 7.2 are no greater than is reasonably necessary to
preserve and protect the assets and legitimate business interests of Buyer and
that such restraints will not impose undue hardship on Seller, and that a
violation of this Section by Seller would irreparably injure Buyer. Accordingly,
Buyer may, in addition to pursuing its other remedies, obtain an injunction from
any court having jurisdiction of the matter against Seller, as applicable, for
any such violation without having to prove the inadequacies of monetary relief
and no bond or other security shall be required in connection with such
injunction. The agreements contained in this Section 7.2 shall be construed and
enforced independently of any other provision of this Agreement or any other
understanding or agreement between the parties, and the existence of any claim
or cause of action of Seller against Buyer, of whatever nature, shall not
constitute a defense to the enforcement of the agreements contained in this
Section 7.2 against Seller.
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7.3 Satisfaction of Excluded Liabilities. From and after the Closing
Date, Seller shall pay, perform, and otherwise satisfy in full when due, all
liabilities and obligations that relate to or may affect the Business or the
Purchased Assets, including, but not limited to, the Excluded Liabilities,
excepting only the Assumed Liabilities.
7.4 Further Assurances. From time to time after the Closing Date,
without additional consideration, Seller shall execute and deliver all such
other reasonable instruments of sale, assignment, conveyance, and transfer and
shall take all such other reasonable action, as Buyer may reasonably request to
more effectively transfer and vest in Buyer, and to put Buyer in possession of,
any of the Purchased Assets including, but not limited to, the data which Seller
processes.
7.5 Name Change. Seller shall take all necessary corporate action to
approve the withdrawal or cancellation of every registration or a corporate or
assumed name incorporating the names "PCC," or "Professional Cattle Consultants,
L.L.C." in each state where Seller has registered a corporate or assumed name
incorporating such names. Seller shall prepare and deliver to Buyer at Closing,
all documentation and filings necessary to effect such actions, in forms
appropriate for filing by Buyer. After the Closing Date, Seller shall refrain
from using the names "PCC" or Professional Cattle Consultants, L.L.C. or any
derivation thereof, except in an historical manner.
7.6 Collection of Accounts Receivable. For a period of ninety (90) days
from the Closing Date, Seller shall reasonably assist Buyer in the collection of
the Accounts Receivable.
7.7 Best Efforts. For a period of ninety (90) days from the Closing
Date, each of Seller and Roberta Tippins shall use its/her best efforts to
maintain the oral and written Purchased Contracts and to undertake all actions
necessary to effect the transition of such agreements/relationships to Buyer and
to secure additional customers.
ARTICLE VIII
FURTHER AGREEMENTS AND ASSURANCES OF BUYER
8.1 Satisfaction of Conditions by Buyer. Buyer shall not voluntarily
undertake any course of action inconsistent with the satisfaction of the
requirements or conditions applicable to it in this Agreement, including, but
not limited to, the satisfaction of the Assumed Liabilities, and Buyer shall
promptly do all such acts and take all such measures as may be appropriate to
enable it to perform the obligations herein provided to be performed by it.
8.2 Buyer to Assist in Obtaining Consents. Buyer shall provide
assistance, as reasonably requested by Seller, to secure consents to the
assignment of any of the Purchased Contracts to be assumed by Buyer hereafter.
8.3 Employment. Buyer shall offer at-will employment to all employees
of Seller set forth on Schedule 8.3, effective as of the first business day
following the Closing Date, subject to execution by each such employee of
Buyer's confidentiality and intellectual property agreement.
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8.4 Disclosure of Data. Buyer agrees that for so long as it provides
its customers with what is currently referred to as the "PCC Monthly Cattle
Gram" future form Buyer shall designate in its sole discretion, that it will
provide to Tom Tippens and Lextron the PCC monthly Cattle Gram such information
so long as each of Mr. Tippens and Lextron are current with their respective
subscription and or others fees owed to Buyer, as in effect from time to time,
and further provided that Mr. Tippen and Lextron agree that each shall not use
such information to compete with Buyer in any way.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations and Warranties. Notwithstanding any
other provision of this Agreement, each and every representation and warranty of
Seller set forth in this Agreement or any other agreement or document executed
or delivered in connection herewith, shall survive the Closing for a period of
two (2) years from the Closing Date, despite any investigations made by or on
behalf of any party hereto, excepting only that the representations and
warranties of Seller set forth in Sections 5.1 and 5.14, shall survive the
Closing without limitation, and the representations and warranties with respect
to taxes set forth in Section 5.9, shall survive until the expiration of any
statutes of limitation applicable with respect to such taxes, including any
extensions with respect to such statutes granted by or on behalf of Seller. All
of the covenants and other agreements of the parties hereto shall survive the
Closing until the expiration of any statutes of limitation applicable thereto.
9.2 Indemnification. Seller hereby indemnifies and agree to defend and
hold Buyer and its officers, directors, shareholders, affiliates, employees,
successors, and assigns (collectively, the "Buyer Indemnitees") harmless from
and against any and all liabilities, losses, damages, costs, and expenses
(including, without limitation, court costs, costs of investigation, and
reasonable attorneys' fees), incurred or sustained by any of the Buyer
Indemnitees because of any inaccuracy in, or breach or violation of, any of the
representations, warranties, covenants, or agreements made by Seller pursuant to
this Agreement or any other agreement or document executed or delivered in
connection herewith, whether or not such inaccuracy, breach, or violation was
known or should have been known, by Buyer, Seller, on the date of this Agreement
or on the Closing Date, it being the acknowledged intention of the parties that
Seller shall be completely responsible for, and Buyer shall be conclusively
deemed to have relied upon, such representations, warranties, and covenants in
the consummation of the purchase and sale transactions contemplated herein. In
addition, Seller hereby indemnifies and agrees to defend and hold the Buyer
Indemnitees harmless from and against any and all liabilities, lawsuits,
damages, costs and expenses (including, but not limited to, court costs, costs
of investigation, and reasonable attorneys' fees), incurred or sustained by any
of the Buyer Indemnitees as a result of: (i) any and all debts, liabilities
(including, but not limited to, the Excluded Liabilities set forth in Section
0), obligations, or commitments of Seller of any nature whatsoever, whether
approved, liquidated, unliquidated, ordinary, extraordinary, absolute,
contingent, unknown,
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known, or otherwise, except the Assumed Liabilities, which Buyer expressly
agrees to assume pursuant to Section 0; and (ii) any and all suits, actions, or
claims (including, but not limited to, product liability, patent infringement,
and unfair trade practice claims) relating to the sale or any other form of
transaction, or any action or inaction on the part of Seller at any time on or
prior to the Closing Date, whether or not pending as of the Closing Date.
ARTICLE X
AMENDMENT; WAIVER
10.1 Amendment. This Agreement may only be amended in a writing that
refers to this Agreement and is executed by the parties hereto.
10.2 Integration. This Agreement (including the Exhibits and Schedules
hereto), and each agreement or document executed or delivered in connection
herewith, embodies the entire agreement of the parties hereto in relation to the
purchase and sale of the Purchased Assets and the other transactions
contemplated herein, and supersedes all prior understandings and agreements of
the parties with respect to the subject matter hereof.
10.3 Waiver; Remedies. No delay on the part of any party in exercising
any right, power, or privilege shall operate as a waiver thereof, nor shall any
waiver of any right, power, or privilege operate as a waiver of any other right,
power, or privilege, nor shall any single or partial exercise of any right,
power, or privilege preclude any other or further exercise thereof or of any
other right, power, or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that the parties
otherwise may have at law or in equity, by statute or otherwise.
ARTICLE XI
MISCELLANEOUS
11.1 Successors, Assigns, and Third Parties. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successor and assigns; provided, however, that Seller may not make any
assignment of this Agreement or any interest herein or obligation hereunder,
without the prior written consent of Buyer. Nothing herein expressed or implied
is intended or shall be construed to confer upon or give to any Person, other
than the parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
11.2 Governing Law. This Agreement shall in all respects be
interpreted, construed, and governed by and in accordance with the laws of the
State of Florida, applicable to contracts made and to be performed therein. Each
of the parties to this Agreement irrevocably consents to the jurisdiction and
venue (and waives any inconvenient forum objection) of the Federal and state
courts located in the State of Florida, County of Indian River, for the purposes
of any court proceedings hereunder and to accept service of process by mail.
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11.3 Specific Performance. The purpose of Buyer in entering this
Agreement is to gain control of the Purchased Assets of the Business. Such
Business and the Purchased Assets are unique and cannot be readily obtained on
the open market. If Seller refuses to perform its obligations under this
Agreement, Buyer shall be entitled to specific performance. In any action to
enforce the provisions of this Agreement, Seller shall waive the defense that
there is an adequate remedy at law.
11.4 Certain Words. Words such as "herein," "hereof," "hereby,"
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular Section or subsection of this Agreement unless the context
indicates otherwise. Wherever appropriate in the context, terms used herein in
the singular also include the plural, and vice versa, and each masculine,
feminine, or neuter pronoun shall also include the other genders.
11.5 Notices. Except as otherwise expressly provided herein, any
notice, consent, or other communication required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given three (3)
days after the date sent if sent by United States certified mail, return receipt
requested, with proper postage thereon, one (1) day after the date sent if sent
by overnight courier of national recognition, or when transmitted, if sent by
facsimile, and shall be addressed as follows:
(a) If to Buyer: eMERGE Vision Systems, Inc.
10315 102nd Terrace
Sebastian, FL 32968
Attention: Charles L. Abraham
with a copy to Karen Keating, Esq.
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Veenita Bhatia, Esq.
Morgan Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Telephone: 215-963-5220
(b) If to Seller: [NEW COMPANY]
2811 E. Main Street
Weatherford, Oklahoma 73096
Attn: Tom L. Tippens
with a copy to Terry W. Tippens, Esq.
Seller's counsel: Fellers, Snider, Blankenship,
Bailey & Tippens
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100 North Broadway
1700 Bank One Tower
Oklahoma City, Oklahoma 73102
and to Lextron Dr. Robert C. Hummel
Arlen Anderson
Lextron, Inc.
620 "O" Street
Post Office Box BB
Greeley, Colorado 80632-1240
with a copy to John O'Brien, Esq.
Lextron's counsel Kerr Friedrich Brosseau Bartlett, LLC
1600 Broadway, Suite 1360
Denver, Colorado 80202
or at such other address or addresses as the party addressed may from time to
time designate in writing.
11.6 Expenses. All sales and similar taxes arising out of the transfer
of the Purchased Assets and the transactions contemplated hereby shall be paid
by the party responsible by law for such tax. All legal, accounting, and other
costs and expenses incurred in connection herewith and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
11.7 Confidentiality. All nonpublic information disclosed heretofore or
hereafter by Buyer or Seller to the other in connection with this Agreement
shall be kept confidential by such other, and shall not be used other than in
connection with this Agreement, except to the extent it was known when received
or as it is or hereafter becomes lawfully obtainable from other sources, or to
the extent such duty as to confidentiality and non-use is waived, or except as
may be required by court order or any governmental agency. Such obligation as to
confidentiality and non-use shall survive any termination of this Agreement.
11.8 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
11.9 Severability. If any provision of this Agreement shall be held or
deemed to be, or shall in fact be, illegal, inoperative, or unenforceable, the
same shall not affect any other provision contained herein, or render the same
invalid, inoperative, or unenforceable to any extent whatsoever, which
provisions shall remain in full force and effect.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute the same agreement.
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11.11 Record Retention. The parties hereto agree to retain for a period
of seven (7) years from and after the Closing, and make available to each other
and their respective agents, counsel, accountants, employees or representatives,
all of the books, records and documents (including records with respect to
accounts receivable, accounts payable and general ledger maintained on magnetic
tape or any other electronic medium) relating to Seller which existed on the
date next preceding the Closing and which were in the possession of any of them.
IN WITNESS WHEREOF, the parties have caused this Asset Purchase
Agreement to be executed and delivered by its duly authorized officer as of the
date first written in the Preamble to this Agreement.
SELLER:
Professional Cattle Consultants, L.L.C.,
an Oklahoma limited liability company
By: /s/: Tom L. Tippens
----------------------------------
Tom L. Tippens
Its: Co Manager
Professional Cattle Consultants, L.L.C.,
an Oklahoma limited liability company
By: /s/: Arlen Anderson
----------------------------------
Arlen Anderson
Its: Co Manager
BUYER:
eMERGE Vision Systems, Inc., a Delaware
corporation
By: /s/: Charles L. Abraham
----------------------------------
Its: Chief Executive Officer
----------------------------------
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LIST OF APPENDIX EXHIBITS AND SCHEDULES
APPENDIX
Appendix One VetLife Contract
EXHIBITS
Exhibit A Bill of Sale and Assignment
Exhibit B Assignment and Assumption Agreement
Exhibit C Assignment of Intellectual Property
Exhibit D Confidentiality and Non-Compete Agreement
Exhibit E Shareholders' Agreement
Exhibit F Registration Rights Agreement
Exhibit G Legal Opinion
SCHEDULES
Schedule 1(a) Inventory
Schedule 1(c) Software Contracts
Schedule 1(d) Computer Equipment
Schedule 1(e) Equipment
Schedule 1(f) Accounts Receivable
Schedule 1(h) Purchased Contracts
Schedule 1(j) Intellectual Property
Schedule 0 Assumed Liabilities
Schedule 0 Allocation of Purchase Price
Schedule 0 Lien Termination Statements
Schedule 0 Licenses and Permits
Schedule 0 Copyright Protection
Schedule 0 Trade Secret Protection
Schedule 0 Litigation; Warranty Claims
Schedule 0 Employee Benefit Plans
Schedule 0 Insurance
Schedule 0 Property Leases
Schedule 0 Customers
1
<PAGE> 1
EXHIBIT 10.14
eMerge Vision Systems, Inc.
10315 102nd Terrace
Sebastian, FL 32958
Gentlemen:
The undersigned subscriber ("Subscriber") hereby subscribes for and
agrees to purchase Two Million Four Hundred thousand (2,400,000) shares of the
Series B Junior Preferred Stock, $..01 par value per share, (the "Shares") of
eMerge Vision Systems, Inc. (the "Company") for an aggregate purchase price of
$4,800,000.
Upon your acceptance of this subscription, Subscriber will cancel the
debt of the Company to the Subscriber in the amount of the purchase price
against issuance to Subscriber of a certificate representing the Shares, which
shall be free and clear of all liens, mortgages, pledges, security interests and
other encumbrances except as set forth herein or as provided for in the Articles
of Incorporation of the Company, and which shall be fully paid and
non-assessable.
Subscriber hereby represents, warrants and acknowledges to the Company
and agrees with the Company as follows:
1. Subscriber is acquiring the Shares solely for its own
account without a view to the distribution or resale thereof;
2. The Shares are not being sold by the Company pursuant to
any registration under the Securities Act of 1933, the Florida Securities Laws
or any other applicable state securities laws (collectively, the "Securities
Laws"). The Shares are being sold in reliance upon exemption from registration
under such laws, and Subscriber understands that it may not sell, transfer or
otherwise dispose of any or all of the Shares except pursuant to an effective
registration under the applicable Securities Laws or upon its delivery to the
Company of an opinion of counsel that the sale or disposition is exempt from
registration under the applicable Securities Laws. Subscriber understands that
the foregoing transfer restrictions are in addition to any transfer restrictions
set forth in the Company's Certificate of Incorporation and any contractual
transfer restrictions to which Subscriber may agree. A legend will be placed on
the certificates evidencing the Shares Subscriber is purchasing hereby, and
stop-transfer instructions will be issued to the transfer agent of the Shares to
insure compliance with the provisions of the Securities Laws.
3. Unless otherwise expressly agreed to in writing by the
Company, the Company has no obligation or intention to effect a registration of
the Shares for resale by Subscriber, and Subscriber must therefore hold the
Shares indefinitely unless a registration covering the Shares is effected or an
exemption from registration is available.
<PAGE> 2
4. Subscriber (a) can bear the economic risk of the purchase
of the Shares, including the total loss of its investment, (b) has no need for
liquidity in this investment, and, (c) has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the Company and the investment in the Shares.
5. Prior to the execution of this Agreement, Subscriber and
its attorneys, accountants, and other advisers, if any, have: (a) been provided
with full and free access and opportunity to inspect, review, examine and
inquire about all books, records and information (financial or otherwise) of the
Company, its business and affairs, and have made such inspection, review,
examination and inquiry as they have deemed appropriate; and (b) been offered
the opportunity to ask such questions and obtain such additional information
concerning the Company and its business and affairs as they have requested so as
to understand the nature of the investment in the Shares and to verify the
accuracy of the information obtained as a result of investigation. Neither the
Company nor any other person has made any representation or warranty of any kind
respecting the Company, its business and affairs. The decision to purchase the
Shares has been made solely on the basis of the information obtained pursuant to
the inspection, review, examination and inquiry referred to in this Section 5
hereof and has not been based on any other information.
6. Subscriber is an accredited investor as defined in
Regulation D under the Securities Act of 1933, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the Company and the investment in the Shares.
Please indicate your acceptance of this subscription by signing and
returning to Subscriber one copy of this letter.
Very truly yours,
XL VISION, INC.
By: /s/: David Szostak
----------------------------------
Vice President and
Chief Financial Officer
ACCEPTED AND AGREED:
eMERGE VISION SYSTEMS, INC.
By: /s/: Charles L. Abraham
-------------------------------
<PAGE> 3
Charles Abraham, President
Dated: April, 1999
<PAGE> 1
EXHIBIT 10.15
PREFERRED STOCK PURCHASE AGREEMENT
eMERGE VISION SYSTEMS, INC.
10315 102ND Terrace
Sebastian, FL 32957
As of April 1, 1999
To the Persons listed on Exhibit 1.01 hereto
Re: Series C Preferred Stock
Gentlemen:
eMerge Vision Systems, Inc. (the "Company"), a Delaware corporation,
agrees with each of you as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES AND STOCK OPTION
1.01 Purchase and Sale of Shares. At the Closing, the Company will
sell, and you will buy, the number of shares of Series C Preferred Stock (the
"Preferred Stock") set forth in Exhibit 1 attached hereto, at a purchase price
of $5.00 per share (the "Purchased Shares"). The designation, rights,
preferences and other terms and provisions of the Preferred Stock are set forth
in Exhibit 2 attached hereto.
1.02 The Conversion Shares . The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of shareholders, a sufficient number of its
shares of Common Stock to satisfy the rights of conversion of the holders of the
Purchased Shares. Any shares of Common Stock issuable upon conversion of the
Purchased Shares (and such shares when issued) are herein referred to as the
"Conversion Shares." The Purchased Shares and Conversion Shares are sometimes
collectively referred to as the "Shares."
1.03. Purchase Price and Closing. The closing shall take place at the
offices of Safeguard Scientifics, Inc., 800 The Safeguard Building, 435 Devon
Park Drive, Wayne, Pennsylvania 19087, at 10:00 a.m. on April 28, 1999, or at
such time and date thereafter as the Purchaser and the Company may agree (the
"Closing"). At the Closing, the Company will deliver to the nominee of the
Purchaser a certificate for the Purchased Shares, and the Purchaser or its
nominee will deliver the purchase price to the Company.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Purchased Shares for working capital and general corporate purposes.
<PAGE> 2
1.05. Representations by the Purchasers.
(a) Investment Representations. Each Purchaser represents
that it is its present intention to acquire the Shares for its own account (and
it will be the sole beneficial owner thereof) and that the Shares are being and
will be acquired by it for the purpose of investment and not with a view to
distribution or resale thereof except pursuant to registration under the
Securities Act or exemption therefrom. The acquisition by the Purchaser of the
Purchased Shares shall constitute a confirmation of this representation by the
Purchaser. the Purchaser further represents that it understands and agrees that,
until registered under the Securities Act or transferred pursuant to the
provisions of Rule 144 or Rule 144A as promulgated by the Commission, all
certificates evidencing any of the Shares, whether upon initial issuance or upon
any transfer thereof, shall bear a legend, prominently stamped or printed
thereon, reading substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state
securities laws. These securities have been acquired for investment and
not with a view to distribution or resale. These securities may not be
offered for sale, sold, delivered after sale, transferred, pledged or
hypothecated in the absence of an effective registration statement
covering such shares under the Act and any applicable state securities
laws, or the availability of an exemption from registration
thereunder."
(b) Access to Information. Purchaser or its representative
during the course of this transaction, and prior to the purchase of any
Purchased Shares, has had the opportunity to ask questions of and receive
answers from management of the Company concerning the terms and conditions of
the offering of the Purchased Shares and the additional information, documents,
records and books relative to its business, assets, financial condition, results
of operations and liabilities (contingent or otherwise) of the Company.
(c) General Access. Purchaser or its representative has
received and read or reviewed, and is familiar with, this Agreement and the
other agreements executed or delivered herewith, including the terms of the
Preferred Stock, and confirms that all documents, records and books pertaining
to the Purchaser's investment in the Company and requested by the Purchaser or
his representative have been made available or delivered to him.
(d) Sophistication and Knowledge. Purchaser or its
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Purchased Shares. Purchaser can bear the economic risks of this investment
and can afford a complete loss of his investment.
(e) Transfer Restrictions Imposed by Securities Laws.
Purchaser understands that: the Shares have not been registered under the
Securities Act and applicable state securities laws, and, therefore, cannot be
resold unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is
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<PAGE> 3
available; Purchaser is and must be purchasing the Purchased Shares for
investment for the account of Purchaser and not for the account or benefit of
others, and not with any present view toward resale or other distribution
thereof. Purchaser agrees not to resell or otherwise dispose of all or any part
of the Shares purchased by him, except as permitted by law, including, without
limitation, any regulations under the Securities Act and applicable state
securities laws; the Company does not have any present intention and is under no
obligation to register the Shares under the Securities Act and applicable state
securities laws, except as provided in any separate registration rights
agreement, if any, between Purchaser and the Company; and Rule 144 or Rule 144A
under the Securities Act may not be available as a basis for exemption from
registration of the Shares thereunder.
(f) Lack of Liquidity. Purchaser has no present need for
liquidity in connection with his purchase of the Purchased Shares.
(g) Suitability and Investment Objectives. The purchase of
the Purchased Shares by the Purchaser is consistent with the general investment
objectives of the Purchaser. The Purchaser understands that the purchase of the
Purchased Shares involves a high degree of risk in view of the fact that, among
other things, the Company is a start-up enterprise, and there may be no
established market for the Company's capital stock.
(h) Accredited Investor Status. Purchaser is an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
1.06. Brokers or Finders. Purchaser represents that no Person has or
will have, as a result of the transactions contemplated by this Agreement, any
right, interest or valid claim against or upon the Company for any commission,
fee or other compensation as a finder or broker because of any act or omission
by Purchaser or his agents.
ARTICLE II
CONDITIONS TO PURCHASERS' OBLIGATIONS
The obligation of the Purchasers to close is subject to the following
conditions:
2.01. Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article III hereof shall be true,
accurate and correct on the date of the Closing.
2.02. Documentation at Closing. The Purchasers shall have received
prior to or at the Closing all of the following materials, each in form and
substance satisfactory to each Purchaser and its counsel, and each of the
following events shall have occurred, or each of the following documents shall
have been delivered, prior to or simultaneous with the Closing:
(a) A copy of the Certificate of Incorporation of the
Company, as amended or restated to date, together with such evidence as may be
available of the filing thereof; a copy of the resolutions of the Board of
Directors providing for the approval of the Amended and Restated
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<PAGE> 4
Certificate of Incorporation of the Company in the form attached as Exhibit 2,
the approval of the issuance of the Purchased Shares; a copy of a consent of
shareholders of the Company approving the Amended and Restated Articles of
Incorporation of the Company; and a copy of the Bylaws of the Company, all of
which have been certified by the Secretary of the Company to be true, complete
and correct in every particular; and certified copies of all documents
evidencing other necessary corporate or other action and governmental approvals,
if any, required to be obtained at or prior to the Closing with respect to this
Agreement and the issuance of the Purchased Shares.
(b) The Company shall have obtained any consents or waivers
necessary to be obtained at or prior to the Closing to execute and deliver this
Agreement, the Purchased Shares and the other agreements and instruments
executed and delivered by the Company in connection herewith and to carry out
the transactions contemplated hereby and thereby, and such consents and waivers
shall be in full force and effect at the Closing. All corporate and other action
and governmental filings necessary to effectuate the terms of this Agreement,
the Purchased Shares and the other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.
(c) The Certificate of Incorporation of the Company shall have
been amended and restated in the form set forth in Exhibit 2 attached hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the Closing as follows:
3.01. Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted and to execute and
deliver this Agreement, to issue, sell and deliver the Purchased Shares and to
issue and deliver the Conversion Shares and to perform its other obligations
pursuant hereto and thereto. The Company is duly licensed or qualified and in
good standing as a foreign corporation authorized to do business in all
jurisdictions wherein the character of the property owned or leased or the
nature of the activities conducted by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a material adverse effect on the business, operations or financial
condition of the Company.
3.02. Corporate Action. This Agreement and the other agreements
executed in connection herewith have been duly authorized, executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms. The Purchased Shares have been duly authorized. The issuance,
sale and delivery of the Purchased Shares and the issuance and delivery of the
Conversion Shares upon conversion of the Purchased Shares have been duly
authorized by all required corporation action; the Purchased Shares have been
validly issued, are
4
<PAGE> 5
fully paid and nonassessable with no personal liability attaching to the
ownership thereof and are free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set forth in
this Agreement; and the Conversion Shares have, as of the Closing, been duly
reserved for issuance upon conversion of the Purchased Shares and, when so
issued, will be duly authorized, validly issued, fully paid and nonassessable
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in this Agreement.
3.03. Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or its
respective agents.
3.04. Capitalization; Status of Capital Stock. As of the Closing, the
Company will have a total authorized capitalization consisting of (i)
100,000,000 shares of Common Stock, $.01 par value, and (ii) 15,000,000 shares
of Preferred Stock, $.01 par value. The capitalization table attached as Exhibit
3 to this Agreement sets forth all of the issued and outstanding shares of
capital stock of the Company and all issued and outstanding options, warrants,
convertible securities, and rights which are exercisable for or convertible into
shares of capital stock of the Company as of the Closing, and there are no
shares reserved for issuance or commitments of the Company to issue any
additional equity securities except as disclosed in Exhibit 3. All the
outstanding shares of capital stock of the Company have been duly authorized,
and are validly issued, fully paid and non-assessable. The Purchased Shares when
issued and delivered in accordance with the terms hereof, and the Conversion
Shares, when issued and delivered upon conversion of the Purchased Shares, will
be duly authorized, validly issued, fully-paid and non-assessable.
3.05. Registration Rights. The Purchasers are parties to the
Registration Rights Agreement dated July 17, 1997 among the Company and the
purchasers of its Series A Preferred Stock. As a result, the Shares will be
included in the definition of Registrable Securities under that agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.01. Reporting Requirements. Until the consummation of the Company's
Initial Public Offering, the Company will furnish the following to each person
who holds at least 100,000 shares issued pursuant to this Agreement:
(a) Monthly Reports. As soon as available and in any event
within 30 days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company as of the end of such month and
consolidated and consolidating statements of income and retained earnings and a
summary statement of monthly cash flow of the Company for such month and for the
period commencing at the end of the previous fiscal year and ending with the
5
<PAGE> 6
end of such month, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding fiscal year,
and including comparisons to the monthly budget or business plan and an analysis
of the variances from the budget or plan, prepared in accordance with generally
accepted accounting principles consistently applied; and, as soon as available
and in any event within 30 days after the end of each fiscal quarter, a
consolidated and consolidating statement of changes in financial position of the
Company for such quarter and for the corresponding period of the prior fiscal
year, prepared in accordance with generally accepted accounting principles
consistently applied;
(b) Annual Reports. As soon as available and in any event
within 90 days after the end of each fiscal year of the Company, a copy of the
annual audit report for such year for the Company, including therein
consolidated and consolidating balance sheets of the Company as of the end of
such fiscal year and consolidated and consolidating statements of income and
retained earnings and of changes in financial position of the Company for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, all such consolidated statements to be
duly certified by the chief financial officer of the Company and an independent
public accountant of recognized national standing approved by a majority of the
Board of Directors;
(c) Budgets and Operating Plan. As soon as available and in
any event at least 30 days before the beginning of each fiscal year of the
Company, a business plan and monthly and quarterly operating budgets for the
forthcoming fiscal year, and as soon as available and in any event within 30
days after the end of each calendar month, monthly comparisons against the
business plan and monthly operating budgets;
ARTICLE V
MISCELLANEOUS
5.01. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (i) shall obtain consent thereto in writing from the
holder or holders of at least a majority in interest of the Shares and (ii)
shall deliver copies of such consent in writing to any holders who did not
execute such consent; provided that no consents shall be effective to reduce the
percentage in interest of the Shares the consent of the holders of which is
required under this Section 5.02. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
5.02. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing and mailed, faxed, or
delivered by hand or guaranteed courier service to each applicable party:
If to any other holder of the Shares: at such holder's address for
notice as set forth in
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<PAGE> 7
Exhibit 1 hereto or at such other address as shall be designated by such Person
in a written notice to the other parties complying as to delivery with the terms
of this Section.
If to the Company: eMerge Vision Systems, Inc.
10315 102ND Terrace
Sebastian, FL 32957
Fax: 561-589-3779
Attn: Mike Janney, CFO
or at such other address as shall be designated by the Company in a written
notice to the other parties complying as to delivery with the terms of this
Section.
5.03. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchaser and their respective
heirs, successors and assigns, except that the Company shall not have the right
to delegate its obligations hereunder or to assign its rights hereunder or any
interest herein without the prior written consent of the holders of at least a
majority in interest of the Shares.
5.04. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
5.05. Severability. The provisions of this Agreement and the terms of
the Preferred Stock are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of a
provision contained in this Agreement or the terms of the Preferred Stock shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement or the terms of the Preferred
Stock; but this Agreement and the terms of the Preferred Stock shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of a provision, had never been contained herein, and such provisions or part
reformed so that it would be valid, legal and enforceable to the maximum extent
possible.
5.06. Confidentiality. Purchaser agrees that it will keep confidential
and will not disclose or divulge any confidential, proprietary or secret
information which the Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; provided, however, that the
Purchaser may disclose such information (i) on a confidential basis to his
attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective purchaser of any Shares from the Purchaser as
long as such prospective purchaser agrees in writing to be bound by the
provisions of this Section 5.06, (iii) to any affiliate or partner of the
Purchaser and (iv) as required by applicable law.
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<PAGE> 8
5.07. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the Commonwealth of Pennsylvania, and
without giving effect to choice of laws provisions.
5.08. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
5.09. Further Assurances. From and after the date of this Agreement,
upon the request of the Purchaser or the Company, the Company and the Purchaser
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the Purchased Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed as of the date first above written.
eMERGE VISION SYSTEMS, inc.
By:___________________________
Title:
PURCHASERS:
SAFEGUARD 99 CAPITAL L.P. ______________________________
By: Safeguard Delaware, Inc., Name:
its general partner
By:___________________________________ ______________________________
Name:
______________________________________ ______________________________
Name: Name:
8
<PAGE> 9
EXHIBIT 1
Schedule of Purchasers
<TABLE>
<CAPTION>
Name and Address of Purchaser Number of Shares Purchase Price
<S> <C> <C>
Safeguard 99 Capital L.P. 1,000,000 $ 5,000,000
c/o Safeguard Scientifics, Inc.
435 Devon Park Drive
Wayne, PA 19087
Attn: Michael Miles, CFO
Fax: 610-293-0601
</TABLE>
9
<PAGE> 10
EXHIBIT 2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
eMERGE VISION SYSTEMS, INC.
eMerge Vision Systems, Inc., a Delaware corporation, hereby certifies
as follows:
FIRST. The name of the corporation under which its Certificate of
Incorporation was filed is Enhanced Vision Systems, Inc. The date of filing of
its original Certificate of Incorporation with the Secretary of State was
September 12, 1994.
SECOND. This Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Certificate of Incorporation of said
corporation and has been duly adopted Delaware by majority vote of the holders
of all of the outstanding stock entitled to vote thereon in accordance with the
provisions of Sections 242 and 245 and all other applicable provisions of the
General Corporation Law of the State of Delaware.
THIRD. The text of the Certificate of Incorporation is hereby amended
and restated to read herein as set forth in full:
1. The name of the corporation is eMerge Vision Systems, Inc.
2. The address of the corporation's registered office is 1013 Centre
Road in the City of Wilmington, County of New Castle, Delaware 19805. The name
of its registered agent at such address is Corporation Service Company.
3. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue 115,000,000 shares, of which
100,000,000 million shares shall be designated Common Stock, par value $0.01 per
share (herein called the "Common Stock") and 15,000,000 shares shall be
designated Preferred Stock consisting of 6,500,000 shares of Series A Preferred
Stock, par value $0.01 per share (herein called the "Series A Preferred Stock"),
2,400,000 shares of Series B Junior Preferred Stock, par value $0.01 per share
(herein called the "Series B Junior Preferred Stock") and 1,300,000 shares of
Series C Preferred Stock, par value $0.01 per share (herein called the "Series C
Preferred Stock"). The Board of Directors shall have the full authority
permitted by law to divide the authorized and unissued shares into classes or
series, or both, and to determine for any such class or series its designation
and the number of shares of the class or series and the voting rights,
preferences, limitations and special rights if any, of the shares of the class
or series.
***************
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<PAGE> 11
DESCRIPTION AND DESIGNATION OF SERIES A PREFERRED STOCK
A1. DESIGNATION. A total of 6,500,000 shares of the Company's Preferred
Stock shall be designated the "Series A Preferred Stock". As used herein, the
term "Preferred Stock" used without reference to the Series A Preferred Stock
means the shares of Preferred Stock, without distinction as to series, except as
otherwise expressly provided for herein, or as the context otherwise requires.
A2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock (voting as a separate class), the Corporation
shall not declare or pay any dividends, or purchase, redeem, retire, or
otherwise acquire for value any shares of its capital stock junior to the Series
A Preferred Stock (or rights, options or warrants to purchase such shares) now
or hereafter outstanding, return any capital to its stockholders as such, or
make any distribution of assets to its stockholders as such, or permit any
Subsidiary to do any of the foregoing. "Subsidiary" or "Subsidiaries" means any
corporation, partnership or joint venture of which the Company and/or any of its
other Subsidiaries (as herein defined) directly or indirectly owns at the time
at least fifty percent (50%) of the outstanding voting shares or similar
interests other than directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
A3. LIQUIDATION, DISSOLUTION OR WINDING UP.
A3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP.
A3.1.1 In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or in the event
of its insolvency, before any distribution or payment is made to any holders of
Common Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series A Preferred Stock in liquidation
preference, and subject to the liquidation rights and preferences of any class
or series of Preferred Stock designated in the future to be senior to, or on a
parity with, the Series A Preferred Stock with respect to liquidation
preference, the holders of each share of Series A Preferred Stock shall be
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<PAGE> 12
entitled to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings ("Available Assets"), the
greater of (i) an amount per share of Series A Preferred Stock equal to $1.00,
plus $.10 for each year (pro rated for partial years) from July 16, 1997 until
the date of distribution of Available Assets, (subject to equitable adjustment
for any stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Preferred Stock), or (ii) such amount per share of
Series A Preferred Stock as would have been payable had each share of Preferred
Stock which is convertible into Common Stock been so converted immediately prior
to such liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series A Preferred Stock and of any other series of Preferred Stock on parity
with the Series A Preferred Stock with respect to liquidation preference the
full amounts to which they otherwise would be entitled, the holders of Series A
Preferred Stock and such other series of Preferred Stock shall share ratably in
any distribution of Available Assets pro rata in proportion to the respective
liquidation preference amounts which would otherwise be payable upon liquidation
with respect to the outstanding shares of the Series A Preferred Stock and such
other series of Preferred Stock if all liquidation preference dollar amounts
with respect to such shares were paid in full.
A3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section A3; provided, however that, in the case of any such
transaction to which the provisions of Section A5.6 also apply, the holders of a
majority of the outstanding shares of Series A Preferred Stock (voting together
as a single class) shall have the right to elect the benefits of the provisions
of Section A5.6 hereof for all of the Series A Preferred Stock in lieu of
receiving payment in liquidation, dissolution or winding up of the Corporation
pursuant to this Section A3.
The provisions of this Section A3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
A3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section A3 shall be payable in whole or in part in property
other than cash, the value of any
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<PAGE> 13
property distributed shall be the fair market value of such property as
reasonably determined in good faith by the Board of Directors of the
Corporation. All distributions of property other than cash made hereunder shall
be made, to the maximum extent possible, pro rata with respect to each series
and class of Preferred Stock and Common Stock in accordance with the liquidation
amounts payable with respect to each such series and class.
A4. VOTING POWER.
A4.1 GENERAL. Except as otherwise required by applicable law
or as otherwise provided herein, (i) each holder of Series A Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the stockholders
of the Corporation (including election of directors other than the Series A
Directors, as hereinafter defined) and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Series A Preferred Stock could be converted, and (ii) the
holders of shares of Series A Preferred Stock and Common Stock shall vote
together (or render written consents in lieu of a vote) as a single class on all
matters submitted to the stockholders of the Corporation (including election of
directors to the extent not otherwise expressly provided for). Each holder of
Series A Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the by-laws of this Corporation at the same time and
in the same manner as notice is given to all other stockholders entitled to vote
at such meetings.
A4.2 LIMITATIONS DURING FIRST THREE YEARS. Notwithstanding
paragraph A4.1, for a period of three years from the date of the initial filing
of this Certificate of Designation, the holders of Series A Preferred Stock
shall not have any voting rights, other than as required by law and as provided
in paragraph A4.3 and Section A6 below.
A4.3 DIRECTOR ELECTION RIGHTS. So long as any shares of Series
A Preferred Stock remain outstanding, the holders of the Series A Preferred
Stock, voting as a separate class, shall have the right to elect two directors
of the Corporation (the "Series A Directors"). At any annual or special meeting
of the Corporation held for the purpose of electing directors, the presence in
person or by proxy (or by written consent) of the holders of a majority of the
outstanding shares of Series A Preferred Stock shall constitute a quorum for the
election of the Series A Directors.
A5. CONVERSION RIGHTS. The holders of the Series A Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Common Stock:
A5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section 5, any shares of the Series A Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series A Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
(i) the number of shares of Series A Preferred Stock being converted at any
time, by (ii)
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<PAGE> 14
the rate (the "Series A Conversion Rate") equal to the quotient obtained by
dividing $1.00 by the "Series A Conversion Value." The Series A Conversion Value
in effect from time to time, except as adjusted in accordance with this Section
A5, shall be $1.00.
A5.2 AUTOMATIC CONVERSION.
A5.2.1 EVENTS CAUSING CONVERSION. Immediately (A) prior
to the effectiveness of a registration statement filed by the Company pursuant
to the Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $30,000,000,
but subject to the closing of such public offering, (B) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933 covering the offer and sale of Common Stock in a rights
offering to shareholders of Safeguard Scientifics, Inc., but subject to the
closing of such rights offering, or (C) upon the election, set forth in a
written notice to the Corporation, of holders of Series A Preferred Stock to
convert at least two-thirds of the outstanding shares of Series A Preferred
Stock to Common Stock; all outstanding shares of Series A Preferred Stock shall
be converted automatically into the number of fully paid, non-assessable shares
of Common Stock into which such shares of Series A Preferred Stock are
convertible pursuant to this Section A5 as of the closing and consummation of
such underwritten public offering or the date of such approval, without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
A5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
A5.2.1, the holders of the Series A Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the office
of the Corporation or its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of Series A Preferred
Stock so surrendered were convertible on the date on which the conversion
occurred. The Corporation shall not be obligated to issue such certificates
unless certificates evidencing such shares of Series A Preferred Stock being
converted are either delivered to the Corporation or any such transfer agent, or
the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
A5.3 ANTI-DILUTION ADJUSTMENTS.
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<PAGE> 15
A5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation shall,
while there are any shares of Series A Preferred Stock outstanding, issue or
sell shares of its Common Stock or "Common Stock Equivalents" (as defined in
Section A5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section A5.3.3 below) less than the
Series A Conversion Value in effect immediately prior to such issuance or sale,
then in each such case the Series A Conversion Value, except as hereinafter
provided, shall be lowered so as to be equal to an amount determined by
multiplying such Series A Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series A Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
<TABLE>
<CAPTION>
Example:
<S> <C> <C> <C>
initial capital 1,000,000
initial conversion price $ 1.00
new shares issued 1,000,000 total new consideration $ 500,000
new issue price $ 0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $ 0.75
</TABLE>
15
<PAGE> 16
The provisions of this Section A5.3.1 may be waived as to all
shares of Series A Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series A
Preferred Stock.
A5.3.2 COMMON STOCK EQUIVALENTS.
A5.3.2.1 GENERAL. For the purposes of this Section
A5.3, the issuance of any warrants, options, subscription or purchase rights
with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series A Conversion Value
shall be made under this Section A5.3 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Common Stock Equivalents.
A5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT, CANCELLATION
OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net Consideration Per
Share of any such Common Stock Equivalents be decreased from time to time other
than as a result of the application of anti-dilution provisions substantially
similar to the provisions of this Section A5.3, then, upon the effectiveness of
each such change, the Series A Conversion Value will be that which would have
been obtained (1) had the adjustments made pursuant to Section A5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series A Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series A Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series A Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series A Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series A Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series A
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series A Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
A5.3.3 NET CONSIDERATION PER SHARE. For purposes of this
Section A5.3 the "Net Consideration Per Share" which shall be receivable by the
Corporation for any Common Stock issued upon the exercise or conversion of any
Common Stock Equivalents shall be determined as follows:
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<PAGE> 17
A5.3.3.1 The "Net Consideration Per Share" shall
mean the amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise, or conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such Common Stock Equivalents
were exercised, exchanged or converted.
A5.3.3.2 The "Net Consideration Per Share" which
shall be receivable by the Corporation shall be determined in each instance as
of the date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
A5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK OTHER
THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series A Preferred Stock.
A5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section A5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section A5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
A5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS; BASKET
FOR RESERVED EMPLOYEE SHARES. This Section A5.3 shall not apply (A) under any of
the circumstances which would constitute an Extraordinary Common Stock Event (as
described below), or (B) to any issuance or sale of shares of Common Stock
and/or Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series A Preferred Stock. Further, this Section A5.3 shall not
apply with respect to the issuance or sale of shares of Common Stock, or the
grant or options exercisable therefor, to directors, officers, employees and
consultants of the Corporation or any subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, stock purchase plan or agreement,
stock restriction agreement, employee stock ownership plan (ESOP), consulting
agreement, or such other options, issuances, arrangements, agreements or plans
intended principally as a means of providing compensation for employment or
services or of providing additional compensation to a financial institution in
connection with the Corporation obtaining equipment lease/financing, provided
that in each such case such plan, agreement, or other arrangement or issuance is
approved by the vote or consent of two-thirds of the Board of Directors or by
the written consent of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock.
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<PAGE> 18
A5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series A Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series A
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series A Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue
of additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.
A5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their Series
A Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities or such other assets
receivable by them, giving application to all other adjustments called for
during such period under this Section A5.
A5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series A Preferred Stock shall have the
right thereafter to convert such share into, in lieu of the number of shares of
Common Stock which the holder would otherwise have been entitled to receive, the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock could have been converted immediately prior
to such reorganization, recapitalization, reclassification or change, all
subject to further adjustment as provided herein. The provision for such
conversion right
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<PAGE> 19
shall be a condition precedent to the consummation by the Corporation of any
such transaction unless the election described below is made.
In the case of a transaction to which both this Section A5.6
and Section A3.2 apply, the holders of a majority of the outstanding shares of
Series A Preferred Stock (voting together as a single class) shall have the
option of electing treatment for the Series A Preferred Stock under this Section
A5.6, notice of which election shall be submitted in writing to the Corporation
at its principal office no later than five (5) business days before the
effective date of such event. If no such election shall be made, the provisions
of Section A3.2, and not this Section A5.6, shall apply.
A5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Series A Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series A
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
A5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series A Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
A Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series A Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to the holder of the
shares of Series A Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of Series A
Preferred Stock in accordance with the provisions of this Section A5, and cash,
as provided in Section A5.9, in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series A Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
A5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of the shares
of Series A Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the
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<PAGE> 20
Common Stock (as determined in a reasonable manner prescribed by the Board of
Directors) at the close of business on the Conversion Date. The determination as
to whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Series A Preferred Stock being converted at any
one time by any holder thereof, not upon each share of Series A Preferred Stock
being converted.
A5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted.
A5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock (including any shares of
Series A Preferred Stock represented by any warrants, options, subscription or
purchase rights for Series A Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock
(including any shares of Series A Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Series A Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
A6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
The Corporation shall not take any corporate action or amend
its Certificate of Incorporation or this Certificate of Designation (except to
reduce the number of shares designated as Series A Preferred Stock to the number
of such shares which are then issued and outstanding) without the approval by
vote or written consent of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a single class, each
share of Series A Preferred Stock to be entitled to one vote in each instance,
if such corporate action or amendment would change any of the rights,
preferences, privileges of or limitations provided for herein for the benefit of
any shares of Series A Preferred Stock. Without limiting the generality of the
preceding sentence, the Corporation will not amend its Certificate of
Incorporation or this Certificate of Designation or take any other corporate
action without the approval by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, voting as a single class, if
such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or
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<PAGE> 21
shares of equity securities of the Corporation other than as provided
for in Section 2 hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
A Preferred Stock or of any class of stock ranking senior to the Series
A Preferred Stock with respect to liquidation preferences, dividend
rights or containing redemption rights; or
(c) reduce the amount payable to the holders of
Series A Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(d) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series A Preferred
Stock; or
(e) cancel or modify the conversion rights of the
holders of Series A Preferred Stock provided for in Section A5 herein;
or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section A3.2
hereof.
A7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms.
Without limiting the generality of the foregoing, the Corporation (a) will not
increase the par value of any shares of stock receivable on the conversion of
the Preferred Stock above the amount payable therefor on such conversion, and
(b) will take such action as may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
stock on the conversion of all Preferred Stock from time to time outstanding.
A8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
21
<PAGE> 22
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed by first class mail, postage prepaid, at
least 15 days prior to the date specified in such notice on which action is
being taken.
A9. STATUS OF CONVERTED OR REPURCHASED SERIES A PREFERRED STOCK. Any
share or shares of Series A Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of undesignated Preferred Stock. Upon
the cancellation of all outstanding shares of Series A Preferred Stock, the
provisions of this Certificate of Designation of Series A Preferred Stock shall
terminate and have no further force and effect.
DESCRIPTION AND DESIGNATION OF SERIES B JUNIOR PREFERRED STOCK
B1. DESIGNATION 1. A total of 2,400,000 shares of the Company's
Preferred Stock shall be designated the "Series B Junior Preferred Stock". As
used herein, the term "Preferred Stock" used without reference to the Series B
Junior Preferred Stock means the shares of Preferred Stock, without distinction
as to series, except as otherwise expressly provided for herein, or as the
context otherwise requires.
B2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series B Junior Preferred Stock, Series A Preferred Stock and any
other series of Preferred Stock senior to or on parity with the Series B Junior
Preferred Stock with respect to liquidation preference (all voting together as a
single class), the Corporation shall not declare or pay any dividends, or
purchase,
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<PAGE> 23
redeem, retire, or otherwise acquire for value any shares of its capital stock
junior to the Series B Junior Preferred Stock (or rights, options or warrants to
purchase such shares) now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its stockholders as
such, or permit any Subsidiary to do any of the foregoing. "Subsidiary" or
"Subsidiaries" means any corporation, partnership or joint venture of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time at least fifty percent (50%) of the outstanding
voting shares or similar interests other than directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
B3. LIQUIDATION, DISSOLUTION OR WINDING UP.
B3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series B Junior Preferred Stock shall be junior to the Series A Preferred Stock
with respect to liquidation preference. any class or series of Preferred Stock
designated in the future to be on a parity with the Series B Junior Preferred
Stock with respect to liquidation preference are collectively referred to herein
as "Parity Stock". In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series B Junior Preferred Stock in liquidation
preference (collectively, "Junior Stock"), and subject to the liquidation rights
and preferences of the Series A Preferred Stock and any class or series of
Preferred Stock designated in the future to be senior to the Series B Junior
Preferred Stock with respect to liquidation preference ("Senior Stock"), the
holders of each share of Series B Junior Preferred Stock shall be entitled to be
paid first out of the assets of the Corporation available for distribution to
holders of the Corporation's capital stock of all classes, whether such assets
are capital, surplus or earnings ("Available Assets"), the greater of (i) an
amount per share of Series B Junior Preferred Stock equal to $2.00, plus $.20
for each year (pro rated for partial years) from December 31, 1998 until the
date of distribution of Available Assets, (subject to equitable adjustment for
any stock dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Preferred Stock), or (ii) such amount per share of Series B
Junior Preferred
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<PAGE> 24
Stock as would have been payable had each share of Preferred Stock which is
convertible into Common Stock been so converted immediately prior to such
liquidation, dissolution or winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series B Junior Preferred Stock and of any Parity Stock the full amounts to
which they otherwise would be entitled, the holders of Series B Junior Preferred
Stock and Parity Stock shall share ratably in any distribution of Available
Assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series B Junior Preferred Stock and Parity Stock if
all liquidation preference dollar amounts with respect to such shares were paid
in full.
B3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section B3; provided, however that, in the case of any such
transaction to which the provisions of Section B5.6 also apply, the holders of
the outstanding shares of Series B Junior Preferred Stock and Parity Stock
(voting together as a single class) shall have the right by majority vote to
elect the benefits of the provisions of Section B5.6 hereof for all of the
Series B Junior Preferred Stock and Parity Stock in lieu of receiving payment in
liquidation, dissolution or winding up of the Corporation pursuant to this
Section B3.
The provisions of this Section B3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
B3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section B3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each Series and class of Preferred Stock and Common Stock in accordance with
the liquidation amounts payable with respect to each such Series and class.
B4. VOTING POWER.
B4.1 GENERAL. For each vote in which holders of Series B
Junior Preferred Stock are entitled to participate, each share of Series B
Junior Preferred Stock shall be entitled to that
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<PAGE> 25
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's shares of Series B Junior Preferred Stock could be
converted. Except as otherwise required by applicable law or as otherwise
provided herein, each holder of Series B Junior Preferred Stock shall be
entitled to vote together with the Common Stock and all other series and classes
of stock permitted to vote with the Common Stock on all matters submitted to a
vote of the stockholders of the Corporation (including election of directors
generally, but excluding election of the "Series A Directors", as defined in the
Certificate of Designation of the Series A Preferred Stock of the Company). Each
holder of Series B Junior Preferred Stock shall be entitled to notice of any
stockholders' meeting in accordance with the by-laws of this Corporation at the
same time and in the same manner as notice is given to all other stockholders
entitled to vote at such meetings.
B4.2 LIMITATIONS DURING FIRST THREE YEARS. Notwithstanding
paragraph B4.1, for a period of three years from the date of the initial filing
of this Certificate of Designation, the holders of Series B Junior Preferred
Stock shall not have any voting rights, other than as required by law and as
provided in Section B6 below.
B5. CONVERSION RIGHTS. The holders of the Series B Junior Preferred
Stock shall have the following rights and be subject to the following
obligations with respect to the conversion of such shares into shares of Common
Stock:
B5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section B5, any shares of the Series B Junior Preferred
Stock may, at the option of the holder thereof, be converted at any time and
from time to time into fully-paid and non-assessable shares of Common Stock. The
number of shares of Common Stock which a holder of Series B Junior Preferred
Stock shall be entitled to receive upon conversion shall be the product obtained
by multiplying (i) the number of shares of Series B Junior Preferred Stock being
converted at any time, by (ii) the rate (the "Series B Conversion Rate") equal
to the quotient obtained by dividing $2.00 by the "Series B Conversion Value."
The Series B Conversion Value in effect from time to time, except as adjusted in
accordance with this Section B5, shall be $2.00.
B5.2 AUTOMATIC CONVERSION.
B5.2.1 EVENTS CAUSING CONVERSION. Immediately (A) prior
to the effectiveness of a registration statement filed by the Company pursuant
to the Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Common Stock (calculated
before deducting underwriters' discounts and commissions) results in a valuation
of the total number of outstanding shares of capital stock of the Company
immediately prior to the closing of the public offering of at least $35,000,000,
but subject to the closing of such public offering, (B) prior to the
effectiveness of a registration statement filed by the Company pursuant to the
Securities Act of 1933 covering the offer and sale of Common Stock
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<PAGE> 26
in a rights offering to shareholders of Safeguard Scientifics, Inc., but subject
to the closing of such rights offering, or (C) upon the election, set forth in a
written notice to the Corporation, of holders of at least two-thirds of the
outstanding shares of Series B Junior Preferred Stock and Parity Stock (counted
as a single class) to convert their Series B Junior Preferred Stock and Parity
Stock to Common Stock; all outstanding shares of Series B Junior Preferred Stock
and Parity Stock shall be converted automatically into the number of fully paid,
non-assessable shares of Common Stock into which such shares of Series B Junior
Preferred Stock and Parity Stock are convertible pursuant to this Section B5 or
the designation of such Parity Stock as of the closing and consummation of such
underwritten public offering or the date of such approval, without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent.
B5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
B5.2.1, the holders of the Series B Junior Preferred Stock shall, upon notice
from the Corporation, surrender the certificates representing such shares at the
office of the Corporation or its transfer agent for the Common Stock. Thereupon,
there shall be issued and delivered to such holder a certificate or certificates
for the number of shares of Common Stock into which the shares of Series B
Junior Preferred Stock so surrendered were convertible on the date on which the
conversion occurred. The Corporation shall not be obligated to issue such
certificates unless certificates evidencing such shares of Series B Junior
Preferred Stock being converted are either delivered to the Corporation or any
such transfer agent, or the holder notifies the Corporation that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith.
B5.3 ANTI-DILUTION ADJUSTMENTS.
B5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation shall,
while there are any shares of Series B Junior Preferred Stock outstanding, issue
or sell shares of its Common Stock or "Common Stock Equivalents" (as defined in
Section B5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section B5.3.3 below) less than the
Series B Conversion Value in effect immediately prior to such issuance or sale,
then in each such case the Series B Conversion Value, except as hereinafter
provided, shall be lowered so as to be equal to an amount determined by
multiplying such Series B Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
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<PAGE> 27
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series B Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
<TABLE>
<CAPTION>
Example:
<S> <C> <C> <C>
initial capital 1,000,000
initial conversion price $ 1.00
new shares issued 1,000,000 total new consideration $ 500,000
new issue price $ 0.50 new shares which would be
issued at initial conversion price 500,000
New conversion price $ 0.75
</TABLE>
The provisions of this Section B5.3.1 may be waived as to all
shares of Series B Junior Preferred Stock in any instance (without the necessity
of convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series B
Junior Preferred Stock.
B5.3.2 COMMON STOCK EQUIVALENTS.
B5.3.2.1 GENERAL. For the purposes of this Section
B5.3, the issuance of any warrants, options, subscription or purchase rights
with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series B Conversion Value
shall
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<PAGE> 28
be made under this Section B5.3 upon the issuance of any shares of Common Stock
which are issued pursuant to the exercise, conversion or exchange of any Common
Stock Equivalents.
B5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT, CANCELLATION
OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net Consideration Per
Share of any such Common Stock Equivalents be decreased from time to time other
than as a result of the application of anti-dilution provisions substantially
similar to the provisions of this Section B5.3, then, upon the effectiveness of
each such change, the Series B Conversion Value will be that which would have
been obtained (1) had the adjustments made pursuant to Section B5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series B Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series B Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series B Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series B Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series B Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series B
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series B Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
B5.3.3 NET CONSIDERATION PER SHARE. For purposes of this
Section B5.3, the "Net Consideration Per Share" which shall be receivable by the
Corporation for any Common Stock issued upon the exercise or conversion of any
Common Stock Equivalents shall be determined as follows:
B5.3.3.1 The "Net Consideration Per Share" shall
mean the amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise, or conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such Common Stock Equivalents
were exercised, exchanged or converted.
B5.3.3.2 The "Net Consideration Per Share" which
shall be receivable by the Corporation shall be determined in each instance as
of the date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
B5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK OTHER
THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
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<PAGE> 29
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series B Junior Preferred Stock.
B5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section B5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section B5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
B5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS. This
Section B5.3 shall not apply (A) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as described below), (B) to any
additional shares of Common Stock which become issuable upon conversion of any
other series or class of preferred stock or convertible security of the Company
as a result of any anti-dilution adjustment to the conversion ratio of such
series or class, or (C) to any issuance or sale of shares of Common Stock and/or
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series B Junior Preferred Stock. Further, this Section B5.3
shall not apply with respect to the issuance or sale of shares of Common Stock,
or the grant or options exercisable therefor, to directors, officers, employees
and consultants of the Corporation or any subsidiary pursuant to any qualified
or non-qualified stock option plan or agreement, stock purchase plan or
agreement, stock restriction agreement, employee stock ownership plan (ESOP),
consulting agreement, or such other options, issuances, arrangements, agreements
or plans intended principally as a means of providing compensation for
employment or services or of providing additional compensation to a financial
institution in connection with the Corporation obtaining equipment
lease/financing, provided that in each such case such plan, agreement, or other
arrangement or issuance is approved by the vote or consent of two-thirds of the
Board of Directors or by the written consent of the holders of two-thirds of the
outstanding shares of Series B Preferred Stock.
B5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT. Upon
the happening of an Extraordinary Common Stock Event (as hereinafter defined),
the Series B Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series B
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series B Conversion
Value, which, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common
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<PAGE> 30
Stock, (ii) a subdivision of outstanding shares of Common Stock into a greater
number of shares of Common Stock, or (iii) a combination or reverse stock split
of outstanding shares of Common Stock into a smaller number of shares of the
Common Stock.
B5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series B
Junior Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the number of securities
or such other assets of the Corporation which they would have received had their
Series B Junior Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter, during the period from the date of such
event to and including the Conversion Date, retained such securities or such
other assets receivable by them, giving application to all other adjustments
called for during such period under this Section B5.
B5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series B Junior Preferred Stock shall
have the right thereafter to convert such share into, in lieu of the number of
shares of Common Stock which the holder would otherwise have been entitled to
receive, the kind and amount of shares of capital stock and other securities and
property receivable upon such reorganization, recapitalization, reclassification
or other change by the holders of the number of shares of Common Stock into
which such shares of Series B Junior Preferred Stock could have been converted
immediately prior to such reorganization, recapitalization, reclassification or
change, all subject to further adjustment as provided herein. The provision for
such conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction unless the election described below is made.
In the case of a transaction to which both this Section B5.6
and Section B3.2 apply, the holders of the outstanding shares of Series B Junior
Preferred Stock and Parity Stock (voting together as a single class) shall have
the option by majority vote to elect treatment for the Series B Junior Preferred
Stock and Parity Stock under this Section B5.6, notice of which election shall
be submitted in writing to the Corporation at its principal office no later than
five (5) business days before the effective date of such event. If no such
election shall be made, the provisions of Section B3.2, and not this Section
B5.6, shall apply.
B5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY. In each case of
an adjustment or readjustment of the Series B Applicable Conversion Rate, the
Corporation at its expense will furnish each holder of Series B Junior Preferred
Stock so affected with a certificate prepared by the
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<PAGE> 31
Treasurer or Chief Financial Officer of the Corporation, showing such adjustment
or readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
B5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series B Junior Preferred Stock shall
surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder elects to convert such
shares. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The certificate or certificates
for shares of Series B Junior Preferred Stock surrendered for conversion shall
be accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate or certificates representing the shares of Series B Junior Preferred
Stock being converted, shall be the "Conversion Date". As promptly as
practicable after the Conversion Date, the Corporation shall issue and deliver
to the holder of the shares of Series B Junior Preferred Stock being converted,
or on its written order, such certificate or certificates as it may request for
the number of whole shares of Common Stock issuable upon the conversion of such
shares of Series B Junior Preferred Stock in accordance with the provisions of
this Section B5, and cash, as provided in Section B5.9, in respect of any
fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series B Junior Preferred Stock shall cease
and the person(s) in whose name(s) any certificate(s) for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby.
B5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Junior Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series B Junior Preferred Stock, the Corporation shall pay to the
holder of the shares of Series B Junior Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the aggregate number of
shares of Series B Junior Preferred Stock being converted at any one time by any
holder thereof, not upon each share of Series B Junior Preferred Stock being
converted.
B5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series B Junior Preferred Stock represented by a certificate(s)
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series B Junior Preferred Stock
which were not converted.
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<PAGE> 32
B5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series B Junior Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series B Junior Preferred Stock (including any
shares of Series B Junior Preferred Stock represented by any warrants, options,
subscription or purchase rights for Series B Junior Preferred Stock), and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series B Junior Preferred Stock (including any shares of Series B Junior
Preferred Stock represented by any warrants, options, subscriptions or purchase
rights for such Series B Junior Preferred Stock), the Corporation shall take
such action as may be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
B6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
B6.1 The Corporation shall not take any corporate action or
amend this Certificate of Designation (except to reduce the number of shares
designated as Series B Junior Preferred Stock to the number of such shares which
are then issued and outstanding) without the approval by majority vote or
written consent of the holders of outstanding shares of Series B Junior
Preferred Stock, voting as a single class, if such corporate action or amendment
would change any of the rights, preferences, privileges of or limitations
provided for herein for the benefit of any shares of Series B Junior Preferred
Stock without similarly changing the rights, preferences, privileges of or
limitations on all other classes or series of Parity Stock. Without limiting the
generality of the preceding sentence, the Corporation will not amend this
Certificate of Designation or take any other corporate action without the
approval of the holders of outstanding shares of Series B Junior Preferred Stock
if such amendment or corporate action would:
(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
B Junior Preferred Stock; or
(b) reduce the amount payable to the holders of
Series B Junior Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; or
(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series B Junior
Preferred Stock; or
(d) cancel or modify the conversion rights of the
holders of Series B Junior Preferred Stock provided for in Section B5
herein.
B6.2 The Corporation shall not take any corporate action or
amend its Certificate of Incorporation without the approval by majority vote or
written consent of the holders of
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<PAGE> 33
outstanding shares of Series B Junior Preferred Stock and Parity Stock, voting
together as a single class, if such corporate action or amendment would
similarly change the rights, preferences, privileges of or limitations on the
Series B Junior Preferred Stock and all classes or series of Parity Stock.
Without limiting the generality of the preceding sentence, the Corporation will
not amend its Certificate of Incorporation or take any other corporate action
without the approval of the holders of the outstanding shares of Series B Junior
Preferred Stock and Parity Stock, voting together as a single class, if such
amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section 2
hereof; or
(b) [intentionally omitted]
(c) similarly reduce the amount payable to the
holders of Series B Junior Preferred Stock and Parity Stock upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; or
(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
B Junior Preferred Stock and Parity Stock; or
(e) similarly cancel or modify the conversion rights
of the holders of Series B Junior Preferred Stock and Parity Stock; or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section B3.2
hereof.
B7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series B Junior Preferred Stock set
forth herein, but will at all times in good faith assist in the carrying out of
all such terms. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series B Junior Preferred Stock above the
amount payable therefor on such conversion, and (b) will take such action as may
be necessary or appropriate in order that the Corporation may validly and
legally issue fully paid and nonassessable
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<PAGE> 34
shares of stock on the conversion of all Series B Junior Preferred Stock from
time to time outstanding.
B8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series B Junior Preferred Stock a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.
B9. STATUS OF CONVERTED OR REPURCHASED SERIES B JUNIOR PREFERRED STOCK.
Any share or shares of Series B Junior Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
returned to the status of authorized but unissued shares of undesignated
Preferred Stock. Upon the cancellation of all outstanding shares of Series B
Junior Preferred Stock, the provisions of this Certificate of Designation of
Series B Junior Preferred Stock shall terminate and have no further force and
effect.
DESCRIPTION AND DESIGNATION OF SERIES C PREFERRED STOCK
C1. DESIGNATION. A total of 1,300,000 shares of the Company's Preferred
Stock shall be designated the "Series C Preferred Stock." As used herein, the
term "Preferred Stock" used without
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<PAGE> 35
reference to the Series C Preferred Stock means the shares of Preferred Stock,
without distinction as to series, except as otherwise expressly provided for
herein, or as the context otherwise requires.
C2. RESTRICTIONS ON DISTRIBUTIONS. Except to the extent in any instance
approval is provided in writing by the holders of two-thirds of the outstanding
shares of Series A Preferred Stock, Series C Preferred Stock and any other
series of Preferred Stock senior to or on parity with the Series C Preferred
Stock with respect to liquidation preference (all voting together as a single
class), the Corporation shall not declare or pay any dividends, or purchase,
redeem, retire, or otherwise acquire for value any shares of its capital stock
junior to the Series C Preferred Stock (or rights, options or warrants to
purchase such shares) now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its stockholders as
such, or permit any Subsidiary to do any of the foregoing. "Subsidiary" or
"Subsidiaries" means any corporation, partnership or joint venture of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time at least fifty percent (50%) of the outstanding
voting shares or similar interests other than directors' qualifying shares.
Notwithstanding the foregoing, Subsidiaries may declare and
make payment of cash and stock dividends, return capital and make distributions
of assets to the Corporation, and nothing contained in the foregoing shall
prevent the Corporation from: (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of any subsequently designated series of
Preferred Stock in accordance with its terms; (iii) redeeming or repurchasing
any stock of a deceased stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or repurchasing any
stock of any director, officer, employee, advisor, consultant or other person or
entity, pursuant to a stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to repurchase such
shares in the event of death, termination of employment or of the consulting
arrangement, or other similar discontinuation of a business relationship.
C3. LIQUIDATION, DISSOLUTION OR WINDING UP.
C3.1 TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. The
Series C Preferred Stock shall be on a parity with the Series A Preferred Stock
with respect to liquidation preference. The Series A Preferred Stock, and any
class or series of Preferred Stock designated in the future to be on a parity
with the Series C Preferred Stock with respect to liquidation preference are
collectively referred to herein as "Parity Stock". In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, or in the event of its insolvency, before any distribution or
payment is made to any holders of Common Stock, the Series B Junior Preferred
Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series C Preferred Stock in liquidation
preference (collectively, "Junior Stock"), and subject to the liquidation rights
and preferences of any class or series of Preferred Stock designated in the
future to be senior to the Series C Preferred Stock with respect to liquidation
preference ("Senior Stock"), the holders of each share of Series C Preferred
Stock shall be entitled to be paid first out of
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<PAGE> 36
the assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings ("Available Assets"), the greater of (i) an amount per share
of Series C Preferred Stock equal to $5.00, plus $.50 for each year (pro rated
for partial years) from April 15, 1999 until the date of distribution of
Available Assets, (subject to equitable adjustment for any stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the capital structure of the Preferred
Stock), or (ii) such amount per share of Series C Preferred Stock as would have
been payable had each share of Preferred Stock which is convertible into Common
Stock been so converted immediately prior to such liquidation, dissolution or
winding up.
If, upon liquidation, dissolution or winding up of the
Corporation, the Available Assets shall be insufficient to pay the holders of
Series C Preferred Stock and of any Parity Stock the full amounts to which they
otherwise would be entitled, the holders of Series C Preferred Stock and Parity
Stock shall share ratably in any distribution of Available Assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series C Preferred Stock and Parity Stock if all liquidation preference
dollar amounts with respect to such shares were paid in full.
C3.2 TREATMENT OF REORGANIZATION, CONSOLIDATION, MERGER, OR
SALE OF ASSETS. Any merger, consolidation or other corporate reorganization or
combination to which the Corporation is a non-surviving party, and any sale of
all or substantially all of the assets of the Corporation, shall be regarded as
a liquidation, dissolution or winding up of the affairs of the Corporation for
purposes of this Section C3; provided, however that, in the case of any such
transaction to which the provisions of Section C5.6 also apply, the holders of
the outstanding shares of Series C Preferred Stock and Parity Stock (voting
together as a single class) shall have the right by majority vote to elect the
benefits of the provisions of Section C5.6 hereof for all of the Series C
Preferred Stock and Parity Stock in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section C3.
The provisions of this Section C3.2 shall not apply to (i) any
reorganization, merger or consolidation involving only a change in the state of
incorporation of the Corporation, (ii) a merger of the Corporation with or into
a wholly-owned Subsidiary of the Corporation that is incorporated in the United
States of America, or (iii) a merger, reorganization, consolidation or other
combination, of which the Corporation is substantively the surviving corporation
and operates as a going concern, with another corporation incorporated in the
United States of America and which does not involve a recapitalization,
reorganization, reclassification or other similar change in the capital
structure of the Corporation.
C3.3 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution
provided for in this Section C3 shall be payable in whole or in part in property
other than cash, the value of any property distributed shall be the fair market
value of such property as reasonably determined in good faith by the Board of
Directors of the Corporation. All distributions of property other than cash made
hereunder shall be made, to the maximum extent possible, pro rata with respect
to each Series
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<PAGE> 37
and class of Preferred Stock and Common Stock in accordance with the liquidation
amounts payable with respect to each such Series and class.
C4. VOTING POWER.
C4.1 GENERAL. For each vote in which holders of Series C
Preferred Stock are entitled to participate, each share of Series C Preferred
Stock shall be entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series C
Preferred Stock could be converted. Except as otherwise required by applicable
law or as otherwise provided herein, each holder of Series C Preferred Stock
shall be entitled to vote together with the Common Stock and all other series
and classes of stock permitted to vote with the Common Stock on all matters
submitted to a vote of the stockholders of the Corporation (including election
of directors generally, but excluding election of the "Series A Directors", as
defined in the Certificate of Designation of the Series A Preferred Stock of the
Company). Each holder of Series C Preferred Stock shall be entitled to notice of
any stockholders' meeting in accordance with the by-laws of this Corporation at
the same time and in the same manner as notice is given to all other
stockholders entitled to vote at such meetings.
C4.2 LIMITATIONS DURING FIRST THREE YEARS. Notwithstanding
paragraph C4.1, for a period of three years from the date of the initial filing
of this Certificate of Designation, the holders of Series C Preferred Stock
shall not have any voting rights, other than as required by law and as provided
in Section C6 below.
C5. CONVERSION RIGHTS. The holders of the Series C Preferred Stock
shall have the following rights and be subject to the following obligations with
respect to the conversion of such shares into shares of Common Stock:
C5.1 VOLUNTARY CONVERSION. Subject to and in compliance with
the provisions of this Section C5, any shares of the Series C Preferred Stock
may, at the option of the holder thereof, be converted at any time and from time
to time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock which a holder of Series C Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by multiplying
(i) the number of shares of Series C Preferred Stock being converted at any
time, by (ii) the rate (the "Series C Conversion Rate") equal to the quotient
obtained by dividing $5.00 by the "Series C Conversion Value." The Series C
Conversion Value in effect from time to time, except as adjusted in accordance
with this Section C5, shall be $5.00.
C5.2 AUTOMATIC CONVERSION.
C5.2.1 EVENTS CAUSING CONVERSION. Immediately (A) prior
to the effectiveness of a registration statement filed by the Company pursuant
to the Securities Act of 1933, as amended, (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Common Stock in an
underwritten public offering on a firm commitment basis in which the
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<PAGE> 38
gross proceeds of the offering will equal or exceed $10,000,000 (calculated
before deducting underwriters' discounts and commissions and other offering
expenses), and in which the public offering price per share of Common Stock
(calculated before deducting underwriters' discounts and commissions) results in
a valuation of the total number of outstanding shares of capital stock of the
Company immediately prior to the closing of the public offering of at least
$35,000,000, but subject to the closing of such public offering, (B) prior to
the effectiveness of a registration statement filed by the Company pursuant to
the Securities Act of 1933 covering the offer and sale of Common Stock in a
rights offering to shareholders of Safeguard Scientifics, Inc., in which the
gross proceeds of the offering will equal or exceed $10,000,000 (calculated
before deducting underwriters' discounts and commissions and other offering
expenses), and in which the public offering price per share of Common Stock
(calculated before deducting underwriters' discounts and commissions) results in
a valuation of the total number of outstanding shares of capital stock of the
Company immediately prior to the closing of the public offering of at least
$35,000,000, but subject to the closing of such rights offering, or (C) upon the
election, set forth in a written notice to the Corporation, of holders of at
least two-thirds of the outstanding shares of Series C Preferred Stock and
Parity Stock (counted as a single class) to convert their Series C Preferred
Stock and Parity Stock to Common Stock; all outstanding shares of Series C
Preferred Stock and Parity Stock shall be converted automatically into the
number of fully paid, non-assessable shares of Common Stock into which such
shares of Series C Preferred Stock and Parity Stock are convertible pursuant to
this Section C5 or the designation of such Parity Stock as of the closing and
consummation of such underwritten public offering or the date of such approval,
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent.
C5.2.2 SURRENDER OF CERTIFICATES UPON MANDATORY
CONVERSION. Upon the occurrence of the conversion event specified in paragraph
C5.2.1, the holders of the Series C Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing such shares at the office
of the Corporation or its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of Series C Preferred
Stock so surrendered were convertible on the date on which the conversion
occurred. The Corporation shall not be obligated to issue such certificates
unless certificates evidencing such shares of Series C Preferred Stock being
converted are either delivered to the Corporation or any such transfer agent, or
the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
C5.3 ANTI-DILUTION ADJUSTMENTS.
C5.3.1 UPON DILUTIVE ISSUANCES. If the Corporation shall,
while there are any shares of Series C Preferred Stock outstanding, issue or
sell shares of its Common Stock or "Common Stock Equivalents" (as defined in
Section C5.3.2.1 below) without consideration or at a price per share or "Net
Consideration Per Share" (as defined in Section C5.3.3 below) less than the
Series C Conversion Value in effect immediately prior to such issuance or sale,
then in each such
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case the Series C Conversion Value, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying such Series C
Conversion Value by the following fraction:
N(0) + N(1)
-------------------
N(0) + N(2)
Where:
N(0) = the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares
of Common Stock or Common Stock Equivalents (calculated on a
fully-diluted basis assuming the exercise or conversion of all then
exercisable or convertible options, warrants, purchase rights and
convertible securities).
N(1) = the number of shares of Common Stock which the
aggregate consideration, if any, (including the Net Consideration Per
Share with respect to the issuance of Common Stock Equivalents)
received or receivable by the Corporation for the total number of such
additional shares of Common Stock so issued or deemed to be issued
would purchase at the Series C Conversion Value in effect immediately
prior to such issuance.
N(2) = the number of such additional shares of Common
Stock so issued or deemed to be issued.
<TABLE>
<CAPTION>
Example:
<S> <C> <C> <C>
initial capital 1,000,000
initial conversion price $ 1.00
new shares issued 1,000,000 total new consideration $ 500,000
new issue price $ 0.50 new shares which would be
issued at initial conversion price 500,000
new conversion price $ 0.75
</TABLE>
The provisions of this Section C5.3.1 may be waived as to all
shares of Series C Preferred Stock in any instance (without the necessity of
convening any meeting of stockholders of the Corporation) upon the written
agreement of the holders of two-thirds of the outstanding shares of Series C
Preferred Stock.
C5.3.2 COMMON STOCK EQUIVALENTS.
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<PAGE> 40
C5.3.2.1 GENERAL. For the purposes of this Section
C5.3, the issuance of any warrants, options, subscription or purchase rights
with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock and the issuance of
any warrants, options, subscription or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series C Conversion Value
shall be made under this Section C5.3 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
Common Stock Equivalents.
C5.3.2.2 ADJUSTMENTS FOR ADJUSTMENT, CANCELLATION
OR EXPIRATION OF COMMON STOCK EQUIVALENTS. Should the Net Consideration Per
Share of any such Common Stock Equivalents be decreased from time to time other
than as a result of the application of anti-dilution provisions substantially
similar to the provisions of this Section C5.3, then, upon the effectiveness of
each such change, the Series C Conversion Value will be that which would have
been obtained (1) had the adjustments made pursuant to Section C5.3.2.1 upon the
issuance of such Common Stock Equivalents been made upon the basis of the new
Net Consideration Per Share of such securities, and (2) had the adjustments made
to the Series C Conversion Value since the date of issuance of such Common Stock
Equivalents been made to such Series C Conversion Value as adjusted pursuant to
clause (1) above. Any adjustment of the Series C Conversion Value which relates
to any Common Stock Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is canceled without being exercised, or is
repurchased by the Company at a price per share at or less than the original
purchase price, so that the Series C Conversion Value effective immediately upon
such cancellation or expiration shall be equal to the Series C Conversion Value
that would have been in effect (1) had the expired or canceled Common Stock
Equivalent not been issued, and (2) had the adjustments made to the Series C
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to the Series C Conversion Value which would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
C5.3.3 NET CONSIDERATION PER SHARE. For purposes of this
Section C5.3, the "Net Consideration Per Share" which shall be receivable by the
Corporation for any Common Stock issued upon the exercise or conversion of any
Common Stock Equivalents shall be determined as follows:
C5.3.3.1 The "Net Consideration Per Share" shall
mean the amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Common Stock Equivalents, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise, or conversion or exchange thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such Common Stock Equivalents
were exercised, exchanged or converted.
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C5.3.3.2 The "Net Consideration Per Share" which
shall be receivable by the Corporation shall be determined in each instance as
of the date of issuance of Common Stock Equivalents without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
C5.3.4 STOCK DIVIDENDS FOR HOLDERS OF CAPITAL STOCK OTHER
THAN COMMON STOCK. In the event that the Corporation shall make or issue
(otherwise than to holders of Common Stock), or shall fix a record date for the
determination of holders of any capital stock of the Corporation other than
holders of Common Stock entitled to receive, a dividend or other distribution
payable in Common Stock or securities of the Corporation convertible into or
otherwise exchangeable for shares of Common Stock of the Corporation, then such
Common Stock or other securities issued in payment of such dividend shall be
deemed to have been issued for a consideration of $.01, except for dividends
payable to the holders of Series C Preferred Stock.
C5.3.5 CONSIDERATION OTHER THAN CASH. For purposes of
this Section C5.3, if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section C5.3 consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
C5.3.6 EXCEPTIONS TO ANTI-DILUTION ADJUSTMENTS. This
Section C5.3 shall not apply (A) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as described below), (B) to any
additional shares of Common Stock which become issuable upon conversion of any
other series or class of preferred stock or convertible security of the Company
as a result of any anti-dilution adjustment to the conversion ratio of such
series or class, or (C) to any issuance or sale of shares of Common Stock and/or
Common Stock Equivalents in an underwritten public offering not requiring
conversion of the Series C Preferred Stock. Further, this Section C5.3 shall not
apply with respect to the issuance or sale of shares of Common Stock, or the
grant or options exercisable therefor, to directors, officers, employees and
consultants of the Corporation or any subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, stock purchase plan or agreement,
stock restriction agreement, employee stock ownership plan (ESOP), consulting
agreement, or such other options, issuances, arrangements, agreements or plans
intended principally as a means of providing compensation for employment or
services or of providing additional compensation to a financial institution in
connection with the Corporation obtaining equipment lease/financing, provided
that in each such case such plan, agreement, or other arrangement or issuance is
approved by the vote or consent of two-thirds of the Board of Directors or by
the written consent of the holders of two-thirds of the outstanding shares of
Series C Preferred Stock.
C5.4 ADJUSTMENT UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter defined), the
Series C Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the Series C
Conversion Value by a fraction, the numerator of
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<PAGE> 42
which shall be the number of shares of Common Stock outstanding immediately
prior to such Extraordinary Common Stock Event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Series C Conversion Value, which, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issue
of additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of the Common Stock.
C5.5 ADJUSTMENT UPON CERTAIN DIVIDENDS. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution (other than a distribution in liquidation or other
distribution otherwise provided for herein) with respect to the Common Stock
payable in (i) securities of the Corporation other than shares of Common Stock,
or (ii) other assets (excluding cash dividends or distributions), then and in
each such event provision shall be made so that the holders of the Series C
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their Series
C Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities or such other assets
receivable by them, giving application to all other adjustments called for
during such period under this Section C5.
C5.6 ADJUSTMENT UPON CAPITAL REORGANIZATION OR
RECLASSIFICATION. If the Common Stock shall be changed into the same or
different number of shares of any other class or classes of capital stock,
whether by capital reorganization, recapitalization, reclassification or
otherwise (other than an Extraordinary Common Stock Event), then and in each
such event the holder of each share of Series C Preferred Stock shall have the
right thereafter to convert such share into, in lieu of the number of shares of
Common Stock which the holder would otherwise have been entitled to receive, the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series C Preferred Stock could have been converted immediately prior
to such reorganization, recapitalization, reclassification or change, all
subject to further adjustment as provided herein. The provision for such
conversion right shall be a condition precedent to the consummation by the
Corporation of any such transaction unless the election described below is made.
In the case of a transaction to which both this Section C5.6
and Section C3.2 apply, the holders of the outstanding shares of Series C
Preferred Stock and Parity Stock (voting together as
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<PAGE> 43
a single class) shall have the option by majority vote to elect treatment for
the Series C Preferred Stock and Parity Stock under this Section C5.6, notice of
which election shall be submitted in writing to the Corporation at its principal
office no later than five (5) business days before the effective date of such
event. If no such election shall be made, the provisions of Section C3.2, and
not this Section C5.6, shall apply.
C5.7 CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Series C Applicable Conversion
Rate, the Corporation at its expense will furnish each holder of Series C
Preferred Stock so affected with a certificate prepared by the Treasurer or
Chief Financial Officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
C5.8 EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series C Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
C Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when such written
notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series C Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to the holder of the
shares of Series C Preferred Stock being converted, or on its written order,
such certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of Series C
Preferred Stock in accordance with the provisions of this Section C5, and cash,
as provided in Section C5.9, in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series C Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
C5.9 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares
of Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Series C Preferred Stock, the Corporation shall pay to the holder of the shares
of Series C Preferred Stock which were converted a cash adjustment in respect of
such fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the aggregate number of shares of Series C Preferred Stock
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<PAGE> 44
being converted at any one time by any holder thereof, not upon each share of
Series C Preferred Stock being converted.
C5.10 PARTIAL CONVERSION. In the event some but not all of the
shares of Series C Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series C Preferred Stock which were not
converted.
C5.11 RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series C Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series C Preferred Stock (including any shares of
Series C Preferred Stock represented by any warrants, options, subscription or
purchase rights for Series C Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series C Preferred Stock
(including any shares of Series C Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Series C Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
C6. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION.
C6.1 The Corporation shall not take any corporate action or
amend this Certificate of Designation (except to reduce the number of shares
designated as Series C Preferred Stock to the number of such shares which are
then issued and outstanding) without the approval by majority vote or written
consent of the holders of outstanding shares of Series C Preferred Stock, voting
as a single class, if such corporate action or amendment would change any of the
rights, preferences, privileges of or limitations provided for herein for the
benefit of any shares of Series C Preferred Stock without similarly changing the
rights, preferences, privileges of or limitations on all other classes or series
of Parity Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend this Certificate of Designation or take any other
corporate action without the approval of the holders of outstanding shares of
Series C Preferred Stock if such amendment or corporate action would:
(a) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, additional shares of Series
C Preferred Stock; or
(b) reduce the amount payable to the holders of
Series C Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
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(c) adversely affect the liquidation preferences,
dividend rights or voting rights of the holders of Series C Preferred
Stock; or
(d) cancel or modify the conversion rights of the
holders of Series C Preferred Stock provided for in Section C5 herein.
C6.2 The Corporation shall not take any corporate action or
amend its Certificate of Incorporation without the approval by majority vote or
written consent of the holders of outstanding shares of Series C Preferred Stock
and Parity Stock, voting together as a single class, if such corporate action or
amendment would similarly change the rights, preferences, privileges of or
limitations on the Series C Preferred Stock and all classes or series of Parity
Stock. Without limiting the generality of the preceding sentence, the
Corporation will not amend its Certificate of Incorporation or take any other
corporate action without the approval of the holders of the outstanding shares
of Series C Preferred Stock and Parity Stock, voting together as a single class,
if such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem,
purchase or otherwise acquire for value (or pay into or set aside for a
sinking fund for such purpose), any share or shares of equity
securities of the Corporation other than as provided for in Section C2
hereof; or
(b) authorize, create or issue, or obligate the
Corporation to authorize, create or issue, shares of any class of stock
ranking senior to the Series C Preferred Stock and Parity Stock with
respect to liquidation preferences or dividend rights, or containing
redemption rights; or
(c) similarly reduce the amount payable to the
holders of Series C Preferred Stock and Parity Stock upon the voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; or
(d) similarly adversely affect the liquidation
preferences, dividend rights or voting rights of the holders of Series
C Preferred Stock and Parity Stock; or
(e) similarly cancel or modify the conversion rights
of the holders of Series C Preferred Stock and Parity Stock; or
(f) provide for the voluntary liquidation,
dissolution, recapitalization, reorganization or winding up of the
Corporation; or
(g) authorize, approve or cause any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, corporate reorganization, recapitalization or other
business combinations which could be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section C3.2
hereof.
45
<PAGE> 46
C7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Series C Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
such terms. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Series C Preferred Stock above the amount payable therefor on
such conversion, and (b) will take such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of all Series C
Preferred Stock from time to time outstanding.
C8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividends or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of capital stock of any class or
any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any
other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Series C Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least 15 days prior to the date specified
in such notice on which action is being taken.
C9. STATUS OF CONVERTED OR REPURCHASED SERIES C PREFERRED STOCK. Any
share or shares of Series C Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be returned to the
status of authorized but unissued shares of
46
<PAGE> 47
undesignated Preferred Stock. Upon the cancellation of all outstanding shares of
Series C Preferred Stock, the provisions of this Certificate of Designation of
Series C Preferred Stock shall terminate and have no further force and effect.
************************
5. The corporation is to have perpetual existence.
6. In furtherance of and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the corporation.
7. The directors of the corporation shall be entitled to the benefits
of all limitations on the liability of directors generally that are now or
hereafter become available under the General Corporation Law of Delaware.
Without limiting the generality of the foregoing, no director of the corporation
shall be personally liable to the corporation or to any stockholder of the
corporation for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not limit the liability of a director (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
8. Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the Corporation.
9. Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide.
10. The books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors or in the
bylaws of the corporation.
11. The Corporation shall, to the maximum extent permitted from time to
time under the laws of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he is or was or has agreed to be a director or officer of the
Corporation or while a director or officer is or was serving at the request of
the Corporation as a director, officer, employer or agent of any corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, against any and all expenses (including
attorney's fees and expenses), judgments, fines, penalties and amounts paid in
settlement or incurred in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim; provided, however,
that the foregoing shall not require the Corporation to indemnify or advance
expenses to any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such rights arising under
any bylaw, agreement, vote of directors or stockholders or otherwise and shall
inure to the benefit of the heirs and legal
47
<PAGE> 48
representatives of such person. Any repeal or modification of the foregoing
provisions of this Article 10 shall not adversely affect any right or protection
of a director or officer of this Corporation existing at the time of such repeal
or modification.
12. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, eMerge Vision Systems, Inc. has caused this
certificate to be signed by Charles Abraham, its Chief Executive Officer on the
____ day of April, 1999.
eMerge Vision Systems, Inc.
By: /S/ CHARLES ABRAHAM
------------------------------------
Charles Abraham, Chief Executive Officer
48
<PAGE> 49
EXHIBIT 3
Capitalization Table
<TABLE>
<CAPTION>
HOLDER SHARES OPTIONS
- ------ ------ ---------
<S> <C> <C>
Safeguard Capital LP 4,181,315
Technology Leaders I 803,250
Technology Leaders II 856,000
Applewood 339,919
XL Vision and employees 4,979,000
Company employees 8,750 2,726,250
Others 3,173,122
Total 14,341,356 2,726,250
</TABLE>
49
<PAGE> 1
EXHIBIT 10.16
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made and
entered into as of the 6th day of August, 1999, by and between TURNKEY COMPUTER
SYSTEMS, INC., a Texas corporation (the "Company") and EMERGE INTERACTIVE INC.,
a Delaware corporation (the "Investor").
1. AUTHORIZATION AND SALE OF THE SHARES.
1.1 Authorization of the Shares. As of the Initial Closing (as defined
below), the Company will have authorized the issuance to the Investor, pursuant
to the terms and conditions of this Agreement, of 16,506 shares of the Company's
common stock, $0.10 par value per share (the "Common Stock").
1.2 Sale of the Shares. Subject to the terms and conditions hereof, the
Investor agrees to purchase at the Closings (as defined below), and the Company
agrees to sell and issue to the Investor at the Closings, an aggregate of 16,506
shares of the Company's Common Stock (the "Shares") for an aggregate purchase
price of $1,900,000 (which shares represent 19% of the issued and outstanding
shares of the Company following such issuance), as follows: (a) 4,126 of such
Shares shall be sold by the Company to the Investor on the Initial Closing Date
in exchange for 50,000 shares (the "Investor Shares") of the Investor's common
stock, $0.01 par value per share (the "Investor Common Stock"); (b) 4,127 of
such Shares shall be sold by the Company to the Investor on each of the first
and second Additional Closing Date in exchange for $500,000 to be paid on each
such Additional Closing Date; and (c) 4,126 of such Shares shall be sold by the
Company to the Investor on the third Additional Closing Dates set forth below,
in the event that the Investor consummates an initial public offering of the
Investor Common Stock under the Securities Act of 1933, as amended (the
"Securities Act") at any time prior to December 31, 2001, the Company shall sell
and the Investor shall purchase all remaining unpurchased Shares within thirty
(30) days of the consummation of such public offering.
2. CLOSINGS; DELIVERIES.
2.1 Initial Closing. The initial closing (the "Initial Closing") of the
purchase and sale of the Shares hereunder shall be held at the offices of
Jenkens & Gilchrist, a Professional Corporation, 1445 Ross Avenue, Suite 3200,
Dallas, Texas 75202 as soon as practical after the conditions contained in
Section 5 have been satisfied or such other time and place as agreed to by the
parties (the date of the Initial Closing is hereinafter referred to as the
"Initial Closing Date").
2.2 Additional Closings. Each additional closing (each an "Additional
Closing" and together with the Initial Closing, the "Closings") shall be held at
the offices of Jenkens & Gilchrist, a Professional Corporation, 1445 Ross
Avenue, Suite 3200, Dallas, Texas 75202 at the respective times specified below
or such other time and place as agreed to by the parties (each an "Additional
Closing Date" and together with the
<PAGE> 2
Initial Closing Dates, the "Closing Dates"):
(a) December 31, 1999;
(b) December 31, 2000;
(c) December 31, 2001.
2.2 Stock Certificates. At the Initial Closing and each Additional
Closing, the Company will deliver to the Investor a certificate, registered in
the Investor's name, representing the Shares to be purchased by the Investor at
the Initial Closing or the Additional Closing, as the case may be, upon payment
of the purchase price therefor by check or by federal wire transfer of
immediately available funds or by other consideration acceptable to the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Investor at the
Initial Closing Date and at each Additional Closing Date as follows:
3.1 Organization and Standing, Certificate and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of Texas and is in good standing under such laws. Except as set forth on
Schedule 3.1, the Company is not required to be qualified to do business as a
foreign corporation in any other jurisdiction, except where the failure to be so
qualified would not have a material adverse effect on the Company. The Company
has the requisite corporate power to own and operate its properties and assets
and to carry on its business as presently conducted and as proposed to be
conducted. True and accurate copies of the Company's Articles of Incorporation
and Bylaws, as presently in effect, have been delivered to the Investor.
Schedule 3.1 is a true and complete list of all jurisdictions in which the
Company is qualified to do business as a foreign corporation.
3.2 Corporate Power. The Company has all requisite legal and corporate
power and authority (1) to execute and deliver this Agreement and the other
agreements contemplated herein; (ii) to issue and sell the Shares; and (iii) to
carry out and perform its other obligations under the terms of this Agreement
and the other agreements contemplated herein.
3.3 Subsidiaries. The Company does not own or control, directly or
indirectly, any interest in any corporation, partnership, trust, joint venture,
association or other entity.
3.4 Capitalization. Immediately prior to the Initial Closing, the
authorized capital of the Company will consist of 10,000,000 shares of Common
Stock, of which 70,368 shares are issued and outstanding and 262,398 shares are
held by the Company as treasury shares. The outstanding shares of Common Stock
are owned by the shareholders
2
<PAGE> 3
and in the number specified in Schedule 3.4 hereto. The outstanding shares of
Common Stock are all duly authorized and validly issued, fully paid and
nonassessable, and were issued in accordance with the registration and
prospectus delivery requirements of the Securities Act, or in compliance with
applicable exemptions therefrom. and the registration and qualification
requirements of all applicable state securities laws. Except as provided on
Schedule 3.4, the Company has not issued any other shares of its capital stock
and there are no outstanding options, warrants, subscriptions or other rights or
obligations to purchase or acquire any of such shares, nor any outstanding
securities convertible into or exchangeable for such shares. There are no
agreements to which the Company is a party or has knowledge regarding the
issuance, registration, voting or transfer of or obligation (contingent or
otherwise) of the Company to repurchase or otherwise acquire or retire or redeem
any of its outstanding shares of capital stock. No dividends are accrued but
unpaid on any capital stock of the Company.
3.5 Authorization. All corporate action on the part of the Company and
its directors, officers and shareholders necessary for the authorization,
execution, delivery and performance of all obligations of the Company under this
Agreement and the other agreements contemplated herein has been taken. This
Agreement and all documents executed pursuant to this Agreement constitute
valid, legal and binding obligations of the Company and are enforceable in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization or other laws relating to or affecting
the enforcement of creditors' rights generally, and except that the availability
of the remedy of specific performance or other equitable relief is subject to
the discretion of the court before which any proceeding therefor may be brought.
3.6 Validity of Stock. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, will be free of any liens or encumbrances, and shall not be
subject to any preemptive rights, rights of first refusal or redemption rights,
other than as set forth on Schedule 3.6 and as provided herein and in the
Shareholders' Agreement.
3.7 Disclosure. No representation or warranty by the Company in this
Agreement or in any statement, business plan or certificate furnished or to be
furnished to the Investor pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements made not misleading in light of the circumstances under which
they were made.
3.8 Compliance with Other Instruments; None Burdensome, etc. The
Company is not in violation, breach or default of any term of (i) its Articles
of Incorporation or its Bylaws, (ii) any provision of any mortgage, indenture,
contract. agreement or instrument to which the Company is a party or by which it
is bound, (iii) any judgment, decree or order binding upon the Company or any
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of and compliance with this Agreement and the consummation of
the transactions contemplated hereby will not result in any such violation or be
in conflict with or constitute a default
3
<PAGE> 4
under any such term, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. There is no such term that materially and adversely
affects, or in the future may materially and adversely affect, the business,
prospects, condition, affairs, operations, properties or assets of the Company.
3.9 Litigation, etc. Except as provided on Schedule 3.9, there is no
action, suit, proceeding, claim, arbitration or investigation ("Action") pending
or, to the best knowledge of the Company, currently threatened (a) against the
Company, (b) affecting any of its properties or assets, (c) that questions the
validity of this Agreement or any of the other agreements contemplated herein or
the right of the Company to enter into this Agreement or any of the other
agreements contemplated herein, or consummate the transactions contemplated
hereby or thereby or, (d) to the best knowledge of the Company, against any
officer, director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of the
Company. There are no Actions pending or currently threatened relating to the
prior employment of any of the Company's employees or consultants, their use in
connection with the Company's business of any information. technology or
techniques allegedly proprietary to any of their former employers, clients or
other parties, or their obligations under any agreements with prior employers,
clients or other parties. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit. proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
3.10 Governmental Consents etc. No consent, approval, order or
authorization of, or registration, declaration, designation, qualification or
filing with, any governmental authority on the part of the Company is required
in connection with the valid execution and delivery of this Agreement, the
offer, sale or issuance of the Shares or the consummation of any other
transaction contemplated hereby, except for such filings as may be required
under applicable state securities laws. Based in part on the representations of
the Investor set forth in Section 4 hereof, the offer, sale and issuance of the
Shares in conformity with the terms of this Agreement are exempt from the
registration and prospectus delivery requirements of the Securities Act and all
securities laws of the State of Texas.
3.11 Title to Property and Assets. The Company has good and marketable
title to its properties and assets held, in each case subject to no mortgage,
pledge, lien, encumbrance, security interest or charge of any kind except as set
forth on Schedule 3.11. With respect to the property and assets it leases the
Company is in compliance in all material respects with such leases and, to the
best knowledge, the Company holds valid leasehold interests in such assets free
of any liens, encumbrances, security interests or claims of' any party other
than the lessors of such property and assets. except as set forth on Schedule
3.11.
3.12 Contracts. All agreements to which the Company is a party are
valid and
4
<PAGE> 5
binding agreements of the Company and, to the best knowledge of the Company, of
every other party thereto, and neither the Company nor, to the best knowledge of
the Company, any other party thereto, is in breach or default thereunder, except
for such invalidity, nonbinding character, breach or default that has not had,
and may not reasonably be expected to have, a material adverse effect on the
Company. Set forth on Schedule 3.12 is a list of the agreements of the Company
that are material to its business and those agreements are in full force and
effect.
3.13 Intellectual Property.
(a) Ownership. The Company owns all patents, trademarks, service marks,
and copyrights, if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor, without conflict with the rights of
others, except for conflicts which could not reasonably be expected to result in
a material adverse effect on the Company. "Proprietary Rights" shall mean (i)
all trademarks, tradenames, service marks and other trade designations,
including common law rights, registrations and applications therefor, and all
patents, copyrights and applications therefor currently owned, in whole or in
part, by the Company with respect to the business of the Company, and all
licenses. royalties, assignments and other similar agreements relating to the
foregoing to which the Company is a party; and (ii) all agreements relating to
technology, know-how or processes that the Company is licensed or is authorized
to use by others, or which it licenses or authorizes others to use.
(b) Conflicting Rights of Third Parties. To the best knowledge of the
Company, the Company has the right to use the Proprietary Rights without
infringing or violating the rights of any third parties and the use of the
Proprietary Rights does not require the consent of any other person that has not
been obtained and the Proprietary Rights held by the Company are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity or
effectiveness of any license or agreement constituting a part of any Proprietary
Right, and the Company knows of no valid basis for any such claim.
(c) Claims of Other Persons. Except as set forth on Schedule 3.9, the
Company has no knowledge of any claim that, or inquiry as to whether, any
product, activity or operation of the Company infringes upon or involves, or has
resulted in the infringement of, any proprietary right of any other person,
corporation or other entity, and no proceedings have been instituted, are
pending or, to the best knowledge of the Company, are threatened that challenge
the rights of the Company with respect thereto.
(d) Trade Secrets and Customer Lists. The Company has the right to use,
free and clear of any claims or rights of others, except claims or rights
specifically set forth in Schedule 3.13, all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by the Company. The Company is
not making use of any confidential information or trade secrets of any third
party, including, without limitation, any past or present employee of the
Company, except under valid and existing license agreements.
5
<PAGE> 6
Each employee, officer, consultant or vendor with access to the confidential and
proprietary information of the Company has executed an agreement with the
Company regarding confidentiality and proprietary information, substantially in
the form or forms delivered to counsel for the Investor.
(e) Year 2000. No technology owned, developed or licensed by the
Company or used in connection with its business (including, but not limited to,
information systems and technology, commercial and noncommercial hardware and
software, firmware, mechanical or electrical products, embedded systems, or any
other electromechanical or processor-based system, whether as part of a desktop
system, office system, building system or otherwise) wilt experience any
malfunctions. premature cancellation or expiration of contractual rights or
deletion of data or any other problems in connection with (1) the year 2000 (and
all subsequent years) as distinguished from 1900 years, (11) the date February
29, 2000, and all subsequent leap years, and (iii) the date September 9, 1999,
except where such problems, either individually or in the aggregate, would not
have a material adverse effect on the Company.
3.14 No Conflict of Interest. Except as set forth on Schedule 3.14, the
Company is not indebted, directly or indirectly, to any of its officers or
directors or to their respective spouses or children, in any amount whatsoever
other than in connection with accrued and unpaid salaries, expenses or advances
of expenses incurred in the ordinary course of business or relocation expenses
of employees. None of the Company's officers or directors, or any members of
their immediate families are, directly or indirectly, indebted to the Company
(other than in connection with purchases of the Company's stock) or to the
Company's knowledge have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that officers, directors and/or stockholders of the Company may
own stock in (but not exceeding two percent of the outstanding capital stock of)
any publicly traded company that may compete with the Company. Except as set
forth on Schedule 3.14, none of the Company's officers or directors or any
member of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
3.15 Tax Returns, Payments and Elections. The Company has filed all tax
returns and reports (including information returns and reports) as required by
law. These returns and reports are true and correct in all material respects.
The Company has never had any tax deficiency proposed or assessed against it and
has not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge, except for nonmaterial assessments
as have been resolved by the Company prior to January 1, 1999 with the
applicable taxing or assessing authority. None of the Company's federal income
tax returns and none of its state income or franchise tax returns has ever been
audited by governmental authorities. The Company has withheld or collected from
each payment made to each of its employees, the amount of all taxes (including,
but not limited to, federal income taxes, Federal Insurance Contribution Act
6
<PAGE> 7
taxes and Federal Unemployment Tax Act Taxes) required to be withheld or
collected therefrom, and has paid the same to the proper tax receiving officers
or authorized depositories.
3.16 Financial Statements. The Company has delivered to the Investor
the balance sheets, and statements of retained earnings, operations and cash
flow of the Company as of and for the year ended July 31, 1998 and the unaudited
balance sheets, and statements of retained earnings, operations and cash flow of
the Company as of and for the ten month period ended May 31, 1999 (collectively,
the "Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except that the unaudited Financial
Statements do not contain notes required by generally accepted accounting
principles). The Financial Statements present fairly in all material respects
the financial condition and operating results of the Company as of the dates,
and for the periods indicated therein (subject, in the case of the unaudited
Financial Statements, to normal year-end audit adjustments, none of which,
either individually or, in the aggregate, will be material). Except as set forth
in the Financial Statements, the Company has no material liabilities, contingent
or otherwise, other than (1) liabilities incurred in the ordinary course of
business subsequent to June 30, 1999 and (11) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate are not
material to the financial condition or operating results of the Company and do
not exceed $20,000 in value. Except as disclosed in the Financial Statements,
the Company is not a Guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles.
3.17 Changes. Except as set forth on Schedule 3.17, since June )O, 1999
there has not been:
(a) any change in the business, assets, liabilities, financial
condition or operations of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not had,
and may not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the financial condition or operations of the Company;
(b) any damage, destruction or loss, whether or not covered by
insurance, which has had, or may reasonably be expected to have, individually or
in the aggregate, a material adverse effect on the financial condition or
operations of the Company;
(c) any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
7
<PAGE> 8
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, assets, properties,
prospects, financial condition or operating results of the Company (as such
business is presently conducted and as It is proposed to be conducted);
(e) any material change to any contract or agreement set forth
on Schedule by which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(g) any sale., assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any
officer or key employee of the Company- and the Company, to the best of its
knowledge, does not know of any impending resignation or termination of
employment of any such officer or key employee;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business,
(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition or any of such stock by the
Company,
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted); or
(n) any arrangement or commitment or understanding by the
Company to do any of the things described in this Section 3.17.
3.18 Legal Compliance. The Company has all franchises, permits,
licenses and other rights and privileges necessary to permit it to own its
properties and to conduct its business as presently conducted, except where the
failure to have such will not have a
8
<PAGE> 9
material adverse effect on the Company's business prospects. results of
operations or financial condition and (b) the Company, and the business and
operations of the Company, have been and are being conducted in all material
respects in accordance with all applicable laws, rules and regulations, and the
Company is not in violation of any judgment, order or decree.
3.19 Brokerage or Finder's Fees. The Company has not incurred any
obligation or liability for brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by the Company.
3.20 Minute Books. The minute books of the Company made available to
Investor contain an accurate summary of all meetings, consents and actions of
the board of directors, committees of the board of directors and the
shareholders of the Company since the time of its incorporation, accurately
reflecting all transactions referred to in such minutes in all material
respects.
3.21 No Pending Transactions. The Company is not a party to or bound by
any agreement (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) providing for
any other form of acquisition, liquidation, dissolution or winding up of the
Company, or (iv) except as otherwise contemplated by this Agreement to issue,
grant or sell any capital stock of the Company or rights to acquire the
Company's capital stock.
3.22 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, insuring its properties
that might be damaged or destroyed.
3.23 Nature of Investment.
(a) The Investor Shares to be received by the Company will be
acquired for investment for the Company's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and the Company has no present intention of selling, granting any participation
in, or other-wise distributing the same,, but subject to the ability of the
Company to transfer shares to an affiliate (within the meaning of Rule 405
promulgated under the Securities Act) of the Company. The Company has no need
for liquidity related to the acquisition of the Investor Shares.
(b) The Company, or a representative thereof, has received and
read or reviewed, and is familiar with, this Agreement and the other agreements
executed in connection with this Agreement and confirms that all documents.
books and records pertaining to the Investor's investment in the Company and
requested by the Investor
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have been made available to the Investor.
(c) The Company has had an opportunity to ask questions and
receive answers from the Investor regarding the terms and conditions of the
offering of the Investor Shares and about other information, documents and
records relative to Investor's business assets, financial condition, results of
operations and liabilities. The foregoing, however. does not limit or modify the
representations and warranties of the Investor in Section 4 of this Agreement or
the right of the Company to rely thereon.
(d) The Company is an experienced investor in securities and
acknowledges that it can bear the complete economic risk of its investment and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Investor
Shares. The Company also represents it is an "accredited investor"' within the
meaning of Rule 501 (a) promulgated under the Securities Act.
(e) The purchase of the Investor Shares by the Company is
consistent with the general investment objectives of the Company. The Company
understands that the purchase of the Investor Shares involves a high degree of
risk in view of the fact that, among other things, the Investor is a start-up
enterprise, and there may be no established market for the Investor Shares.
(f) The Company understands that the Investor Shares it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Investor in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may not be resold without registration
under the Securities Act and applicable state securities laws, except in certain
limited circumstances. In this connection, the Company represents that it is
familiar with Rule 144 under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
The Company agrees that in no event will it make a transfer or disposition of
any of the Investor Shares unless and until, if requested by the Investor, it
shall have furnished to the Investor (at the expense of the Company or
transferee) an opinion of counsel or other evidence, reasonably satisfactory to
the Investor, to the effect that such transfer may be made without restrictions
under the Securities Act. The Company understands that the Investor is under no
obligation to register any of the securities sold hereunder. The Company
understands that no public market now exists for the Investor Shares and that it
is uncertain whether a public market will ever exist for the Investor Shares.
(g) It is understood that the certificates evidencing the
Investor Shares shall bear the following legend, as well as any other legend as
may be required by applicable federal and state securities laws:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933), AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE.
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THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED, RESOLD, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH AND SUBJECT TO ALL THE TERMS AND CONDITIONS OF A STOCKHOLDER
AGREEMENT THEN IN EFFECT AND EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM."
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby represents and warrants to the Company at the
Initial Closing Date and at each Additional Closing Date as follows:
4.1 Authorization. The Investor has requisite power and authority to
enter into this Agreement and all other agreements, documents or instruments
contemplated by this Agreement and this Agreement constitutes its valid, legal
and binding obligation, enforceable in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally, and except that the availability of the remedy of specific
performance or other equitable relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
4.2 Corporate Power. The Investor has all requisite legal and corporate
power and authority (i) to execute and deliver this Agreement and the other
agreements contemplated herein; (ii) to issue and sell the Investor Shares; and
(iii) to carry out and perform its other obligations under the terms of this
Agreement and the other agreements contemplated herein.
4.3 Validity of Stock. The Investor Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, will be free of any liens or encumbrances, and shall not be
subject to any preemptive rights, rights of first refusal or redemption rights.
4.4 Compliance with Other Instruments. The execution, delivery and
performance of and compliance with this Agreement and the consummation of the
transactions contemplated hereby will not result in any violation, breach or
default of any term of (i) the Investor's Certificate of Incorporation or
Bylaws, (ii) any provision of any mortgage, indenture, contract. agreement or
instrument to which the Investor is a party or by which it is bound, (iii) any
judgment, decree or order binding upon the Investor or any statute, rule or
regulation applicable to the Investor such term, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Investor pursuant to any such term.
4.5 Litigation, etc. There is no Action pending or, to the best
knowledge of the Investor, currently threatened (a) against the Investor, (b)
affecting any of its properties or assets, (c) that questions the validity of
this Agreement or any of the other agreements
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contemplated herein or the right of the Investor to enter into this Agreement or
any of the other agreements contemplated herein, or consummate the transactions
contemplated hereby or thereby or. (d) to the best knowledge of the Investor,
against any officer, director or employee of the Investor in connection with
such officer's, director s or employee's relationship with, or actions taken oil
behalf of the Investor.
4.6 Nature of Investment.
(a) The Shares to be received by the Investor will be acquired
for investment for the Investor's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and the
Investor has no present intention of selling, granting an,, participation in, or
otherwise distributing the same, but subject to the ability of the Investor to
transfer shares to an affiliate (within the meaning of Rule 405 promulgated
under the Securities Act) of the Investor.
(b) The Investor has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Shares and about other information, documents and records
relative to the Company's business assets, financial condition, results of
operations and liabilities. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 of this Agreement or
the right of the Investor to rely thereon.
(c) The Investor is an experienced investor in securities and
acknowledges that it can bear the complete economic risk of its investment and
has such knowledge and experience in Financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Shares. The
Investor also represents it is an "accredited investor" within the meaning of
Rule 501 (a) promulgated under the Securities Act.
(d) The Investor understands that the Shares it is purchasing
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may not be resold without registration under the Securities Act
and applicable state securities laws, except in certain limited circumstances.
In this connection, the Investor represents that it is familiar with Rule 144
under the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act. The Investor agrees that
in no event will it make a transfer or disposition of any of the Shares unless
and until, if requested by the Company, it shall have furnished to the Company
(at the expense of the Investor or transferee) an opinion of counsel or other
evidence, reasonably satisfactory to the Company, to the effect that such
transfer may be made without restrictions under the Securities Act. The Investor
understands that the Company is under no obligation to register any of the
securities sold hereunder. The Investor understands that no public market now
exists for the Common Stock and that it is uncertain whether a public market
will ever exist for the Common Stock.
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(e) It is understood that the certificates evidencing the
Shares shall bear the following legend, as well as any other legend as may be
required by applicable federal and state securities laws:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, RESOLD, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AND SUBJECT TO ALL THE TERMS AND
CONDITIONS OF A STOCKHOLDER AGREEMENT THEN IN EFFECT AND EXCEPT AS PERMITTED
UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM."
4.7 Brokerage or Finder's Fees. The Investor has not incurred any
obligation or liability for brokerage commissions, finder's fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by the Investor.
5. CONDITIONS TO CLOSING OF INVESTOR.
5.1 Initial Closing. The obligation of the Investor to purchase and pay
for the Shares at the Initial Closing is subject to the fulfillment to the
satisfaction of the Investor (or the waiver by the Investor) on or prior to the
Initial Closing Date of the following conditions: (a) the representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all respects when made, and shall be true and correct on the Initial Closing
Date with the same force and effect as if they had been made on and as of such
date; (b) all covenants, agreements and conditions contained in this Agreement
to be performed or complied with by the Company on or prior to the Initial
Closing Date shall have been performed or complied with in all material
respects; (c) the Company shall have obtained all approvals, consents and
waivers necessary for the consummation of the transactions contemplated by this
Agreement; (d) a Shareholders' Agreement, substantially in the form attached
hereto as Exhibit A, shall have been entered into by the Company and the
shareholders of the Company (Stephen W. Myers, Debora P. Myers, Don Flynt and
Carey Coffman) and the Investor; (e) a Stockholders' Agreement, substantially in
the form attached hereto as Exhibit B, shall have been entered into by the
Company and the Investor; (f) an Indemnification Agreement, substantially in the
form attached hereto as Exhibit C, shall have been entered into by the Company
and the Investor's designee to the Company's Board of Directors; (g) Burdett,
Morgan & Thomas, L.L.P., counsel for the Company, shall have delivered to the
Investor its legal opinion, dated as of the Initial Closing Date and in the form
as reasonably agreed to by the parties; (h) an Agreement Regarding Interfaces,
substantially in the form attached hereto as Exhibit D, shall have been entered
into by the Company and the Investor; (i) a compliance certificate, dated as of
the Initial Closing Date, signed by the Company's president certifying that the
conditions specified in Section 5.1(a)(b) and (c)
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of this Agreement have been fulfilled shall have been delivered to the Investor;
(j) the completion by the Investor and its representatives of a successful due
diligence review of Company and the Company's business, the success of which
shall be determined in the sole discretion of the Investor, and (k) the delivery
by the Company to the Investor of the following:
(i) a certificate of the Secretary of the Company
certifying the following as being true, correct, complete and in full force and
unmodified as of the Initial Closing Date: (1) the resolutions of the Board of
Directors of the Company authorizing and approving this Agreement and all of the
transactions and agreements contemplated hereby, (2) the Articles of
Incorporation of the Company, as amended to date and as certified by the
Secretary of State of Texas as of a date within fifteen (15) days of the Initial
Closing Date, (3) Bylaws of the Company, as amended to date, and (4) the names
of the officer or officers of the Company authorized to execute this Agreement
and any and all documents, agreements, and instruments contemplated herein;
(ii) a certificate of good standing for the Company
from the Secretary of State of Texas, and (ii) a certificate from each state
where the Company is required to be qualified as a foreign corporation showing
such qualification, each such certificate specified in this paragraph (ii) dated
as of a date within fifteen (I 5) days of the Initial Closing Date; and
(iii) such other documents, instruments, and
certificates as the Investor may reasonably request.
(b) Additional Closings. The obligation of the Investor to
purchase and pay for the Shares at each Additional Closing is subject to the
fulfillment (or waiver by the Investor) on or prior to the Additional Closing
Date of the following conditions: (a) the representations of the Company
contained in this Agreement shall be true and correct in all respects with the
same force and effect as if they had been made on and as of each Additional
Closing Date (as updated where applicable, provided that such updates do not
constitute a material adverse change); (b) the Company shall be in material
compliance with all covenants, agreements and conditions contained in this
Agreement; and (c) the Company shall have delivered to the Investor such
documents, instruments and certificates as the Investor may reasonably request.
6. CONDITIONS TO CLOSING OF COMPANY.
The Company's obligation to sell the Shares to the Investor at each
respective Closing is subject to the fulfillment on or prior to the applicable
Closing Date of the following conditions:
6.1 Representations. The representations and warranties made by the
Investor in Section 4 hereof shall be true and correct in all respects when made
and shall be true and correct in all respects with the same force and effect as
if they had been made on the applicable Closing Date (as updated where
applicable, provided that such updates do not
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constitute a material adverse change).
6.2 Payment of Purchase Price. The Investor shall have delivered the
purchase price for the Shares being purchased at such Closing in accordance with
the provisions of Section 1.2.
6.3 Securities Exemptions. The offer and sale of the Shares to the
Investor pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act. and the registration and/or qualification
requirements of all other applicable state securities laws.
7. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees with the Investor as follows:
7.1 Preservation of Corporate Existence. The Company shall preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the ownership or lease of
its properties. The Company shall use its best efforts to operate the business
substantially in the manner operated as of the date of this Agreement and will
continue to dedicate the same or greater resources to, and endeavor to expand,
its business and prospects.
7.2 Compliance with Laws, Taxes. The Company shall comply in all
material respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paving all taxes, assessments and
governmental charges imposed upon it or upon its property before the same become
delinquent, except to the extent contested in good faith.
7.3 Maintenance of Insurance. The Company shall maintain insurance with
and reputable insurance companies or associations in such amounts and covering
response such risks as is customarily carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Company operates.
7.4 Keeping of Records and Books of Account. The Company shall keep
adequate records and books of account in which complete entries will be made in
accordance with generally accepted accounting principles consistently applied,
reflecting all financial transactions of the Company and in which, for each
fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
7.5 Maintenance of Properties. The Company shall maintain and preserve
all of material properties and assets, necessary or useful in the proper conduct
of its business, in good repair, working order and condition, ordinary wear and
tear excepted.
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7.6 Contracts and Rights. The Company shall maintain and preserve its
rights under all material contracts and shall maintain its Proprietary Rights as
necessary or useful in the proper conduct of its business.
7.7 Board of Directors. The Board of Directors (the "Board") of the
Company shall include one (1) director elected by the Investor pursuant to the
Shareholders' Agreement. The Company will promptly reimburse in full such
director for all reasonable out-of-pocket expenses incurred in attending each
meeting of the board of directors or any committee thereof.
7.8 Restriction on Technology Transfers. The Company shall not
transfer, sell, dispose of, assign, lease, license or donate any ownership or
interest in, or material rights relating to, any of its technology, or other
Proprietary Rights to any person or entity (a "Technology Transfer"), without
the prior written consent of the Investor and without first offering to make
such Technology Transfer to the Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice by certified mail (the
"Technology Transfer Notice") to the Investor stating (i) its bona fide
intention to make such Technology Transfer, (ii) the technology or Proprietary
Rights to be offered, and (iii) the price and terms, if any, upon which it
proposes to offer such technology or Proprietary Rights.
(b) Within twenty (20) calendar days after delivery of the
Technology Transfer Notice, the Investor may elect to purchase or obtain, at the
price and on the terms specified in the Technology Transfer Notice, up to all of
such technology or Proprietary Rights; provided, however, that no such election
shall be binding upon the Investor unless and until such time as the Company has
obtained binding commitments relating to the Technology Transfer specified in
the Technology Transfer Notice at the price and upon the terms specified in the
Technology Transfer Notice.
(c) The Company may, during the 60-day period following the
expiration of the period provided in subsection (b), offer the unsubscribed
portion of the Technology Transfer to any person or persons at a price not less
than, and upon terms no more favorable to the offeree than those specified in
the Technology Transfer Notice. If the Company does not enter into an agreement
for the Technology Transfer within such 60-day period, or if such agreement is
not consummated within such 60-day period, the right provided hereunder shall be
deemed to be revived and such technology or Proprietary Rights shall not be
offered unless first offered to the Investor in accordance with this Section.
(d) This Section shall not apply to transfers or licenses of
technology or Proprietary Rights accomplished in the ordinary course of business
as presently conducted or proposed to be conducted.
(e) The provisions of this Section shall be, where applicable,
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subordinate to the existing right of first refusal held by Lextron, Inc.
pursuant to that certain Agreement dated as of February 18, 1997 by and among
the Company, Lynn R. Camp, Barbara A. Camp, Stephen W. Myers and Lextron, Inc.
(the "Lextron Agreement").
7.9 Basic Information and Access and Additional Information.
(a) As soon as practicable after the end of each fiscal year,
and in any event within ninety (90) days thereafter, the Company will furnish to
the Investor an unaudited consolidated balance sheet of the Company and its
subsidiaries, if any, as at the end of such fiscal year, and consolidated
statements of income and stockholder equity and cashflows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied, setting forth in each case
in comparative form the figures for the previous fiscal year, all in reasonable
detail.
(b) As soon as practical, but in any event within thirty (30)
days after the end of each month of each fiscal year of the Company, the Company
will furnish to the Investor an unaudited profit or loss statement, a statement
of cash flows for such fiscal month and an unaudited balance sheet as of the end
of such fiscal month.
(c) Upon the request of the Investor, the Company shall permit
the Investor to visit and inspect any of the properties of the Company or any of
its subsidiaries, and to discuss its affairs with the officers and to inspect
the Company's books, records and ledgers, all at such reasonable times and as
often as may be reasonably requested.
(d) At least thirty (30) days before the end of the fiscal
year, the Company shall furnish to the Investor the annual budget of the Company
for the succeeding fiscal year.
(e) Notwithstanding the foregoing, the provisions of Sections
7.9(a) through (d) above shall terminate upon the closing of a registered public
offering of the Company's capital stock.
7.10 Connectivity Access. From the Initial Closing Date and for so long
as Investor owns any Shares, the Company shall provide the Investor: (a)
guaranteed access to (and all necessary or appropriate support relating to such
access) all data maintained on its legacy computer systems with respect to its
customers; and (b) the means to provide connectivity between (and all necessary
or appropriate support relating to such connectivity) such legacy computer
systems data and the Investor's Management Information systems. In exchange for
such access and connectivity, the Company and the Investor shall negotiate a
reasonable and customary fee prior to the Initial Closing Date. The terms
contained in this Section are set forth in more detail in the Agreement
Regarding Interfaces, attached hereto as Exhibit D. The parties acknowledge that
the rights afforded by this Section represent a material inducement for the
parties to enter
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into this Agreement, and that the parties would not have entered into this
Agreement on the terms and conditions set forth in this Agreement absent these
rights. Notwithstanding any other provision of this Agreement to the contrary,
this Section shall survive the termination of this Agreement, except as provided
in Section 11.4.
7.11 Exclusive Rights. From the Initial Closing Date and for so long as
Investor owns any Shares, the Company shall: (a) establish and maintain an
electronic commerce link with respect to its operations relating to cattle
sales, feed sales (which for the purposes of this Agreement shall initially
exclude feed additives, health related products and other supply items) and
other products as may be agreed to by the parties in a form reasonably
acceptable to the Investor (including, for example, a link through a hot button
or private label program); and (b) grant the Investor exclusive rights to be the
provider of any electronic commerce services for the Company relating to such
operations relating to cattle sales, feed sales and other products as may be
agreed to by the parties. The Company and the Investor shall negotiate in good
faith with respect to the details of the provisions contained in this Section;
provided, however, that the parties acknowledge that the Investor shall be the
sole and exclusive provider of electronic commerce services to the Company's
operations relating to cattle sales, feed sales and other products as may be
agreed to by the parties, and the Company shall be precluded from entering into
any electronic commerce relationships with third parties relating to the
Company's operations relating to cattle sales, feed sales and other products as
may be agreed to by the parties. In addition, the Company shall not grant
exclusive rights to any other party relating to the provision of electronic
commerce services for any of the Company's operations other than cattle sales,
feed sales or other products as may be agreed to by the parties, and shall
provide the Investor with the opportunity to participate in the provision of any
such services for these operations granted to third parties on a nonexclusive
basis. The parties acknowledge that the rights afforded by this Section
represent a material inducement for the parties to enter into this Agreement,
and that the parties would not have entered into this Agreement on the terms and
conditions set forth in this Agreement absent these rights. Notwithstanding any
other provision of this Agreement to the contrary, this Section shall survive
the termination of this Agreement, except as provided in Section 11.4.
7.12 Use of Proceeds. The Company shall pay, or caused to be paid, when
due and payable, all amounts due under that certain Promissory Note dated
February 17, 1997 made by Lynn R. Camp and Stephen W. Myers (the "Borrowers")
and payable to Lextron, Inc. in the original aggregate principal amount of
$420,000, with respect to which shares of the Company are being held as
collateral (the "Lextron Note"). The Company shall notify the Investor of any
actual or potential default under the Lextron Note promptly after it receives
notice of such actual or potential default, but in any event prior to the
foreclosure upon any shares of the Company being held as collateral for the
Lextron Note. Upon receipt of such notice, the Investor shall have the option,
if it so elects in its sole discretion, to: (i) repay the Lextron Note and
replace it with a note to the Borrowers with the same terms and conditions as
the Lextron Note (including the receipt of collateral consisting of the shares
being held as collateral for the Lextron Note); (ii) repay the Lextron Note and
offset the amounts due under the Lextron Note against any
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future payments made by the Investor to the Company on the next Additional
Closing Date or at any other time; or (iii) take no action.
8. RESTRICTIONS ON ISSUANCE OF ADDITIONAL SECURITIES.
8.1 Dilution Protection. The Company acknowledges that the purchases
made by Investor under this Agreement constitute an investment in 19% of the
outstanding capital stock of the Company. In this regard, for so long as the
Investor owns any Shares, upon any issuance of (a) Common Stock or other
securities of the Company, (b) options to purchase or rights to subscribe for
Common Stock or other securities of the Company, (c) securities convertible into
or exchangeable for Common Stock or other securities of the Company, and (d)
options to purchase or rights to subscribe for such convertible or exchangeable
securities (collectively, the "Covered Securities"), the Company shall
automatically grant to the Investor sufficient Covered Securities described in
subsections (a) through (d) so as to maintain the Investor's then current
percentage ownership of the Company, with any convertible securities determined
on an as converted basis. The purchase price for such Covered Securities shall
be the par value of the securities issued (in the case of subsection (a)) or the
par value of the Common Stock into which such Covered Securities are convertible
(in the case of subsections (b) through (d)). Payment for such Covered
Securities shall be made by the Investor in cash upon ten (10) days prior notice
from the Company of such issuance. This additional issuance right shall not
apply to (A) shares of Common Stock, rights, options or warrants granted or
awarded by the Company, with the approval of its Board of Directors, including
the approval of the Board designee of the Investor, to employees, directors and
consultants of the Company as compensation for service to the Company in any
such capacities. if such rights, options or warrants are granted at an exercise
price or value not less than the fair market value of a share as of the date of
grant, up to and no more than an aggregate of 7,036 shares of Common Stock (as
adjusted to provide for any dividends, stock distributions, splits, combinations
or recapitalizations), (B) the issuance of Common Stock or securities
convertible into Common Stock in connection with any merger or acquisition
involving the Company, which merger or acquisition is properly authorized and
approved by the Board of Directors, including the approval of the Board designee
of the Investor, or (C) any Covered Securities where the additional issuance
rights have been waived in writing by the Investor.
8.2 Right of First Refusal.
(a) In addition to the rights set forth in Section 8.1, and
until such time as the Company shall have consummated a registered public
offering, the Investor shall have the preemptive right to subscribe for the
issuance of any and all Covered Securities; provided, however, that the Investor
shall not have a preemptive right to subscribe for (A) shares of Common Stock,
rights, options or warrants granted or awarded by the Company, with the approval
of its Board of Directors, including the approval of the Board designee of the
Investor, to employees, directors and consultants of the Company as compensation
for service to the Company in any such capacities, if such rights, options or
warrants are granted at an exercise price or value not less than the fair market
value of
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a share as of the date of grant, up to and no more than an aggregate of 7,036
shares of Common Stock (as adjusted to provide for any dividends, stock
distributions, splits, combinations or recapitalizations), (B) the issuance of
Common Stock or securities convertible into Common Stock in connection with any
merger or acquisition involving the Company, which merger or acquisition is
properly authorized and approved by the Board of Directors, including the
approval of the Board designee of the Investor, (C) any Covered Securities where
the preemptive rights have been waived in writing by the Investor, or (D) any
Covered Securities where the issuance of such Covered Securities would represent
less than a controlling interest in the Company for the holder of such
securities; provided, further, however, that such preemptive rights shall not
affect the Investor's rights under Section 8.1 with respect to any Covered
Securities issued to the Investor pursuant to such Section. For purposes of this
Agreement, an issuance of Covered Securities to a holder shall represent a
"controlling interest" in the Company if such issuance, when taken together with
all other Covered Securities directly or beneficially owned by such holder,
represents 30% or more of the combined voting power or ownership of the
outstanding capital stock of the Company, considered on an as converted basis
where applicable.
(b) In the event the Company proposes to issue any Covered Securities
where such issuance is subject to the provisions of this Section, the Company
shall first make an offering of such securities in accordance with the following
provisions:
(i) The Company shall deliver a notice by certified mail (the
"Preemption Notice") to the Investor stating (A) its bona fide intention to
offer such securities, (B) the number of such securities to be offered, and (C)
the price and terms, if any, upon which it proposes to offer such securities.
(ii) Within twenty (20) calendar days after delivery of the
Preemption Notice, the Investor may elect to purchase or obtain, at the price
and on the terms specified in the Preemption Notice, up to all of such
securities; provided, however, that no such election to purchase securities
shall be binding upon the Investor unless and until such time as the Company has
obtained binding commitments to purchase all of the securities specified in the
Preemption Notice at the price and upon the terms specified in the Preemption
Notice.
(iii) The Company may, during the 60-day period following the
expiration of the period provided in subsection (ii), offer the unsubscribed
portion of the securities to any person or persons at a price not less than, and
upon terms no more favorable to the offeree than those specified in the
Preemption Notice. If the Company does not enter into an agreement for the sale
of the securities within such 60-day period, or if such agreement is not
consummated within such 60-day period, the right provided hereunder shall be
deemed to be revived and such securities shall not be offered unless first
offered to the Investor in accordance with this Section.
(c) The provisions of this Section shall be, where applicable,
subordinate to the existing right of first refusal held by Lextron, Inc.
pursuant to the
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Lextron Agreement.
9. COMPANY PUT RIGHTS.
9.1 Put. If (a) the Investor has not consummated an initial public
offering of the Investor Common Stock under the Securities Act by December 31,
2001, or (b) the Investor undergoes a "change of control," the Company shall
have the one (1) time right to sell ("Put") to the Investor all, but not less
than all, of the Investor Shares (the "Put Securities") for a period of thirty
(30) days following the occurrence of the trigger event described in clause (a)
or (b) of this Section 9.1. For purposes of this Section 9, a "change of
control" shall mean a merger, consolidation or other business combination
pursuant to which the shareholders of the Investor immediately prior to the
effective date of such transaction have beneficial ownership of less than fifty
percent (50%) of the total combined voting power for election of directors of
the surviving corporation immediately following such transaction and the
consideration for such merger, consolidation or other business combination does
not consist of cash and/or securities registered under the Securities Act.
9.2 Exercise. In the event the Company wishes to exercise its right to
Put the Put Securities, the Company shall notify the Investor in writing of its
intention to exercise its Put right.
9.3 Purchase. The purchase price (the "Put Price") of the Put
Securities shall be $500,000. The Investor shall purchase the Put Securities
within ninety (90) days from the date it receives notice of the Company's intent
to exercise the Put; provided, however, that if the Investor is unable to
purchase all of the Put Securities due to state law restrictions, the Put
Securities shall be repurchased from time to time to the maximum extent the
Investor is legally permitted to do so, and the Put obligation of the Investor
under this Section 9 will be a continuing obligation until the Investor's
repurchase of all the Put Securities.
9.4 Closing. The Put closing (including any subsequent purchase closing
date if multiple purchases result from the application of Section 9.3), shall
occur at the Investor's principal office. At the Put closing, to the extent
applicable, the Company shall deliver the Put Securities being sold, duly
endorsed in blank, accompanied by such supporting documents as the Investor may
reasonably determine to be necessary to pass to the Investor good title to the
Put Securities, free and clear of all liens (other than restrictions under
applicable securities laws and/or any shareholders' agreements). In
consideration therefor, the Investor shall deliver to the Company payment, by
certified check, cashier's check, or wire transfer, of the aggregate Put Price.
9.5 Transfer of Put Right. The Put right granted hereunder is not
assignable.
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10. REGISTRATION RIGHTS
10.1 Optional Registrations.
(a) If, at any time or from time to time after the Investor
has closed an initial public offering of the Investor Common Stock, the Investor
decides to register any of the Investor Common Stock or securities convertible
or exchangeable for Investor Common Stock under the Securities Act on a form
suitable for an offering for cash, other than a registration solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Securities and Exchange Commission (the "Commission") is applicable,
the Investor will promptly give written notice to the Company, and the Investor
will use reasonable efforts to effect the registration under the Securities Act
of all Registrable Securities (as defined in Section 10.2) that the Company
requests be included in such registration by a written notice delivered to the
Investor within fifteen (15) days after the notice given by the Investor.
(b) If the registration involves an underwritten public
offering, the Investor will not be required to register Registrable Securities
in excess of the amount that the principal underwriter reasonably and in good
faith recommends may be included in such offering (a "Cutback"). If such a
Cutback occurs, the number of shares that are entitled to be included in the
registration and underwriting shall first be allocated to the Investor for
securities being sold for its own account, shall next be allocated to holders
with registration rights existing prior to the date of this Agreement, and
thereafter shall be allocated among the other holders requesting inclusion in
the registration (including the Company) pro rata on the basis of the number of
shares each requesting holder requests be included bears to the total number of
shares of all requesting holders (other than the Investor) that have been
requested to be included in such registration.
(c) If the Investor elects to terminate any registration filed
under this Section, the Investor will have no obligation to register the
securities sought to be included by the Company in such registration. In
connection with a registration made by the Investor pursuant to this Section,
all expenses of the Investor for such registration and offering and the
reasonable fees and expenses of independent counsel for the Company will be
borne by the Investor (except that the Company will bear underwriting discounts
and commissions attributable to its Registrable Securities being registered and
transfer taxes on shares being sold by it).
10.2 Registrable Securities. For the purposes of this Section, the term
"Registrable Securities" shall mean any shares of Investor Common Stock issued
pursuant to this Agreement, and any other securities issued as a dividend of
other distribution with respect to, or in exchange for or in replacement of, any
shares of Investor Common Stock issued pursuant to this Agreement, except for
shares of Investor Common Stock that have been sold or transferred pursuant to
an effective registration statement or pursuant to Rule 144 under the Securities
Act.
10.3 Procedure for Registration. Whenever the Investor is required
under this
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Agreement to register Investor Common Stock, it agrees to (a) furnish to the
Company such copies of each preliminary and final prospectus and such other
documents as the Company may reasonably request to facilitate the public
offering of its Registrable Securities; and (b) upon the reasonable request of
the Company, use reasonable efforts to register or qualify the Registrable
Securities covered by the registration statement under the securities or
"blue-sky" laws of such jurisdictions as are necessary to permit the sale of
such securities by any selling holder, although the Investor will not have to
register in any states that require it to qualify to do business or subject
itself to general service of process.
10.4 Indemnification.
(a) Subject to applicable law, the Investor will indemnify the
Company and each person controlling the Company against all claims, losses,
damages and liabilities, including legal and other expenses reasonably incurred,
arising out of any untrue or allegedly untrue statement of a material fact
contained in the registration statement, or any omission or alleged omission to
state a material fact required to be stated in the registration statement or
necessary to make the statements not misleading, or arising out of any violation
statement by the Investor of the Securities Act, any state securities or
"blue-sky" laws or any applicable rule or regulation.
(b) Subject to applicable law, the Company will indemnify the
Investor, and each person controlling the Investor, against all claims, losses,
damages and liabilities, including legal and other expenses reasonably incurred.
arising out of any untrue or allegedly untrue statement of a material fact
contained in the registration statement, or required to be stated in the
registration statement o r necessary to make the statements contained therein
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information or affidavit furnished in
writing by the Company to the investor specifically for inclusion in such
registration statement. In no event shall the liability of the Company under
this paragraph be greater in amount than the dollar amount of the proceeds
received by the Company upon the sale of the Investor Common Stock pursuant to
the registration statement giving rise to such indemnification obligation.
10.5 Rule 144 Requirements. If the Investor becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, the
Investor will use reasonable efforts to file with the Commission such
information as the Commission may require and will use reasonable efforts to
make available Rule 144 under the Securities Act (or any successor exemptive
rule).
10.6 Transfer of Registration Rights. The registration rights of the
Company under this Section 10 are not transferable and shall not be assigned by
the Company. Any assignment or transfer, or purported assignment or transfer,
shall be void and of no force or effect.
10.7 Obligations of the Company in a Registration. The Company agrees
to
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timely furnish such information regarding the Company and the securities sought
to be registered and to take such other action as the Investor may reasonably
request in connection with the registration or qualification of such securities
and/or the compliance of such registration statement with all applicable laws.
If the registration involves an underwriter, the Company agrees, upon the
request of such underwriter, not to sell any unregistered securities of the
Investor for a period of up to one hundred and eighty (180) days following the
effective date of the registration statement for such offering and to enter into
an underwriting agreement and/or any other agreements with such underwriters
containing usual and customary terms and provisions.
10.8 Termination of Rights. All rights of any holder of Registrable
Securities under this Section 10 shall terminate one (1) year after the Initial
Closing Date; provided, however, that the provisions of Section 10.4 shall
survive the termination of the rights under this Section 10.
11. MISCELLANEOUS.
11.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Texas, without regard to the State's conflicts of
law rules.
11.2 Survival. The representations and warranties of the parties made
herein shall survive the closing of the transactions contemplated hereby.
11.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the permitted successors, assigns, heirs, executors and administrators of
the Investors.
11.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
This Agreement may be amended, waived, discharged or terminated only with the
written consent of the Investor and the Company.
11.5 Brokerage and Finder's Fees. The Company, on the one hand, and the
Investor. on the other hand, will be responsible for, and will indemnify and
hold harmless the other party for, any brokerage commissions, finder's fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by the Company, on the one
hand, or by the Investor, on the other hand.
11.6 Notices, etc. All notices and other communications required or
permitted hereunder shall be given in writing and shall be deemed effectively
given upon personal delivery or upon deposit with the United States Postal
Service, by certified mail, return receipt requested, postage prepaid, or
otherwise delivered by hand or by messenger, addressed (a) if to the Investor to
the address set forth below its signature, or to such other address as the
Investor shall have furnished to the Company in writing, or (b) if to
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<PAGE> 25
the Company, at its address set forth below its signature, or at such other
address as the Company shall have furnished to the Investor in writing.
11.7 Expense of Transaction. Each party hereto shall bear its own
expenses in connection with the transaction described herein.
11.8 Titles and Subtitles. The titles of the sections, paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
11.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11.10 Timely Performance. Time is of the essence as to the performance
of the obligations required of the respective parties under this Agreement.
11.11 Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
11.12 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of this
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of this Agreement shall be enforceable in accordance with its terms.
11.13 Delays or Omission. No delay or omission to exercise any right,
power or remedy accruing to the Investor or to the Company, upon any breach or
default of any party under this Agreement, shall impair any such right, power or
remedy of the Investor or the Company, nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of the Investor or the Company of any breach or default
under this Agreement, or any waiver on the part of the Investor or the Company
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
11.14 Remedies. In addition to any remedies the parties may have at law
or in equity, the parties shall have the following remedies:
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(a) In the event that (i) the Investor fails to consummate an
Additional Closing within fifteen (15) days of any scheduled Additional Closing
Date specified in Section 2.2, and (ii) the Company has met all of its
conditions to such Additional Closing under Section 5.2 as of such time, then
all rights granted to the Investor in Sections 7.7, 7.8, 8.1 and 8.2 shall be of
no further force or effect. until and unless the Investor consummates such
Additional Closing(s) in one subsequent Additional Closing on or before December
31, 2002 with the payment in full by the Investor to the Company of all
remaining amounts due under Section 1.2.
(b) In the event that (i) the Investor falls to consummate the
first Additional Closing within fifteen (15) days of December 31, 1999, and (ii)
the Company has met all of its conditions to such Additional Closing under
Section 5.2 as of such time, then all rights granted to the Investor in Sections
7.10, and 7.11 shall be of no further force or effect, until and unless the
Investor consummates such Additional Closing on or before December 31, 2002.
(c) The parties agree that as to the matters expressed in
Sections 7, 8, 9 and 10 of this Agreement, they will be irreparably damaged if
this Agreement is not specifically enforced. Upon a breach or threatened breach
of the terms, covenants and/or conditions of such provisions by the Company or
the Investor, the other party shall, in addition to all other remedies, be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions hereof
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IN WITNESS WHEREOF, the Company and the Investor have executed
and delivered this Agreement as of the day and year first above written.
THE COMPANY:
TURNKEY COMPUTER SYSTEMS, INC.
801 South Pierce Street
Amarillo, Texas 79101
By: /s/: Stephen W. Myers
---------------------
Name: Stephen W. Myers
-------------------
Title: President
------------------
THE INVESTOR:
EMERGE INTERACTIVE, INC.
10315 102nd Terrace
Sebastian, Florida 32958
By:/s/: Charles L. Abraham
-----------------------
Name: Charles L. Abraham
--------------------
Title: Chief Executive Officer
-----------------------
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EXHIBIT A
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Exhibit A
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (the "Agreement") is made and entered into
as of August _, 1999, by and among TURNKEY COMPUTER SYSTEMS, INC., a Texas
corporation (the "'Company"), Stephen W. Myers, Debora P. Myers, Don Flynt,
Carey Coffman (the "Shareholders"), and EMERGE INTERACTIVE, Inc. (the
"Investor").
WHEREAS, each of the Shareholders is now or hereafter may be the owner
of shares of capital stock of the Company or other securities that may be issued
in exchange for or in respect of shares of capital stock of the Company, whether
pursuant to any exercise, conversion, stock split, stock dividend, combination,
reclassification, reorganization or any other means (whether now or hereafter
acquired, the "Shares");
WHEREAS, the Company and the Investor are parties to that certain
Common Stock Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement");
WHEREAS, the obligations of the Company and Investor under the Purchase
Agreement are conditioned, among other things, upon the execution and delivery
of this Agreement by the Company, Shareholders and Investor, and
WHEREAS, each of the parties to this Agreement have agreed on the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for the continuity of ownership
of the Company to further the interests of the Company and its present and
future shareholders, the parties agree as follows:
1. Investor Right of First Refusal.
(a) Prior to any sale, transfer, pledge or other disposition
(collectively, a "Transfer") of any Shares owned by any Shareholder, such
Shareholder shall offer to the Investor the right, for a period of twenty-five
(25) business days from the date the Investor receives the written notice
described in subsection (b), below, the 25th such day being the "Effective
Date," to purchase all of such Shares for cash at an amount equal to the price
or other consideration for which such Shares are to be Transferred.
Notwithstanding the foregoing, a Shareholder may Transfer Shares: (i) pursuant
to a transfer or disposition by will or the laws of descent and distribution due
to the death of such Shareholder; (ii) pursuant to a sale between Shareholders
of less than a "controlling interest" (as defined below); or (iii) pursuant to a
sale representing less than a controlling interest in the Company; provided, in
each case, that the transferee under such provision agrees in writing with the
Company and the Investor to be bound by and subject to the terms of this
Agreement (such transferees being collectively referred to as the "Permitted
<PAGE> 30
Transferees"). For purposes of this Agreement, a sale of Shares shall represent
a "controlling interest" in the Company if the Shares subject to such Transfer,
when taken together with all other Shares directly or beneficially owned by the
transferee of such Transfer, represents 30% or more of the combined voting power
or ownership of the outstanding capital stock of the Company, considered on an
as-converted basis where applicable.
(b) With respect to each Transfer of Shares, the Shareholder
proposing such Transfer (the "Transferring Shareholder") shall provide written
notice to the Investor. Such written notice shall describe: (i) the Shares
proposed to be Transferred; (ii) whether the proposed transferee constitutes a
Permitted Transferee; and (iii) the number, price, payment, closing and other
relevant terms of the proposed Transfer. The Investor may indicate its interest
in purchasing all or any, lesser number of the Shares offered by the
Transferring Shareholder to a transferee that is not a Permitted Transferee by
providing written notice thereof to the Transferring Shareholder prior to the
expiration of the twenty-five (25) day period. In such event, the Transferring
Shareholder shall promptly Transfer to the Investor, upon the terms specified in
the notice from the Transferring Shareholder to the Investor, the number of
Shares specified in the notice from the Investor to the Transferring
Shareholder.
(c) In the event that the offer set forth in the notice
delivered by the Transferring Shareholder to the Investor is thereafter
modified, or in the event such proposed offer does not close within thirty (30)
days after the Effective Date, then the Transferring Shareholder must once again
offer such Shares to the Investor pursuant to the terms of this Agreement.
(d) The provisions of this Section shall be, where applicable,
subordinate to the existing rights of first refusal or collateral rights held by
Lextron, Inc. pursuant to that certain Agreement dated as of February 18, 1997
by and among the Company, Lynn R. Camp, Barbara A. Camp, Stephen W. Myers,
Debora P. Myers and Lextron, Inc.
2. Company Right of First Refusal.
(a) Prior to any Transfer of any Shares owned by the Investor,
the Investor shall offer to the Company the right, for a period of twenty-five
(25) business days from the date the Company receives the written notice
described in subsection (b), below, to purchase all of such Shares for cash at
an amount equal to the price or other consideration for which such Shares are to
be Transferred. Notwithstanding the foregoing, the Company may Transfer Shares
to any of its affiliates, as defined in the Securities Act of 1933, as amended
(an "Investor Permitted Transferee").
(b) With respect to each Transfer of Shares by the Investor,
the Investor shall provide written notice to the Company. Such written notice
shall describe: (i) the Shares proposed to be Transferred; (ii) whether the
proposed transferee constitutes an Investor Permitted Transferee; and (iii) the
number, price, payment, closing and other relevant terms of the proposed
Transfer. The Company may indicate its interest in
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purchasing all or any lesser number of the Shares offered by the Investor to a
transferee that is not an Investor Permitted Transferee by providing written
notice thereof to the Investor prior to the expiration of the twenty-five (25)
day period. In such event, the Investor shall promptly Transfer to the Company,
upon the terms specified in the notice from the Investor to the Company, the
number of Shares specified in the notice from the Company to the Investor.
(c) In the event that the offer set forth in the notice
delivered by the Investor to the Company is thereafter modified, or in the event
such proposed offer does not close within thirty (30) days after the Effective
Date, then the Investor must once again offer such Shares to the Company
pursuant to the terms of this Agreement.
(d) The rights of the Investor under Sections I and ') of this
Agreement, and Sections 7.7, 7.8, 8.1 and 8.2 of the Purchase Agreement, are
particular to the Investor and any Investor Permitted Transferee. In addition to
the termination of such rights under any other provision of this Agreement or
the Purchase Agreement, such rights shall terminate upon any Transfer occurring
after the final Additional Closing Date where upon the completion of such
Transfer the Investor and all Investor Permitted Transferees own in an aggregate
less than 50% of the Shares owned as of such final Additional Closing Date.
3. Investor Voting Rights. The Investor shall have the right to elect
one person to, and the right to remove such person from, the Board of Directors.
The Shareholders agree to vote all of their Shares for the Director selected by
the Investor pursuant to this Agreement at any annual or special meeting or
pursuant to any written consent, conducted or solicited for the purpose of
electing directors. The voting agreement contained in this Section is coupled
with an interest and the obligation assumed by the Shareholders to vote their
Shares as set forth above shall be deemed to be a right coupled with an interest
in favor of the Investor. In the event of any resignation (or removal by the
Investor) of the Director elected by the Investor, the Shareholders shall take
all actions necessary and appropriate to cause such vacancy to be filled in
accordance with the provisions hereof. The provisions of this Section shall be
subject to the provisions of Section 11.4 of the Purchase Agreement (insofar as
those provisions relate to Section 7.7 of the Purchase Agreement).
4. Term. This Agreement shall terminate upon the earlier of the written
agreement of the parties or at such time as the Investor ceases to be a holder
of Shares of the Company.
5. Specific Enforcement. The parties agree that as to the matters
expressed in this Agreement, they will be irreparably damaged if this Agreement
is not specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by the Company and/or the
Shareholders, the Investor shall, in addition to all other remedies, be entitled
to a temporary or permanent injunction, without showing any actual damage,
and/or a decree for specific performance, in accordance with the provisions
hereof.
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6. Legend. Each certificate or other document evidencing the Shares of
the Company shall bear a legend substantially as follows:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, RESOLD, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AND SUBJECT TO ALL
THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT AND EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
7. Transfer of Shares. The Company shall not: (a) permit any transfer
on its books of any Shares that have been sold or transferred in violation of
any of the provisions set forth in this Agreement; (b) treat as an owner of such
Shares or accord the right to vote as an owner or to pay dividends to any
transferee to whom such Shares shall have been sold or transferred in violation
of any of the provisions set forth in this Agreement; or (c) issue any
additional shares of capital stock on the Company unless the proposed holder of
such newly issued capital stock agrees to become bound by the terms of this
Agreement as a "Shareholder."
8. Additional Shareholders. The Company and/or the Shareholders shall
cause all future holders of Shares of the Company to execute a signature page to
this Agreement and become bound by its terms and conditions. The parties
acknowledge that any such party executing such a signature page shall be deemed
a party to this Agreement.
9. Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal or overnight delivery or on the date of postmark
if mailed by certified or registered mail, return receipt requested, to the
party being notified at their or its address specified on the applicable
signature page hereto or such other address as the addressee may subsequently
notify the other parties of in writing.
10. Entire Agreement and Amendments. This Agreement, the Purchase
Agreement, and the other documents delivered pursuant hereto or thereto
constitute the full and entire understanding and agreement among the parties
with regard to the subjects contained herein and therein. Any provision of this
Agreement may be amended or the
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observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company, the Investor and the holders of a majority of the Shares. Any amendment
or waiver effected in accordance with this Section shall be binding upon each
party to this Agreement.
11. Governing Law. This Agreement and the legal relations between the
parties arising under this Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas. The parties agree to submit to
the non-exclusive jurisdiction of the federal and state courts of the State of
Texas with respect to the breach or interpretation of this Agreement or the
enforcement of any and all rights, duties, liabilities, obligations, powers and
other relations between the parties arising under this Agreement.
12. Except as otherwise expressly provided herein, the provisions of
this Agreement shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties. The
parties may not assign their rights or obligations under this Agreement.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
14. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the part, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision then
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
Delays or Omission. No delay or omission to exercise any right, power or remedy
accruing to the Investor under this Agreement shall impair any such right, power
or remedy of Investor nor shall it be construed to be a waiver of any such.
breach or default, or an acquiescence therein, or of or in any similar breach of
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of the Investor of any breach or default under this
Agreement, or any waiver on the part of the Investor of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
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<PAGE> 34
IN WITNESS WHEREOF, the Company, the Investor and the Shareholders have
executed and delivered this Agreement as of the day and year first above
written.
COMPANY:
TURNKEY COMPUTER SYSTEMS, INC.
By:
---------------------------------------------------
Stephen W. Myers, President
Address: 801 South Pierce Street
Amarillo, Texas 79 1
(806) 372-1249 (fax)
INVESTOR:
EMERGE INTERACTIVE, INC.
By:
---------------------------------------------------
Address: 10315 102nd Terrace
Sebastian, Florida 32958
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<PAGE> 35
SHAREHOLDERS:
------------------------------------------------------
Stephen W. Myers
Address:
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----------------------------------------------
------------------------------------------------------
Debora P. Myers
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
------------------------------------------------------
Don Flynt
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
------------------------------------------------------
Carey Coffman
Address:
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---------------------------------------------
---------------------------------------------
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<PAGE> 36
EXHIBIT B
8
<PAGE> 37
EXHIBIT B
STOCKHOLDERS' AGREEMENT
(eMERGE INTERACTIVE, INC.)
THIS STOCKHOLDERS' AGREEMENT is dated as of ____________________, 1999
(the "Effective Date") by and among eMerge Interactive, Inc.,, a Delaware
corporation (the "Company"), and Turnkey Computer System, Inc. (the "Common
Stockholder" or the "Stockholder")
BACKGROUND
WHEREAS, the Stockholder is now or may hereafter be the owner of shares
of the common stock, par value $0.01 per share, of the Company (the "Common
Stock")
WHEREAS, the Company and the Stockholder are parties to that certain
Common Stock Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), whereby the Company has or will purchase shares of common stock of
the Stockholder in exchange for cash and shares of Common Stock of the Company;
WHEREAS, as a condition to the issuance of shares of Common Stock to
the Stockholder under the Purchase Agreement, the Company has required that the
Stockholder enter into this Agreement;
WHEREAS, each of the parties to this Agreement have agreed on the terms
and conditions set forth in this Agreement; and
WHEREAS, Additional Stockholders may Join this agreement when they
enter into stock purchase agreements with the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I.
DEFINITIONS
For convenience, certain terms used in several parts of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as other terms that are defined elsewhere in this Agreement shall be
equally applicable to both singular and plural forms of the terms defined).
"Affiliate" means, with respect to a particular party, any Person
controlling, controlled by or under common control with that party, as well as
any officer, director, partner and majority-owned entity of that party or of its
other Affiliates, and in the case of a natural Person, any member of such
Person's immediate family.
<PAGE> 38
"Agreement" means this Stockholders' Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Common Stock" is defined above in the Background section.
"Common Stockholder" is defined above in the preamble.
"Company" is defined above in the preamble.
"Effective Date" is defined above in the preamble.
"Offer" is defined in Section 2.2(a).
"Offer Notice" is defined in Section 2.2(a).
"Permitted Transfer" means, with respect to a particular Stockholder,
any Transfer to (i) any Affiliate of such a Stockholder, (ii) any Person holding
an equity interest in such a Stockholder, (iii) any investment fund in which
such Stockholder or an Affiliate thereof has an economic interest, (iv) the
spouse or children of such a Stockholder, (v) a trust or fiduciary that acts for
the benefit of any such spouse or children, (vi) the Company, or (vii) any other
Stockholder, and any Transfer that is part of a Public Offering.
"Permitted Transferee" means a Transferee in a Permitted Transfer,
other than the Company.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Public Offering" means a sale of any Common Stock pursuant to a
registration statement under the Securities Act of 1933) as amended, that
results in the Company receiving net proceeds of at least $10 million and a
minimum $35 million pre-offering valuation of the Company or a rights offering
of the Company's securities to the shareholders of Safeguard Scientifics, Inc.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Stockholder" is defined in Section 2.2.
"Stockholder" is defined above in the preamble.
"Stock" means (i) the Common Stock now or hereafter issued and
outstanding, (ii) the preferred stock of the Company now or hereafter issued and
outstanding, (iii) any additional shares of capital stock of the Company
hereafter issued and outstanding, and
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<PAGE> 39
(iv) any securities convertible into or exercisable or exchangeable for any of
the foregoing.
"Purchase Agreement" is defined above in the Background section.
"Transfer" means any actual or proposed disposition of all or a portion
of an interest (legal or equitable) by any means, direct or indirect, absolute
or conditional, voluntary or involuntary, including by sale, assignment,
transfer, pledge, hypothecation, mortgage or other encumbrance, court order,
operation of law, distribution, settlement, exchange, waiver,, abandonment,
gift, alienation, bequest or disposal; and the correlative terms "Transferred,"
"Transferring," Transferor" and "Transferee" have corresponding definitions.
ARTICLE II.
TRANSFERS OF SECURITIES
SECTION 2.1 TRANSFER RESTRICTIONS.
(a) No Common Stockholder shall Transfer all or any part of the
Stock owned by such Stockholder except in compliance with the terms of this
Agreement, and any purported Transfer in violation thereof shall be null and
void.
(b) A Common Stockholder shall be able to Transfer its Stock
only by (i) offering to Transfer all, but not less than all, of its Stock under
Section 2.2 below or (ii) a Permitted Transfer under paragraph (c) of this
Section 2. 1.
(c) Notwithstanding the restrictions contained in Section 2.2,
a Common Stockholder shall be entitled to Transfer all or any part of the Stock
owned by such Stockholder by means of a Permitted Transfer so long, as the
proposed Transferee becomes a party hereto in accordance with Section 2.3).
(d) Notwithstanding any other provision in this Agreement, no
Common Stockholder shall, to the extent requested by an underwriter of
securities of the Company, Transfer any of its Stock then owned by the Common
Stockholder for a period of 180 days following the effective date (and including
the effective date) of a registration statement of the Company filed under the
Securities Act, unless a shorter period is agreed to in writing by such
underwriter. Each Common Stockholder agrees to execute any documents requested
by such underwriter that evidences such agreement and other customary
provisions.
SECTION 2.2 RIGHT OF FIRST REFUSAL ON DISPOSITIONS. If at any time any
Common Stockholder desires to Transfer all, but not less than all, of the Stock
owned by such Stockholder (a "Selling Stockholder") to a third party (other than
by a Permitted Transfer), the following provisions shall apply:
(a) The Selling Stockholder shall give written notice (the
"Offer
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<PAGE> 40
Notice") of the proposed transaction to the Company, identifying the proposed
Transferee and setting forth the terms of the proposed transaction, which shall
be limited to transactions involving cash against delivery of the Stock. The
giving by a Selling Stockholder of an Offer Notice shall be deemed to be an
offer to the Company to Transfer Stock on the same terms and conditions and at
the same price at which the Selling Stockholder is proposing to Transfer such
Stock to such third party (the "Offer").
(b) If the Company desires to purchase any or all of the Stock
offered for sale, it must accept the Offer within 20 days of receipt of such
Offer Notice by giving notice of the acceptance to the Selling Stockholder. The
Company may assign its right to purchase any or all of the offered Stock to any
other person or persons in the Company's sole discretion.
(c) Settlement for any Stock purchased by the Company shall be
within 30 days of the date of its acceptance of the Offer.
(d) If after compliance with the foregoing provisions, the
Company does not purchase all of the Stock covered by an Offer Notice, the
Selling Stockholder may, within 30 days from the date of the expiration of the
20-day acceptance period specified in Section 2.2(b), Transfer all, but not less
than all, of the remaining Stock to such third party at the price and on the
terms set forth in its Offer Notice, subject to Section 2.3. If such Stock is
not so sold within such 30 day period, the Selling Stockholder shall not
Transfer such Stock without again giving an Offer Notice under this Section 2.2.
SECTION 2.3 JOINDER TO AGREEMENT. Any Transfer that is otherwise
permissible under or in accordance with Section 2.1 or Section 2.2, shall not be
effective unless and until the Transferee executes and delivers to the Company
such documentation as the Company may request to require the Transferee to
become a party to this Agreement. Upon any such Transfer, the Transferee will
have a proportionate share of the rights of his, her or its Transferor as a
Stockholder hereunder and will be bound by the obligations of such Transferor
hereunder. The Company shall not recognize or record in the stock records of the
Company any purported action that violates the restrictions hereof.
ARTICLE III.
MISCELLANEOUS
SECTION 3.1 DURATION OF AGREEMENT. The rights and obligations of the
Company and each Stockholder under this Agreement shall be effective as of the
Effective Date and shall terminate immediately prior to the earliest to occur of
the following: (a) the consummation of the first Public Offering; (b) the
consummation of the sale of all, or substantially all, of the Company's assets
or capital stock either through a direct sale, merger, reorganization,
consolidation or other form of business combination in which control of the
Company is being transferred; or (c) written consent to such termination by the
parties.
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<PAGE> 41
SECTION 3.2 VOTING PROXY.
(a) The Common Stockholder hereby irrevocably constitutes and
appoints the Company the sole and exclusive and true and lawful
attorney-in-fact, agent and proxy of the Common Stockholder, with full power of
substitution and resubstitution, to vote (or give written consent with respect
to) in the name, place and stead of the Common Stockholder, with all powers that
the Common Stock-holder would possess if personally present, all the Stock of
the Company that the Common Stockholder is entitled to vote at any annual or
special meeting of stockholders of the Company, or in respect of any action to
be taken by written consent in lieu of any such meeting, and at any
postponements or adjournments of that meeting, on any and all matters in and
according to the Company's sole discretion, and to exercise all of the Common
Stockholder's rights to call meetings of the stockholders of the Company.
(b) The Common Stockholder agrees to execute and deliver to the
Company such additional documents and take such additional actions as the
Company may reasonably request to effectuate or further secure and protect the
rights of the Company under the foregoing proxy. The Common Stockholder agrees
that, in addition to any other provisions of this Agreement, the Common
Stock-holder may not Transfer any Stock subject to this irrevocable proxy (and
any such Transfer shall be void and of no effect) unless and until the person to
whom such Stock is Transferred agrees in writing, in form and substance
satisfactory to the Company, to become bound, and becomes bound, by all the
terms of this irrevocable proxy.
(c) This irrevocable proxy is made pursuant to this Agreement
and the Purchase Agreement, and is coupled with an interest, is irrevocable.
(d) The Common Stockholder acknowledges that the Company's
rights hereunder are unique and that the Company will not have adequate remedies
at law for the Common Stockholder's failure to perform its obligations
hereunder. Accordingly, the Common Stockholder agrees that the Company shall
have the right to specific performance and equitable injunctive relief for the
enforcement of such obligations.
(e) This irrevocable proxy shall terminate on the Company's
express written revocation of this irrevocable proxy.
SECTION 3.3 LEGEND. Each certificate representing a share of capital
stock beneficially owned by the Stockholders shall bear a legend in
substantially the following form, until such time as the shares of capital
stock, represented thereby are no longer subject to the provisions hereof.
The sale, transfer or assignment of the securities represented by this
certificate are subject to the terms and conditions of a certain
Stockholders' Agreement dated as of, 1999, as amended from time to
time, among the Company and certain holders of its outstanding capital
stock. Copies of such Agreement may be obtained at no
5
<PAGE> 42
cost by written request made by the holder of record of this
certificate to the Secretary of the Company."
SECTION 3.4 FURTHER ACTIONS. Each party hereto shall vote all of the
shares of Stock owned or otherwise held by him, her or it, or take all actions
by written consent in lieu of a meeting, and execute such documents and take all
such other actions within his, her or its power that may be necessary in order
to carry out the provisions hereof and the actions contemplated hereby,
including taking actions as Stockholders to cause to comply with the obligations
imposed on the Company hereunder and causing any of such party's representatives
or the Board of Directors to take certain actions.
SECTION 3.5 CONTENTS OF AGREEMENT. This Agreement sets forth the entire
understanding of the parties hereto with respect to the Transactions and
supersedes all prior agreements or understandings among the parties regarding
those matters.
SECTION 3.6 AMENDMENT, PARTIES IN INTEREST, ETC. This Agreement may be
amended, modified or supplemented only by a written instrument duly executed by
the Company and Common Stockholders holding at least two-thirds of the shares of
capital stock held by all Common Stockholders. If any provision of this
Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision hereof, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of the parties hereto. Any term or provision of this Agreement
may be waived at any time by the party entitled to the benefit thereof by a
written instrument duly executed by such party.
SECTION 3.7 INTERPRETATION. Unless the context of this Agreement
clearly requires otherwise, (a) references to the plural include the singular,
the singular the plural, the part the whole, (b) references to one gender
include all genders, (c) "or" has the inclusive meaning frequently identified
with the phrase "and/or," (d) "Including" has the inclusive meaning frequently
identified with the phrase "but not limited to," and (e) references to
"hereunder" or "herein" relate to this Agreement. The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified.
SECTION 3.8 NOTICES. All notices that are required or permitted
hereunder shall be in writing and shall be sufficient if personally delivered or
sent by mail, facsimile message or Federal Express or other delivery service.
Any notices shall be deemed given upon the earlier of the date when received at,
or the third day after the date when sent by registered or certified mail or the
day after the date when sent by Federal Express to, the address or fax number
set forth below, unless such address or fax number is changed by notice to the
other party hereto:
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<PAGE> 43
If to the Stockholders, to each Stockholder at the address set forth in
the Company's records.
If to the Company:
Chief Operating Officer
eMerge Interactive, Inc.
10315 102nd Terrace
Sebastian, FL 32952
SECTION 3.9 SEVERABILITY; GOVERNING LAW. If any provisions of this
Agreement shall be determined to be illegal or unenforceable by any court of
law, the remaining provisions shall be severable and enforceable to the maximum
extent possible in accordance with their terms. This Agreement shall be
construed and interpreted in accordance with the laws of the State of Delaware,
without regard to its provisions concerning conflict of laws.
SECTION 3.10 INJUNCTIVE RELIEF. It is acknowledged that it will be
impossible to measure the damages that would be suffered by a party if another
party fails to comply with the provisions of this Agreement and that in the
event of any such failure, each non-breaching party will not have an adequate
remedy at law. Therefore, any party shall be entitled to obtain specific
performance of another party's obligations hereunder and to obtain injunctive
relief. No party shall argue, as a defense to any proceeding for such specific
performance or injunctive relief, that another party has an adequate remedy at
law.
SECTION 3.11 COUNTERPARTS. This Agreement may be executed in one or
more counterparts each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument. Each such
copy shall be deemed an original, and it shall not be necessary in making proof
of this Agreement to produce or account for more than one such counterpart.
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<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders'
Agreement to be executed as of the date first above written.
COMPANY:
EMERGE INTERACTIVE, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
STOCKHOLDER:
TURNKEY COMPUTER SYSTEMS, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
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<PAGE> 45
EXHIBIT C
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<PAGE> 46
EXHIBIT D
10
<PAGE> 1
EXHIBIT 10.17
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of the 17th day of July 1997 by and among
eMerge Vision Systems, Inc., a Delaware corporation (the "Company"), and
the stockholders of the Company listed on Schedule I hereto (collectively, the
"Stockholders").
BACKGROUND
The Stockholders are acquiring contemporaneously with the execution of
this Agreement newly issued shares of the Company's Series A Preferred Stock,
which are convertible into shares of the Company's Common Stock. The Company has
agreed to provide the registration rights provided for in this Agreement as an
inducement for the Stockholders to purchase the Series A Preferred Stock.
WITNESSETH:
The parties hereto, each intending to be legally bound and in exchange
for the mutual covenants herein, agree as follows:
1. Demand Registrations.
(a) Requests for Registration. At any time after the earlier of three
years after the date hereof or six months after the Company's initial public
offering, Stockholders holding and/or having the right to acquire at least
1,000,000 Registrable Securities (defined below) subject to adjustment for stock
splits, stock dividends, stock combinations and transactions with similar
effect, may demand registration (a "Demand Registration") under the Securities
Act of 1933, as amended (the "1933 Act"), of all or any portion of the
Registrable Securities owned by such Stockholders. In order to accomplish such
demand, a Stockholder shall send written notice of the demand to the Company,
and such notice shall specify the number of Registrable Securities sought to be
registered. The Company shall only be required to effect two Demand
Registrations, and shall only be required to proceed with a Demand Registration
requested by a Stockholder if the number of Registrable Securities that the
Stockholder(s) shall have elected to include in such Demand Registration
pursuant to this Section 1 has an aggregate fair market value, in the opinion of
an investment banker acceptable to the Stockholder(s) requesting the Demand
Registration and to the Company, in excess of $5 million.
(b) Procedure. Within 10 days after receipt of such a demand, the
Company will give written notice of such requested registration to all other
holders of Registrable Securities and will include in such registration, subject
to the allocation provisions below, all other Registrable Securities with
respect to which the Company has received written requests for inclusion within
15 days after the Company's mailing of such notice, plus any securities of the
Company that the Company chooses to include on its own behalf.
<PAGE> 2
(c) Expenses. In a Demand Registration, the Company will pay the
Registration Expenses (defined below), but the Underwriting Commissions (defined
below) will be shared by the Company and those holders of Registrable Securities
whose Registrable Securities are included in the Demand Registration in
proportion to any securities included on their behalf.
(d) Priority on Demand Registrations. If a Demand Registration is
underwritten and the managing underwriters advise the Company in writing that in
their opinion the number of Registrable Securities requested to be included
exceeds the number that can be sold in such offering, at a price reasonably
related to fair value, the Company will include in such Demand Registration (i)
first, the Registrable Securities requested to be included in such Demand
Registration by the Stockholders, pro rata on the basis of the number of
Registrable Securities owned; (ii) second, any securities that the Company
desires to include on its own behalf; and (iii) third, any shares of Common
Stock held by any other stockholder of the Company to whom registration is
offered; provided, however, that if a Demand Registration would cause an Initial
Public Offering, the Company would be entitled to include for registration on
its own behalf securities representing up to 30% of the Fully-Diluted Common
Stock as of immediately prior to the Initial Public Offering. A registration
shall not be considered to be a Demand Registration under Section 1(a), and the
Company shall pay the Registration Expenses of such registration, if (i) as a
result of the foregoing allocation, the Stockholders are not able to register
and sell in the Demand Registration at least 75% of the Registrable Securities
sought to be included in the Demand Registration by the Stockholders; (ii) the
gross proceeds of the securities included in the registration on behalf of the
Company constitute at least 20% of the total gross proceeds of the Demand
Registration; or (iii) the registration statement requested by a Stockholder
does not become effective for any reason.
(e) Selection of Underwriters. If any Demand Registration is
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Company and a Stockholder.
(f) Restrictions on Demand Registrations. The Company will not be
obligated to effect any Demand Registration within six months after the
effective date of a previous registration of securities of the Company in an
underwritten offering.
(g) Contemporaneous Demand. If any holder of the Company's securities
that is not a holder of Registrable Securities under this Agreement exercises
demand registration rights to have the Company register its securities under the
1933 Act (a "Non-Stockholder Registration") within a period of 30 days before or
after the time a Stockholder shall have requested a Demand Registration, then
the Stockholder's Demand Registration shall have priority over the Non-
Stockholder Registration. Any request by Safeguard Scientifics, Inc. to the
Company to effect a Rights Offering (defined below), made within 30 days before
or after a Stockholder shall have requested a Demand Registration, shall have
priority over the Demand Registration during the Rights Exclusivity Period
(defined below).
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<PAGE> 3
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the 1933 Act (other than a Demand Registration or a
registration with respect to a Rights Offering (defined below)), and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company will give prompt written
notice to all holders of Registrable Securities and will include in such
Piggyback Registration, subject to the allocation provisions below, all
Registrable Securities with respect to which the Company has received written
requests for inclusion within 15 days after the Company's mailing of such
notice. The Company shall not select a form of registration statement which
imposes, for its use, limitations on the maximum value or number of securities
to be registered if these limitations would preclude registration of the
Registrable Securities that the Company has been requested to include in such
registration.
(b) Piggyback Expenses. In all Piggyback Registrations, the Company
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Company will allocate the securities to be included as follows: first, the
securities the Company proposes to sell on its own behalf; and second,
Registrable Securities requested to be included in such registration by the
Selling Stockholders, pro rata on the basis of the respective Registrable
Securities requested for sale by them, and third, securities registered to be
included in such registration by other stockholders of the Company.
(d) Priority on Secondary Registrations. If a Piggyback Registration is
initiated as an underwritten secondary registration on behalf of holders of the
Company's securities (other than a Demand Registration pursuant to Section 1),
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number that can be sold in such offering, at a price reasonably
related to fair value, the Company will allocate the securities to be included
as follows: first, the securities requested to be included by the holders
initiating such registration; and second, Registrable Securities requested to be
included in such registration, pro rata on the basis of the number of
Registrable Securities owned among the Selling Stockholders.
(e) Selection of Underwriters. If any Piggyback Registration is
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Company, if the registration is
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<PAGE> 4
under Section 2(c), or by the holders initiating such registration, if the
registration is under Section 2(d).
3. Registration on Form S-3.
The Company shall use its best efforts to qualify for registration on
Form S-3 or any comparable or successor form or forms; and to that end, the
Company shall register (whether or not required by law to do so) its Common
Stock under the Securities Exchange Act of 1934, as amended, in accordance with
the provisions of that Act as soon as possible following the effective date of
the first registration of any of the Company's securities under the 1933 Act.
After the Company has so qualified, in addition to the rights contained in the
foregoing provisions of this Registration Rights Agreement, each holder of
Registrable Securities shall have the right to require registration of its
Registrable Securities on Form S-3 at the Company's expense, provided that (a)
the Registrable Securities to be registered shall have a market value of at
least $1 million and (b) the Company shall not be obligated to effect more than
one such registration during any 12-month period. When the Company receives
notice of any holder's request for a registration on Form S-3, it shall send
notice of such proposed registration to all other holders of Registrable
Securities.
4. Rights Offerings.
(a) Rights. The Company shall, upon receipt of a written request from
Safeguard Scientifics, Inc., a Pennsylvania corporation ("Safeguard"), grant to
the holders of the common stock of Safeguard rights (the "Rights") to purchase
from the Company such number of shares of Common Stock as determined by
Safeguard up to a maximum of 40% of the sum of (i) all issued and outstanding
shares of Common Stock, (ii) all shares of Common Stock issuable upon conversion
of all outstanding shares of Preferred Stock, and (iii) all shares of Common
Stock issuable upon the exercise of all outstanding options, warrants or other
rights to purchase Common Stock, all as of the effective date of the
registration statement. The Rights shall be issued in an offering (the "Rights
Offering") pursuant to a registration statement, shall be exercisable for a
period of no greater then 45 days after the commencement of the Right Offering
and shall be transferable by the holder thereof during that period. The Company
shall not be obligated to effect a Rights Offering unless the total market value
of the Company is at least $30 million as determined in good faith by the Board
of Directors of the Company with the advice of such expert as the Board may
choose, if any.
(b) Expenses. In a Rights Offering, the Company shall bear all
reasonable costs and expenses of the Rights Offering, including the Company's
printing, legal and accounting fees and expenses, filing fees of the Securities
and Exchange Commission and the National Association of Securities Dealers,
Inc., and "Blue Sky" fees and expenses; provided, however, that the Company
shall have no obligation to pay or otherwise bear any portion of (i) the
underwriters' commissions or discounts attributable to the Rights Shares being
offered and sold by any selling holders of Rights Shares in connection with the
registration of the Rights Shares or (ii) the fees and
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<PAGE> 5
expenses of counsel of such selling holders, if different than counsel to the
Company. The Company shall reimburse Safeguard for its internal expenses
incurred under this Section 4(b) by payment of $50,000 on a nonaccountable
basis, such payment to be made at the closing of the Rights Offering.
(c) Selection of Underwriters and Counsel. The selection of investment
banker(s) and manager(s) for the Rights Offering shall be made by Safeguard,
subject to the reasonable approval of a majority of the Board of Directors of
the Company, which investment banker(s) shall underwrite, on a standby, firm
commitment basis, any portion of the offered Common Stock not purchased through
the exercise of Rights. The Company shall also engage legal counsel selected by
Safeguard, subject to the reasonable approval of a majority of the Board of
Directors of the Company, which counsel shall represent the Company in
connection with the conduct of the Rights Offering.
(d) Exercise Price. The exercise price of the Rights shall be
determined by negotiation among the Company, the underwriters and the selling
stockholders, if any. Prior to the commencement of the Rights Offering, the
Company shall use its best efforts to cause any holder of more than 2% of its
Common Stock (or rights to acquire more than 2% of its Common Stock) to execute
and deliver to the managing underwriters of the Rights Offering an agreement to
withhold such shares from the market for such period, not exceeding 180 days
following the closing of the Rights Offering, as such underwriters shall
request.
(e) Exclusivity Period. The obligations of the Company pursuant to this
Section 4 shall expire on the eighth anniversary of this Agreement (such period,
the "Rights Exclusivity Period") unless a registration statement relating to the
Rights Offering has been filed with the Securities and Exchange Commission by
such date, in which case the Rights shall not expire until 150 days after the
date such filing was made.
(f) Stock Split. After Safeguard has notified the Company of its
intention to commence the Rights Offering, the Company shall, prior to the
filing of such registration statement as provided hereinafter (or at such
earlier date as agreed to by the Company and Safeguard), take all such actions
as shall be necessary to cause a split of its authorized Common Stock in such
ratio as Safeguard may reasonably request. All reference to share amounts in
this Agreement other than as specifically noted shall be deemed to refer to
share amounts prior to such split.
(g) Registration Services. Safeguard shall diligently and in a timely
fashion assist the Company in structuring the Rights Offering, in preparing the
necessary registration statement and related disclosure documentation, in
clearing the Rights Offering with the Commission and applicable state securities
commissions and shall provide such other services and assistance in connection
with the Rights Offering as the Company shall reasonably request; provided that
nothing contained herein shall require Safeguard to provide to the Company any
services or assistance which, if rendered by Safeguard, would require Safeguard
to register as a broker-
-5-
<PAGE> 6
dealer under Section 15 of the Exchange Act or as an investment Adviser under
the Investment Advisor Act of 1940, as amended.
(h) Working Group. The Company shall cause its counsel and auditors and
the Company's employees to render such assistance in consummating the Rights
Offering, at the Company's expense, as is customary in the consummation by a
company of its initial public offering. In addition, in rendering services under
this Section 4, Safeguard may engage special legal counsel, one or more rights,
registrar and transfer agents, and such other consultants as Safeguard may deem
necessary or desirable in connection with the Rights Offering, the expenses of
which shall be paid by the Company and which are not included in the
reimbursement described in Section 4(b) above. In addition, Safeguard may
require the Company to engage a registered broker-dealer of Safeguard's
designation, subject to the reasonable approval of the Company, to provide such
services in connection with the Rights Offering as Safeguard may deem reasonably
necessary or desirable, including without limitation, to effect or underwrite
the offering of the Rights or the Rights Shares in states in which applicable
state laws require that a registered broker-dealer effect such offering.
5. Holdback Agreements.
Neither the Company nor any Stockholder shall effect any public sale or
distribution of equity securities of the Company or any securities convertible
into or exchangeable or exercisable for such securities during the seven days
prior to and the 90 days after any underwritten Demand Registration,
underwritten Piggyback Registration or underwritten Rights Offering has become
effective (except as part of such underwritten registration).
6. Registration Procedures.
Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 1 or 2 of this
Agreement, or Safeguard has requested the Company to commence a Rights Offering
pursuant to Section 4 of this Agreement, the Company will, as expeditiously as
possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable
Securities or Rights and Common Stock underlying such Rights and use
its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheet thereto, the
Company will furnish each Selling Stockholder or Safeguard, as
applicable, with copies of all such documents proposed to be filed) as
promptly as practical;
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration
statement and the
-6-
<PAGE> 7
prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period of not less than 120
days;
(c) furnish to each Selling Stockholder and/or Safeguard such
number of copies of such registration statement, each amendment and
supplement thereto and the prospectus included in such registration
statement (including each preliminary prospectus and any term sheet
associated therewith), and such other documents as such Selling
Stockholder and/or Safeguard may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller or the sale of the of the Rights in the Rights Offering;
(d) use its best efforts to register or qualify such
Registrable Securities or Rights and shares of Common Stock underlying
such Rights under such other securities or blue sky laws of such
jurisdictions as the managing underwriter(s) may reasonably request;
(e) notify each Selling Stockholder or Safeguard at any time
when a prospectus relating thereto is required to be delivered under
the 1933 Act within the period that the Company is required to keep the
registration statement effective of the happening of any event as a
result of which the prospectus included in such registration statement,
together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement
therein not misleading, and, at the request of any such seller or
Safeguard, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities or Rights and shares of Common Stock underlying
such Rights, such prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statement
therein not misleading;
(f) cause all such Registrable Securities or Rights and shares
of Common Stock underlying such Rights to be listed or included on
securities exchanges on which similar securities issued by the Company
are then listed or included;
(g) provide a transfer agent and registrar for all such
Registrable Securities or Rights and shares of Common Stock underlying
such Rights not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other customary
actions as may be reasonably necessary to expedite or facilitate the
disposition of such Registrable Securities or the consummation of the
Rights Offering;
-7-
<PAGE> 8
(i) obtain a "comfort" letter addressed to the Company from
its independent public accountants in customary form and covering such
matters of the type customarily covered by "comfort" letters;
(j) make available for inspection by any Selling Stockholder
or Safeguard, any underwriter participating in any disposition or the
Rights Offering pursuant to such registration statement, and any
attorney, accountant or other agent retained by any such seller,
Safeguard or any underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such seller or Safeguard or any
such underwriter, attorney, accountant or agent in connection with such
registration statement;
(k) with respect to a Rights Offering, the Company shall
prepare and file with the Commission, promptly upon Safeguard's
request, any amendments or supplements to the registration statement or
prospectus that, in Safeguard's opinion, may be necessary or advisable
in connection with the Rights Offering, subject to the reasonable
approval of counsel for the Company and the Company shall not file any
amendment or supplement to the registration statement or prospectus
unless (i) it has furnished Safeguard with a copy of such amendment or
supplement a reasonable time prior to filing and (ii) Safeguard has not
reasonably objected to such amendment or supplement by notice to the
Company;
(l) with respect to a Rights Offering, the Company shall not
issue any advertisement, press release, mailing or other solicitation
material of which Safeguard reasonably disapproves by prompt written
notice to the Company after receiving reasonable notice thereof. At the
time of mailing the prospectus relating to the Rights Offering and at
the time of the closing of the Rights Offering, Safeguard shall be
entitled to receive (A) from the Company such certificates and
documents evidencing compliance with such representations and
warranties of the Company as Safeguard shall reasonably request, and
(B) from the Company's counsel and independent accountants such
opinions and documents as Safeguard may reasonably request thereof as
if it were applicable to the Rights Offering; and
(m) at the time of mailing the prospectus relating to the
Rights Offering and at the time of the closing of the Rights Offering,
Safeguard shall be entitled to receive (i) from the Company such
certificates and documents evidencing compliance with such
representations and warranties of the Company as Safeguard shall
reasonably request, and (ii) from the Company's counsel and independent
accountants such opinions and documents as Safeguard may reasonably
request thereof as if it were applicable to the Rights Offering.
-8-
<PAGE> 9
7. Indemnification.
(a) The Company hereby indemnifies, to the extent permitted by law,
each Stockholder, Safeguard, their respective officers and directors, if any,
and each person who controls any of them within the meaning of the 1933 Act
(each, an "Indemnified Party") against all losses, claims, damages, liabilities
and expenses arising out of or resulting from any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or associated term sheet or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by such Indemnified Party expressly for use therein or by any
Indemnified Party's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such Indemnified Party with a sufficient number of copies of the same.
In connection with an underwritten offering, the Company will indemnify the
underwriters, their officers and directors, and each person who controls such
underwriters (within the meaning of the 1933 Act) to the same extent as provided
above with respect to the indemnification of any Indemnified Party.
(b) In connection with any registration statement in which a Selling
Stockholder is participating, each such holder will furnish to the Company in
writing such information as is reasonably requested by the Company for use in
any such registration statement or prospectus and will indemnify, to the extent
permitted by law, the Company, its directors and officers and each person who
controls the Company (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such holder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Selling Stockholder under this
Section 7(b) shall be limited to an amount equal to the net proceeds actually
received by the Selling Stockholder from the sale of Registrable Securities
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely affected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled, or elects
not, to assume the defense of a claim will
-9-
<PAGE> 10
not be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
8. Participation in Underwritten Registrations.
No Selling Stockholder may participate in any underwritten registration
hereunder unless such holder (a) agrees to sell such holder's securities on the
basis provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements under Sections 1(e) or 2(e), and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
9. Definitions.
(a) The term "Fully-Diluted Common Stock" means, as of a certain date,
shares of the Common Stock that are issued and outstanding plus any additional
shares of Common Stock that may be issuable upon the conversion, exercise or
exchange of any rights that may be issued and outstanding.
(b) The term "Initial Public Offering" means the first public offering
under the 1933 Act of any of the Company's equity securities.
(c) The term "Registrable Securities" means (i) the Common Stock of the
Company registered in the names of the Stockholders from time to time, (ii) the
Common Stock issuable upon the conversion of the Series A Preferred Stock, and
(iii) any securities issued or to be issued with respect to the securities
referred to above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such securities
will cease to be Registrable Securities when they have been (A) effectively
registered under the 1933 Act and disposed of in accordance with the
registration statement covering them, or (B) transferred pursuant to Rule 144
(or any similar provision then in force).
(d) The term "Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, expenses and fees for listing the securities to be registered on
exchanges or electronic quotation systems on which similar securities issued by
the Company are then listed, and fees and disbursements of counsel for the
Company and of all independent certified public accountants, underwriters (other
than Underwriting Commissions) and other persons retained by the Company.
-10-
<PAGE> 11
(e) The term "Selling Stockholders" means registered holders of
Registrable Securities who request inclusion of all or a portion of their shares
of Registrable Securities in a Demand Registration pursuant to Section 1(b) or a
Piggyback Registration pursuant to Section 2(a). Such term also includes those
Stockholders who demand a Demand Registration for the purposes of Sections 5, 6,
and 7 and those Stockholders who are permitted by the Company to register
Registrable Securities in a Rights Offering.
(f) The term "Underwriting Commissions" means all underwriting
discounts or commissions relating to the sale of securities of the Company, but
excludes any expenses reimbursed to underwriters.
10. Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company may enter into
an agreement with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder to include such
securities in any registration filed under Sections 1 or 2 hereof or that would
add any such holder or prospective holder as a party to this Agreement. However,
the Company shall not enter into any such agreement without the prior written
consent of the beneficial holders of a majority of the outstanding Registrable
Securities unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of its securities would not reduce the amount of the
Registrable Securities that the Stockholders would be entitled to include in
such registration.
11. Miscellaneous.
(a) Termination of Other Agreements. This Agreement sets forth the
entire understanding of the parties hereto with respect to rights to the
registration of capital stock of the Company and supersedes all prior agreements
or understandings among the parties regarding such matters.
(b) Notices. Any notices required hereunder shall be deemed to be given
upon the earlier of the date when received at, or (i) the third business day
after the date when sent by certified or registered mail, (ii) the next business
day after the date sent by guaranteed overnight courier, or (iii) the date sent
by telecopier or delivered by hand, in each case, to the address of the
Company's corporate headquarters in the case of any notice to the Company, and
until changed by notice to the Company, the respective addresses of the
Stockholders on file with the Company in the case of any notice to the
Stockholders.
(c) Amendments and Waivers. The provisions of this Agreement may be
amended or terminated and the Company may take any action herein prohibited, or
omit to perform any act
-11-
<PAGE> 12
herein required to be performed by it, if approved in writing by the
Stockholders that own beneficially a majority of the Registrable Securities and
or by any agreement permitted by Section 9.
(d) Binding Effect. This Agreement will bind and inure to the benefit
of the respective successors (including any successor resulting from a merger or
similar reorganization), assigns, heirs, and personal representatives of the
parties hereto. Without limiting the generality of the foregoing, in addition,
if a Stockholder liquidates or reorganizes such that its assets are transferred
to its own stockholders or partners or to another entity, such stockholders,
partners or entity shall succeed to all of the rights of the Stockholder
hereunder.
(e) Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the internal law, not
the law of conflicts, of Delaware.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered to be an original instrument and
to be effective as of the date first written above. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
(g) Interpretation. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to one gender include
all genders, (c) "or" has the inclusive meaning frequently identified with the
phrase "and/or" and (d) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to." The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect.
IN WITNESS WHEREOF, the Company has executed and delivered this
Agreement as of the date first written above.
eMerge Vision Systems, Inc.
By: /s/: Charles L. Abraham
Title: Chief Executive Officer
[Stockholders will execute Counterpart Signature Pages to this Agreement.]
-12-
<PAGE> 13
JOINDER AND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
REFERENCE is made to certain Registration Rights Agreement dated as of
July 18, 1997 (the "Agreement"), by and among eMERGE Vision Systems, Inc., a
Delaware corporation (the "Company"), and the stockholders of the Company listed
on Schedule I hereto (collectively, the "Series A Stockholders").
BACKGROUND
On July 29, 1998, the Company entered into a series of agreements with
the individuals listed on Schedule II hereto (the "Common Stockholders") whereby
the Company obtained exclusive rights to certain infrared and electrolyte
therapy technologies in exchange for the issuance of shares of the Company's
common stock and other consideration. In connection therewith, the Common
Stockholders were granted certain piggyback registration rights in connection
with the issuance of the shares of the Company's common stock. The Common
Stockholders desire, and have required that the Company seek on their behalf,
the consent of the Series A Stockholders to amend the Agreement to provide the
Common Stockholders with pari pasu treatment of their shares of the Company's
common stock with the Series A Stockholders' shares, which are convertible into
shares of the Company's Common Stock, with regard to piggyback registration
rights.
The Company now desires to have the Common Stockholders listed on
Schedule II join into the Agreement on a parity with the existing Series A
Preferred Stockholders with regard to piggyback registration rights only.
WITNESSETH
The parties hereto, each intending to be legally bound and in exchange
for the mutual covenants contained in the Agreement, incorporated herein by
reference, agree as follows:
12 The undersigned Series A Stockholders, representing a majority of
the beneficial holders of the outstanding Series A Preferred Stock of the
Company hereby agree to the joining into Sections 2(c) and 2(d) of the Agreement
by the Common Stockholders and to the related terms and conditions contained in
the Agreement whereby the Common Stockholders will be treated on a parity with
the Series A Stockholders with regard to piggyback registration rights only, and
agree to the terms contained in this Joinder and Amendment to Registration
Rights Agreement (this "Amendment").
13 For the purposes of Sections 2(c) and 2(d) only, the Agreement is
hereby amended to include the following definitions:
-13-
<PAGE> 14
(a) The term "Stockholder" shall mean the stockholders listed on
Schedule I and Schedule II hereto.
14 The undersigned Common Stockholders hereby agree to joining into
Sections 2(c) and 2(d) of the Agreement as amended hereby and agree to be bound
by the terms and conditions contained therein and herein.
Except as expressly set forth above, all other terms and conditions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has executed and delivered this
Amendment as of the ___ day of September, 1998.
eMERGE VISION SYSTEMS, INC.
By:/s/: Charles L. Abraham
--------------------------
Name: Charles L. Abraham
Title: Chief Executive Officer
[STOCKHOLDERS WILL EXECUTE COUNTERPART SIGNATURE PAGES TO TIES AGREEMENT.]
-14-
<PAGE> 15
COUNTERPART SIGNATURE PAGE TO
JOINDER AND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the undersigned hereby agree that this Amendment
may be executed in Counterpart copies, each of which shall be deemed an
original, and have executed and delivered this Amendment to be effective as the
last date written below.
Applewood Associates, L.P.
September, 1998 By: /s/:Barry Rubenstein
--------------------
Name Barry Rubenstein
Title: General Partner
September, 1998 /s/: Walter W. Buckley, III
---------------------------
Walter W. Buckley, III
September, 1998 /s/: Elizabeth J. Handley
-------------------------
Elizabeth J. Handley
September, 1998 /s/: David P. Holveck
---------------------
David P. Holveck
September, 1998 /s/: Edward Ulrich & /s/: Tinal Bela Limer
------------------------------------------
Edward Ulrich Hoobler & Tinal Bela Limer (JTWROS)
September, 1998 /s/: William L. Hooton
----------------------
William L. Hooton
September, 1998 /s/: Paul C. Kirkitelos
-----------------------
Paul C. Kirkitelos
September, 1998 /s/: John W. Poduska
--------------------
John W. Poduska
-15-
<PAGE> 16
Safeguard XL Capital, L.P.
By: Safeguard Scientifics (Delaware), Inc., General
Partner
September, 1998 By: /s/:Michael W. Miles
--------------------
Name: Michael W. Miles
Title: Vice President
TECHNOLOGY LEADERS L. P.
By: Technology Leaders Management, L. P.
a General Partner
By: Technology Leaders Management, Inc.
its General Partner
September, 1998 By: /s/: Christopher Moller
-----------------------
Managing Director
TECHNOLOGY LEADERS II L. P.
By: Technology Leaders II Management, L. P.
a General Partner
By: Technology Leaders Management, Inc.
its General Partner
September, 1998 By: /s/: Christopher Moller
-----------------------
Managing Director
TECHNOLOGY LEADERS H OFFSHORE C.V.
By: Technology Leaders II Management, L. P.
a General Partner
By: Technology Leaders Management, Inc.
the General Partner
-16-
<PAGE> 17
September, 1998 By: /s/: Christopher Moller
-----------------------
Name: Christopher Moller
Title: Managing Director
TECHNOLOGY LEADERS MI CORP.
September, 1998 By: /s/: Christopher Moller
-----------------------
Name: Christopher Moller
Title: Managing Director
September, 1998 By: /s/: Jean C. Temple
-------------------
Jean C. Temple
September, 1998 By: /s/: David A. Thompson
----------------------
David A. Thompson
September, 1998 By: /s/: Conse C. Vecchio
---------------------
Conse C. Vecchio
September, 1998 By: /s/: Daniel C. Wonak
--------------------
Daniel C. Wonak
September, 1998 By: /s/: Henry T. Pietraszek
------------------------
Henry T. Pietraszek
September, 1998 By: /s/: Donald R. Caldwell
-----------------------
Donald R. Caldwell
September, 1998 By: /s/: Delbert W. Johnson
-----------------------
Delbert W. Johnson
-17-
<PAGE> 18
September, 1998 By: /s/: James A. Ounsworth
-----------------------
James A. Ounsworth
September, 1998 By: /s/: Gerald W. Wilk
-------------------
Gerald W. Wilk
September, 1998 By: /s/: Michael W. Miles
---------------------
Michael W. Miles
September, 1998 By: /s/: Glenn T. Rieger
--------------------
Glenn T. Rieger
[End Signature Page]
-18-
<PAGE> 19
SCHEDULE I
SERIES A PREFERRED STOCKHOLDERS
<TABLE>
<CAPTION>
Name Shares
- ---- ------
<S> <C>
Applewood Associates, L.P. 333,919
Walter W. Buckley, III 26,250
Elizabeth J. Handley 4,500
David P. Holveck 6,000
Edward Ulrich Hoobler & Tina Bela Limer (JTWROS) 45,000
William L. Hooton 41,250
Paul C. Kirkitelos 3,000
John W. Poduska 9,000
Safeguard XL Capital, L.P. 4,181,315
Technology Leaders LP 375,037
Technology Leaders II L.P. 477,049
Technology Leaders II Offshore C.V. 378,951
Technology Leaders MI Corp. 428,213
Jean C. Temple 46,200
David A. Thompson 18,000
Conse C. Vecchio 3,000
Daniel C. Wonak 6,000
Henry T. Pietraszek 18,000
Donald R. Caldwell 8,628
</TABLE>
-19-
<PAGE> 20
<TABLE>
<S> <C>
Delbert W. Johnson 3,834
James A. Ounsworth 5,561
Gerald W. Wilk 5,561
Michael W. Miles 4,794
Glenn T. Rieger 4,794
---------
6,443,606
</TABLE>
-20-
<PAGE> 21
SCHEDULE II
COMMON STOCKHOLDERS
<TABLE>
<CAPTION>
Stockholder Common Shares
- ----------- -------------
<S> <C>
J Technologies, LLC 1,000,000
a South Dakota limited liability company
Attention, Jim Titus,
P.O. Box 81849
Lincoln, NE 68501-1849
Judith Ackland and Larry Cox, Co-Trustees, 1,000,000
The Biegert Family Irrevocable Trust dated June 11, 1998
P.O. Box 197
Shickley, NE 68436
Dr. Richard W. Stanley 32,130
3526 Spruce Drive
Red Deer, Alberta
T4N 3N9
Sylvia R. Doerksen 24,570
3526 Spruce Drive
Red Deer, Alberta
T4N 3N9
Ian Turnbull 3,150
Box 5351
Lacombe, Alberta
T4L lXl
</TABLE>
-21-
<PAGE> 22
<TABLE>
<S> <C>
Ann Turnbull 3,150
Box 5351
Lacombe, Alberta
T4L lXl
Darryl Robinson 7,000
18 Blackfoot Place 2,070,000
Woodstock, Ontario
N4T IE2
</TABLE>
-22-
<PAGE> 1
EXHIBIT 10.19
STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT
This Stockholders Agreement (this "Agreement") is made on February
24, 1999 by and among EMERGE VISION SYSTEM, INC., a Delaware corporation, with
its principal offices located at 10315 102nd Terrace, Sebastian, Florida 32958
("eVS) and CIN, LLS (formerly Cattle Management Network, LLC) ("CIN"), together
with any Permitted Transferee (as defined below) which may become a party to
this Agreement hereafter are, for so long as they are stockholders of eVS,
collectively referred to herein as the "Stockholders" or individually a
"Stockholder.")
BACKGROUND
In partial consideration for the execution and delivery by eVS of
the Asset Purchase Agreement by and between eVS and CIN (the "Asset Purchase
Agreement"), CIN has agreed to enter into this Agreement.
The parties have determined that it is in the best interests of eVS
and the Stockholders to provide for certain rights and restrictions on the
future disposition of eVS's common stock, par value $0.01 per share (the "Common
Stock"), and various other matters set forth herein.
NOW, THEREFORE, in consideration of the agreements and mutual
promises and covenants set forth herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE 1
RESTRICTIONS ON TRANSFER OF SHARES
1.1 Restrictions on Stockholders. Until such time as eVS's Common Stock is
the subject of an underwritten firm commitment initial public offering pursuant
to an effective registration statement under the Securities Act of 1933 covering
the offer and sale by eVS of its Common Stock in which the aggregate net
proceeds exceed ten (10) million dollars (a "Qualified Initial Public Offering")
or as expressly provided in this Agreement or in the Asset Purchase Agreement,
no Stockholder shall sell, assign, transfer, give, bequeath, devise, donate or
otherwise dispose of, or pledge, deposit or otherwise encumber, in any way or
manner whatsoever, whether voluntary or involuntary (all of the foregoing
hereinafter referred to as "transfer"), any legal or beneficial interest in any
of the shares of eVS's Common Stock (collectively, the "Shares") now or
hereafter
<PAGE> 2
owned (of record or beneficially) by such Stockholder except as expressly
provided in this Agreement and in accordance with its terms and conditions.
1.2 Certain Excluded Transfers. The provisions of Articles I and 2 of this
Agreement shall not apply to the transfer of Shares by a Stockholder to a
Permitted Transferee, provided that the transfer is accomplished in accordance
with applicable federal and state securities laws and the Permitted Transferee
executes a copy of this Agreement as a Stockholder. As used herein, "Permitted
Transferee" means:
(a) in the case of any Stockholder who is a natural person, such--
Individual's spouse or issue (in each case natural or adopted), any trust for
the benefit of such Individual or his/her spouse or issue, or any corporation or
partnership in which the direct or beneficial owner of all of the equity
interest is such Individual, spouse or issue or any trust for the benefit of
such persons;
(b) in the case of any Stockholder who is a natural person, the
heirs, trustees, executors, administrators or personal representatives upon the
death or incompetency of such person;
(c) in the case of a Stockholder other than a trust that is not a
natural person, any Controlled Affiliate (as hereinafter defined) of such
Stockholder; and
(d) in the case of a Stockholder that is a trust, any beneficiaries
of such Trust or successor Trust, and Controlled Affiliate of a beneficiary of
such Trust or successor Trust;
(e) any person or entity that takes such shares pursuant to a sale
in connection with a Qualified Initial Public Offering (as hereinafter defined)
of such shares, which shares shall no longer be subject to this Agreement;
(f) in the case--of a limited liability company, to its members in
accordance with their interests in the limited liability company.
"Controlled Affiliate" means, with respect to any person, a corporation,
partnership or other business association in which such person holds, directly
or indirectly, fifty percent (50%) or more of the outstanding capital stock or
other equity interests, of such corporation, partnership or other business
association. In determining the fifty percent (50%) test, Dr. Crain, his spouse
and his issue shall be considered one person. An estate or trust of a deceased
individual Stockholder shall be considered the same as the deceased person for
the fifty percent (50%) test until such estate or trust is distributed.
<PAGE> 3
ARTICLE 2
STOCKHOLDER'S LIMITED RIGHT TO DISPOSE OF SHARES
2.1 Offer to Sell Shares. Except as otherwise provided in Articles 1 and 2
of this Agreement, if any Stockholder shall at any time desire to sell all or
any of such Stockholder's Shares, such Stockholder (the "Selling Stockholder")
shall first prepare a written offer (the "Offer") to sell such Shares (the
"Offered Shares") setting forth the ,-proposed date of the sale, the proposed
price per Share, and the other terms and conditions upon which the sale is
proposed to be made. Such notice shall also specify whether a Third Party
Purchaser (as hereinafter defined) has made an offer to acquire such Shares. The
Selling Stockholder shall then transmit a copy of the Offer to eVS. Within two
(2) business days of receipt of the Offer, eVS shall transmit a copy of the
Offer to the Stockholders other than the Selling Stockholder.
2.2 Option of eVS. Transmittal of the Offer to eVS by the Selling
Stockholder shall constitute an offer by the Selling Stockholder to sell the
Selling Stockholder's Offered Shares to eVS at the price and upon the terms set
forth in the Offer. For a period of fifteen (15) days after the submission of
the Offer to eVS, eVS shall have the option, exercisable by written notice to
the Selling Stockholder with a copy to each of the other Stockholders, to accept
the Selling Stockholder's Offer as to all or any part of the Selling
Stockholder's Offered Shares. Such notice shall state the number of Shares eVS
will purchase, if any, and the number of Offered Shares available to be
purchased.
2.3 Option of Offeree Stockholders. In the event that eVS does not
exercise its option with respect to any or all of the Offered Shares in
accordance with Section 2.2, the Selling Stockholder, upon notice from eVS of
eVS's decision not to accept the Offer as to any or all of the Offered Shares
(or upon expiration of the fifteen-day option period referred to in Section 2.2
if eVS fails to give notice as aforesaid), shall be deemed to have offered in
writing to sell all, but not less than all, of its remaining Offered Shares
(those not purchased by eVS) to the Stockholders, as a group ("Offeree
Stockholders") at the price and upon the terms set forth in the Offer. For a
period of fifteen (15) days after such Offer to the Offeree Stockholders, the
Offeree Stockholders shall have the option, exercisable by written notice to the
Selling Stockholder with a copy to eVS and to each of the other Offeree
Stockholders, to accept the Offer as to the remaining Offered Shares. Each
Offeree Stockholder who exercises this option shall agree, by doing so, to
purchase that proportionate part of the remaining Offered Shares which the
number of Shares owned by such Offeree Stockholder bears to the total number of
Shares owned by all Offeree Stockholders (or in such other proportions as the
Offeree Stockholders may agree among themselves). In the event that one or more
of the Offeree Stockholders does not exercise its option in accordance with
Section 2.3, the Offeree Stockholders who exercised their options pursuant to
Section 2.3 shall have a further option for a period of five (5) additional days
following the expiration of the fifteen-day period set forth in
<PAGE> 4
Section 2.3 to accept the Offer as to the then remaining Offered Shares, and
each such Offeree Stockholder who exercises this further option shall agree, by
doing so, to purchase that proportionate part of the then remaining Offered
Shares, which the number of Shares owned by such Offeree Stockholder bears to
the total number of Shares owned by all of the Offeree Stockholders exercising
their option pursuant to this Section 2.3 (or in such other proportions as such
Offeree Stockholders may agree among themselves).
2.4 Sale to Third Party Purchaser. If, at the end of the option periods
described in Sections 2.2 and 2.3 (the "Option Periods"), options have not been
exercised by eVS and/or the Offeree Stockholders to purchase all of the Offered
Shares, then the Selling Stockholder shall be free, subject to the co-sale
provisions of Section 3 hereof, for a period of thirty (30) days thereafter to
sell any or all of the Offered Shares as to which options have not been
exercised (the "Remaining, Shares") to a third party purchaser (the "Third Party
Purchaser") at the price and upon the terms and conditions set forth in the
Offer, and on condition that such Third Party Purchaser executes a copy of this
Agreement as a Shareholder. If such Remaining Shares are not so sold within the
aforesaid thirty-day period, then the Selling Stock-holder shall not be
permitted to sell such Remaining Shares without again complying with this
Article 2.
ARTICLE 3
SECURITIES LAWS
3.1 Notwithstanding the compliance with any other Section of this
Agreement, Shares may not be offered, sold or transferred, in whole or in part,
in the absence of an effective registration statement under the Securities Act
of 1933, as amended or any successor statute thereto (the "Act"), and all
applicable state securities laws, or an opinion of counsel acceptable to eVS to
the effect that such registration is not required. As long as any Shares subject
to this Agreement which are proposed to be transferred are not covered by an
effective registration statement under the Act, eVS may place the following
legend (or a legend which is substantially similar to the following legend)
upon, and issue appropriate stock transfer instructions with respect to, the
certificate or certificates representing Shares transferred hereunder:
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, OR ASSIGNED EXCEPT: (I) PURSUANT TO REGISTRATIONS UNDER
APPLICABLE SECURITIES LAWS; OR (II) IF, IN THE OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE
<PAGE> 5
CORPORATION, THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.
ARTICLE 4
PURCHASE PRICE, TERMS AND SETTLEMENT
4.1 Purchase Price. The purchase price per Share and the terms of payment
shall be the price per Share contained in the Offer.
4.2 Time: Date, Location. Settlement for the purchase of Shares by eVS or
by a Stockholder pursuant to the provisions of Article 2, shall be made within
thirty (30) days following, the date of exercise of the last option exercised.
Ail settlements for the purchase and sale of Shares shall, unless otherwise
agreed to by all of the purchasers and sellers, be held at the principal
executive offices of eVS during regular business hours. The precise date and
hour of settlement shall be fixed by the purchaser or purchasers (within the
time limits proscribed in this Agreement), or in the event the purchasers fail
to agree, by the President of eVS, by notice in writing, to the seller given at
least five (5) days in advance of the settlement date specified.
4.3 Certificates. At settlement, the stock certificate or certificates
representing the Shares being sold shall be delivered by the seller to the
purchaser or purchasers, duly endorsed for transfer or with executed stock
powers attached, with any necessary documentary and transfer tax stamps affixed
by the seller, free and clear of all liens, claims and encumbrances except for
the terms of this Stockholders Agreement.
4.4 Stockholders Agreement. The purchaser, if not already a Stockholder
hereunder, shall execute a copy of this Agreement as an additional Stockholder.
4.5 Authority. The seller, if a personal representative of a Stockholder,
shall, upon request of a purchaser, provide prior to the date of settlement,
evidence reasonably satisfactory to the purchaser of the seller's legal status
as personal representative of such Stockholder.
<PAGE> 6
ARTICLE 5
REGISTRATION RIGHTS
5.1 Piggyback Registration Rights. Whenever eVS proposes to register any
Common Stock for eVS's own or others' account under the Securities Act of 1933
(the "1933 Act") for a public offering for cash, other than a registration
relating to employee benefit plans, eVS shall give each holder of Registrable
Securities (as hereinafter defined) written notice of eVS's intent to do so.
Upon the written request of any such holder given within thirty (30) days after
receipt of such notice, eVS will use eVS's reasonable efforts to cause to be
included in such registration all of the Registrable Securities that such holder
requests to be registered. If eVS is advised in writing in good faith by any
managing underwriter of the securities being offered pursuant to any
registration statement under this Article 5 that the number of shares to be sold
pursuant to such registration statement is greater than the number of such
shares that can be offered without adversely affecting the offering, then eVS
shall first register the shares sought to be registered by eVS for its own
account; second, eVS shall register the number of shares offered for the account
of the stockholders of eVS who are parties to a certain Registration Rights
Agreement dated as of July 18, 1997, as amended, whereby such stockholders may
exercise piggyback registration rights pursuant to Section 2(a) of such
agreement (the "Existing Rights"); third, eVS shall resister as many of the
shares of Registrable Securities as the underwriters will include in the
registration, reducing pro rata the number of shares offered for the accounts of
holders of Registrable Securities (based upon the number of Shares proposed to
be sold pursuant to such registration statement by each such holder) to a number
deemed satisfactory by such managing .underwriter if all of the Registrable
Securities can not be included. In the event of such a limitation, shares of
persons not having registration rights will not be included in the registration
statement unless all Registrable Securities requested to be included in the
registration statement have been included. Following the execution hereof, eVS
agrees to use its commercially reasonable efforts to obtain the consent of the
holders of the Existing Rights to treat holders of Registrable Securities pari
passu with the holders of Existing Rights for the purposes of the underwriter
cutback provisions set forth above.
5.2 Definition of Registrable Securities. "Registrable Securities" means
the Shares, any shares of Common Stock or other capital stock of eVS received by
the holders of Shares as a stock dividend or other distribution with respect to
such Shares and any other shares of the capital stock of eVS now owned or
hereafter acquired by the holder of Shares.
5.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 5 (including all registration, filing, listing,
qualification, printer's and accounting fees, but excluding underwriting
commissions and discounts) shall be borne by eVS. If and whenever eVS is under
an obligation pursuant to this Article 5 to effect or use eVS's reasonable
efforts to effect a registration of any
<PAGE> 7
Registrable Securities, eVS shall: (a) use eVS's reasonable efforts to prepare
and file with the Commission as soon as reasonably practicable, a registration
statement with respect to the Registrable Securities and use eVS's reasonable
efforts to cause such registration to promptly become and remain effective for a
period of at least one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Registrable Securities that they requested to
be registered); (b) use eVS's reasonable efforts to register and qualify the
Registrable Securities covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution of the Registrable Securities; (c) provide a transfer agent for the
Common Stock no later than the effective date of the first registration of any
Registrable Securities; (d) list such Registrable Securities on any national
securities exchange or The Nasdaq Stock Market's National Market, or if the
Common Stock is unable to be so listed, use eVS's reasonable efforts to qualify
the Registrable Securities for inclusion on any other automated quotation system
of the National Association of Securities Dealers, Inc.; and (e) take such other
actions as are reasonable or necessary to comply with the requirements of the
Act and the regulations thereunder, or the reasonable request of any holder,
with respect to the registration and distribution of the Registrable Securities.
eVS is not obligated to effect registration or qualification under this Article
5 in any jurisdiction requiring eVS to qualify to do business (unless eVS is
otherwise required to be so qualified) or to execute a general consent to
service of process.
5.4 Holdback Agreement. If eVS at any time shall resister shares of Common
Stock under the 1933 Act (including any registration pursuant to Article 5) for
sale to the public, then Stockholders shall not sell publicly, make any short
sale of, grant an option for the purchase of, or otherwise dispose publicly of,
any shares of Registrable Securities (other than those shares of Common Stock
included in such registration pursuant to Article 5) without the prior written
consent of eVS or the managing underwriter of the offering for a period
designated by eVS in writing to the holders of shares of Registrable Securities,
which period shall not begin more than ten (10) days prior to the effectiveness
of the registration statement pursuant to which such public offer will be made
and shall not last more than one hundred eighty (180) days after the effective
date of such registration statement; provided that Stockholders shall not be
obligated to refrain from any of the foregoing for a period that is greater than
the minimum period required of any executive officer or director of eVS or
person holding, or having the right or option to acquire equity securities
representing more than five percent (5%) of the equity securities of eVS or if
any such person is not so required.
5.5 Underwriting Arrangement. In connection with each registration
pursuant to Article 5 covering an underwritten public offering, eVS and each
participating holder agree to enter into a written agreement with the managing
underwriter in such form and containing such provisions as are reasonably
acceptable to each such participating holder and are customary in the securities
business for such an arrangement between such underwriter and companies of eVS's
size and investment stature.
<PAGE> 8
5.6 Notification. eVS shall notify each holder of Registrable Securities
covered by any registration statement of any event that results in the
prospectus included in such registration statement, as then in effect,
containing an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
5.7 Furnishing of Documents. At the request of any participating holder,
evS will furnish to each underwriter, if any, and participating holders, a legal
opinion of its counsel and a "cold comfort" letter from its independent
certified public accountants, each in customary form and substance, at such time
or times as such documents are customarily provided in the type of offering
involved. As expeditiously as possible, eVS shall furnish to each participating
holder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the 1933 Act, and
such other documents as the participating holder may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities
owned by the participating holders.
5.8 Indemnification and Contribution.
(a) In the event of a registration of any of the Registrable
Securities under the 19-'I' ) Act pursuant to Article IV, eVS will indemnify
and hold harmless each Stockholder, and each other person, if any, who controls
such Stockholder within the meaning of the 1933 Act, and each employee, officer
and trustee of such Stockholder against any losses, claims, damages or
liabilities, joint or several, to which each such controlling person, employee,
officer or trustee may become subject under the 19')'i Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities was registered under the 1933 Act pursuant to Article 5,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse such Stockholder, and each such controlling person, employee, officer
or trustee for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided that eVS will not be liable in any such case if
and to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such
Stockholder or any such controlling person, employee, officer or trustee in
writing specifically for use in such registration statement or prospectus.
<PAGE> 9
(b) In the event of a registration of any of the Registrable
Securities under the 193i Act pursuant to Article 5, each Stockholder will
indemnify and hold harmless eVS, each person, if any, who controls eVS within
the meaning of the 1933 Act, officer of eVS who signs the registration
statement, director of eVS, underwriter and person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which eVS or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Article 5, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse eVS and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided that such Stockholder will be liable hereunder in
any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Stockholder, as such, furnished
in writing to eVS by such Stockholder specifically for use in such registration
statement or prospectus.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve the indemnifying party from any
liability which the indemnifying party may have to such indemnified party other
than under this Section 5 and shall only relieve the indemnifying party from any
liability which the indemnifying party may have to such indemnified party under
this Section 5 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and the indemnified party shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent the indemnifying party shall wish, to assume and under-take
the defense thereof with counsel satisfactory to such indemnified party, and,
after notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume and undertake the defense thereof,
the indemnify, party shall not be liable to such indemnified party under this
Section 5 for any legal expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected; provided that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses
<PAGE> 10
available to the indemnified party which are different from or additional to
those available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, then the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the 1933 Act in any case in which either: (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 5 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last night of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in such case, or (ii) contribution
under the 1933 Act may be required on the part of any such selling holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 5; then, and in each such case, eVS and such holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) as is appropriate to reflect the
relative fault of eVS and such holder in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as well
as the relative benefit received by eVS and such holder as a result of the
offering in question, it being understood that the parties acknowledge that the
overriding equitable consideration to be given effect in connection with this
provision is the ability of one party or the other to correct the statement or
omission which resulted in such losses, claims, damages or liabilities, and that
it would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation that does
not take into consideration the foregoing equitable considerations; provided
that, in any such case: (A) no such holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered by such holder pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section I 11(f) of the 1933 Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
(e) Removal of Legends, Etc. Notwithstanding anything herein to the
contrary, the restrictions imposed by Articles 2 on the transferability of any
Shares shall cease and terminate when: (a) any such Shares are sold or otherwise
disposed of in accordance with the intended method of disposition by the seller
or sellers thereof set forth in a registration statement or such other method
that does not require that the securities transferred bear the legend set forth
in Section 8.2 hereof; or (b) the holder of such Shares has met the requirements
for transfer pursuant to subparagraph (k) of Rule 144 (as amended from time to
time) promulgated by the Commission under the 1933 Act.
<PAGE> 11
Whenever the restrictions imposed by Articles 2 hereof have terminated, a holder
of a certificate for such Shares as to which such restrictions have terminated
shall be entitled to receive from eVS, without expense, a new certificate not
bearing the restrictive legend set forth in Section 8.2 hereof and not
containing any other reference to the restrictions imposed by this Agreement.
(f) Changes in Common Stock. If, and as often as, there is any
change in the Common Stock by way of a stock split, stock dividend, combination
or reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, then appropriate adjustment shall be
made in the provisions hereof so that the rights and privileges granted hereby
shall continue with respect to the Common Stock as so changed.
<PAGE> 12
(g) Preparation of Registration Statements. Whenever eVS is
registering any Common Stock under the 1933 Act and a holder of Registrable
Securities is selling any securities under such registration determines that it
may be Act, eVS will allow such holder and its counsel to participate in the
preparation of the registration statement, will include in the registration
statement such information as such holder may reasonably request and will take
all such other action as such holder may reasonably request.
(h) Transferability of Registration Rights. The registration rights
described in Sections 5.1 and 5.2 are not transferable by the holders of
Registrable Securities to any person to whom such holder transfers Registrable
Securities without the written consent of eVS.
ARTICLE 6
BRING ALONG PROVISIONS
6.1 Bring Along,.Right. If the holders of at least a majority of the
outstanding shares of eVS's common stock approve in writing the sale of eVS to
any person or entity that is not an Affiliate of eVS, provided that, with
respect to such sale, the shares of stock within a class are all treated equally
(an "Approved Sale"), each Stockholder who does not exercise dissenter's and
appraisal rights (if any) with respect to the Approved Sale will consent to,
vote for and raise no objections against, and if the Approved Sale is structured
as a sale of stock, will agree to sell and be permitted to sell all of such
Stockholder's shares on the same terms and conditions approved by the holders of
a majority of the shares of eVS's common stock. Each Stockholder who is
participating in such sale will take all necessary and desirable actions as may
be reasonable requested by eVS in connection with the consummation of an
Approved Sale.
For purpose of this Section, the term "Affiliate" means any person
or entity either (i) in which eVS owns, directly or indirectly, at least 20% of
the voting control of or equity in and any other entity that directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control by eVS, (i) which owns shares of eVS common stock prior to
such Approved Sale, or (iii) which owns shares of an entity identified in clause
(i) above prior to such Approved Sale.
6.2 Termination of Bring Along Right. The provisions of this Article
6 shall terminate with respect to the shares upon the consummation of a
Qualified Initial Public Offering.
<PAGE> 13
6.3 Execution of Documents, Costs. Each Stockholder shall, in connection
with an Approved Sale, at the request of eVS and without further cost or expense
to eVS, and without further cost and expense to eVS, execute and deliver such
other instruments as may reasonably be requested in order to consummate the
Approved Sale. Each Stockholder shall bear its pro rata share of the reasonable
costs and expenses incurred of any Approved Sale to the extent such costs and
expenses are incurred for the benefit of all selling Stockholders and are not
otherwise paid by eVS or the acquiring party. Costs incurred by a Stockholder on
its own behalf will not be considered costs of the Approved Sale hereunder.
ARTICLE 7
[RESERVED]
ARTICLE 8
ADDITIONAL PROVISIONS
8.1 Copy of Agreement to Be Kept on File. eVS shall keep on file at its
principal executive offices, and will exhibit to any Stockholder or his or her
duly authorized representative at any and all reasonable times, an executed copy
of this Agreement and all amendments thereto to
8.2 Stock certificates to Be Mark and. All certificates hereafter issued
by eVS shall be marked with the following legend.
THIS CERTIFICATE REPRESENTS SECURITIES WHICH ARE
RESTRICTED AND WHICH ARE SUBJECT TO THE TERMS AND CONDITIONS OF A
STOCKHOLDERS AGREEMENT DATED FEBRUARY 24, 1999 BY AND AMONG EMERGE
VISION SYSTEMS, INC. ("EVS") AND THE STOCKHOLDERS IDENTIFIED THEREIN
(A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF EVS) AND THE
RIGHTS, PRIVILEGES AND OPTIONS THEREIN CONTAINED. NO SALE, TRANSFER,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS
CERTIFICATE OR ANY OF THE SECURITIES REPRESENTED THEREBY SHALL BE
MADE EXCEPT IN
<PAGE> 14
COMPLIANCE WITH THE TERMS AND CONDITIONS OF SAID AGREEMENT.
<PAGE> 15
8.3 Termination of Certain Provisions. The provisions of Articles 1, 2, 4,
and 6 and Sections 8.2 and 8.5 of this Agreement shall terminate and be of no
further force and effect upon the closing of an underwritten, firm commitment
initial public offering statement under the 1993 Act, covering the offer and
pursuant to an effective registration sale by eVS of its Common Stock in which
the aggregate net proceeds to eVS exceed Ten Million Dollars (a "Qualified
Initial Public Offering.").
8.4 Rights, Obligation and Remedies. Rights and obligations under, and the
remedies to enforce, this Agreement are joint and several as to eVS and each of
the Stockholders with each being completely free to enforce any or all of the
rights or obligations under this Agreement against any of the others with or
without the concurrence or joinder of any of the others. The Shares are unique,
and recognizing that the remedy at law for any breach or threatened breach by a
party hereto of the covenants and agreements set forth in this Agreement would
be inadequate and that any such breach or threatened breach would cause such
immediate and permanent damage as would be irreparable and the exact amount of
which would be impossible to ascertain, the parties hereto agree that in the
event of any breach or threatened breach of any such covenant or agreement, in
addition to any and all other legal and equitable remedies which may be
available, any party hereto may specifically enforce the terms of this Agreement
and may obtain temporary and/or permanent injunctive relief without the
necessity of proving actual damage by reason of any breach or threatened breach
hereof and, to the extent permissible under the applicable statutes and rules of
procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit and without notice.
8.5 Subsequent Stockholder to become Bound. Before any person or entity
not a party to this Agreement to whom transfers of Shares may be made hereunder,
may be entitled to become a Stockholder of eVS, such person or entity shall be
required first to execute and deliver to eVS an agreement pursuant to which such
person or entity agrees to be bound by all of the terms and conditions of this
Agreement (as it may have then been amended), and the failure of any such person
or entity to execute such agreement shall preclude such person or entity from
becoming a Stockholder of eVS.
8.6 Amendment, Modification and Termination. This Agreement maybe amended,
modified or terminated, or any provision or requirement hereof waived, at
anytime by an agreement in writing among eVS, the holders of a majority of the
outstanding Shares on a fully diluted basis and their Permitted Transferees;
provided that if this Agreement is amended, modified or terminated without the
unanimous consent of the Stockholders, all Stockholders that are not a party to
such agreement shall be given prompt notice of such amendment, modification or
termination. Any such amendment or waiver shall be effective with respect to all
parties to this Agreement.
<PAGE> 16
8.7 No Waiver. No waiver of any breach or condition of this Agreement
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
8.8 Governing Law and Jurisdiction. This Agreement shall be governed by
and interpreted under the laws of the State of Delaware, without giving effect
to the principles of conflicts of law of any jurisdiction. In the event that a
party to this Agreement perceives the existence of a dispute with the other
party concerning any right or duty provided for herein, the parties will, as
soon as practicable, confer in an attempt to resolve the dispute. If the parties
are unable to resolve such dispute amicably, then the parties hereby submit to
the exclusive jurisdiction of and venue in the state and federal courts located
in the State of Delaware with respect to any and all disputes concerning the
subject of, or arising out of this Agreement.
8.9 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person or sent overnight
delivery by Federal Express or by certified or registered mail, return receipt
requested, or telexed in the case of non U.S. residents, and shall be deemed to
have been given when hand delivered, one (1) day after mailing when mailed by
overnight courier (e.a., Federal Express or Express Mail) or five (5) days after
mailing by registered or certified mail, as follows (provided that notice of
change of address shall be deemed given only when received):
If to eVS, to: With a required copy to:
eMerge Vision Systems, Inc.
103105 102nd Terrace
Sebastian, Florida 32958
Attention: Charles L. Abraham, President
Fax Number: (561) 589-2049 Fax Number:
If to Stockholder, to:
CIN, LLC
or to such other names or addresses as a party to this Agreement, as the case
may be, shall designate by notice to each other person entitled to receive
notices in the manner specified in this Section 8.9.
<PAGE> 17
8.10 Binding Nature of Agreement and No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except that-
no party may assign or transfer its rights or obligations under this Agreement
without the prior written consent of the other parties hereto, except by means
of transfers permitted by Articles I or 2.
8.11 Counterparts, Headings and Exhibits. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. The headings
used in this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement. All
Schedules and Exhibits hereto are hereby incorporated in this Agreement and made
a part hereof
8.12 Integration. This Agreement, the Stock Purchase Agreement and the
Purchase Agreement embody the entire agreement and understanding among the
parties hereto and thereto supersede all prior agreements and understandings
relating to the subject matter hereof or thereof.
8.13 Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, then such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
8.14 Number of Days. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
provided that if the final day of any time period falls on a Saturday, Sunday or
holiday on which U.S. Federal banks are or may elect to be closed, then the
final day shall be deemed to be the next day which is not a Saturday, Sunday or
such holiday.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the date first above written.
EMERGE VISION SYSTEMS, INC.
By: /s/: Charles L. Abraham
-----------------------
Name: Charles L. Abraham
------------------
Title: Chief Executive Officer
-----------------------
THE STOCKHOLDERS:
CIN, LLC
By: /s/: Dr. Scott Crain
--------------------
Dr. Scott Crain
<PAGE> 1
EXHIBIT 10.20
JOINDER AND CORRECTION TO STOCKHOLDERS' AND REGISTRATION
RIGHTS AGREEMENT
REFERENCE is made to a certain Stockholders' and Registration Rights
Agreement dated as of February 24, 1999 *the "Agreement"), by and among eMerge
Vision Systems, Inc., a Delaware corporation (the "Company"), and CIN, LLC, a
Kansas limited liability company (the "CIN Stockholder").
BACKGROUND
As of the date hereof, the Company entered into a Stock Purchase Agreement
with Cyberstockyard, Inc. and its stockholders identified on Schedule I hereto
(the "Common Stockholders") whereby the Company purchased from such stockholders
100% of the issued and outstanding stock of Cyberstockyard, Inc. in exchange for
the issuance of an aggregate 200,000 shares of the Company's common stock. In
connection with the issuance of such Company shares, the Common Stockholders
wish to join into the Agreement.
WITNESSETH
The parties hereto, each intending to be legally bound and in exchange for
the mutual covenants contained in the Agreement, incorporated herein by
reference, agree as follows:
1. The Company hereby agrees to the joining into the Agreement by the
Common Stockholders and to the other amendments set forth herein.
2. The undersigned CIN Stockholder hereby agrees to the joining into
the Agreement by the Common Stockholders and to the other amendments
set forth herein.
3. The undersigned Common Stockholders hereby join into the Agreement
and each agrees to be bound by the terms and conditions contained
therein and herein.
4. That the term "Stockholder" shall be deemed to include the CIN
Stockholder and the Common Stockholders and their Permitted
Transferees.
5. To correct a typographical error in the original agreement, Section
8.6 of the Agreement is hereby corrected to read in its entirety as
follows:
8.6 Amendment, Modification and Termination. This Agreement may be
amended, modified or terminated, or any provision or requirement
hereof waived, at any time by an agreement in writing among the
Company, and the holders of a 80% Company's common hares held
<PAGE> 2
collectively by the Stockholders and governed by this Agreement (or
the holders of 640,000 shares) and their Permitted Transferees;
provided, that if this Agreement is amended, modified or terminated
without the unanimous consent of all such Stockholders, all
Stockholders that are not a party to such agreement shall be given
prompt notice of such amendment, modification or termination. Any
such amendment or waiver shall be effective with respect to all
parties to this Agreement.
Except as expressly set forth above, all other terms and conditions of the
Agreement remain in full force and effect.
<PAGE> 3
In WITNESS WHEREOF, the Company has executed and delivered this
Agreement as of the 29th March, 1999.
eMERGE VISION SYSTEMS, INC.
By: /s/: Charles L. Abraham
-----------------------
Name: Charles L. Abraham
Title: Chief Executive Officer
CIN, LLC
By: /s/: Dr. Scott Crain
--------------------
Dr. Scott Crain, Member
COMMON STOCKHOLDERS
/s/: J. Scott Sanders
---------------------
J. Scott Sanders
/s/: David Sanders
------------------
David Sanders
/s/ Dr. Duane Pankratz
----------------------
Dr. Duane Pankratz
/s/: J. Scott Calhoun
---------------------
J. Scott Calhoun
<PAGE> 4
SCHEDULE I
COMMON STOCKHOLDERS
<TABLE>
<CAPTION>
Shares of Shares of
Name Cyberstockyard, Inc.* eMerge Vision Systems, Inc.
- ---- --------------------- ---------------------------
<S> <C> <C>
J. Scott 100 50,000
David Sanders 100 50,000
Dr. Duane Pankratz 100 50,000
J. Scott Calhoun 100 50,000
</TABLE>
* To be exchanged for shares of eMerge Vision Systems, Inc. indicated above
<PAGE> 1
EXHIBIT 10.21(a)
REVOLVING NOTE
(eMERGE INTERACTIVE, INC.)
$3,000,000 Wayne, Pennsylvania
July 21, 1999
FOR VALUE RECEIVED, eMerge Interactive, Inc., a Delaware corporation (the
"Borrower"), having an office at 10315 102nd Terrace, Sebastian, Florida 32958,
hereby promises to pay to the order of Safeguard Delaware, Inc., a Delaware
corporation (the "Lender"), at the Lender's office located at 103 Springer
Building, 3411 Silverside Road, Wilmington, Delaware 19810 or at such other
place in the continental United States as the Lender may designate in writing,
upon demand, in lawful money of the United States, and in immediately available
funds, the principal sum of up to THREE MILLION DOLLARS ($3,000,000), or so much
thereof as shall have been advanced by the Lender to the Borrower as hereinafter
set forth and then be outstanding, and to pay interest thereon monthly in
arrears on the first business day of each calendar month at an annual rate equal
to the announced prime rate of PNC Bank, N.A. (the "Prime Rate") plus one
percent (1%). All amounts advanced hereon, but not to exceed $3,000,000 at any
one time outstanding in the aggregate, shall be so advanced upon the request of
the Borrower. All amounts so advanced hereon and all payments made on account of
the principal hereof shall be recorded in the books of the Lender, which records
shall be final and binding, but failure to do so shall not release the Borrower
from any of its obligations hereunder.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to late
charges and collection costs, if any, then to accrued interest and then to
principal. Interest payable hereunder shall be calculated for actual days
elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due
and payable upon maturity of this Note. After maturity or in the event of
default, interest shall continue to accrue on the Note at the rate set forth
above and shall be payable on demand of the Lender.
The outstanding principal amount of this Note may be prepaid by the
Borrower upon notice to the Lender in whole at any time or in part from time to
time without any prepayment penalty or premium; provided, that upon such payment
any interest due to the date of such prepayment on such prepaid amount shall
also be paid.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by the Borrower at any time shall be applied to the unpaid balance
of any outstanding principal of this Note.
An event of default hereunder shall consist of:
1
<PAGE> 2
(i) a default in the payment by the Borrower to the Lender of principal or
interest under this Note as and when the same shall become due and payable;
(ii) an event of default by the Borrower under any other obligation,
instrument, note or agreement for borrowed money, beyond any applicable notice
and/or grace period;
(iii) institution of any proceeding by or against the Borrower under any
present or future bankruptcy or insolvency statute or similar law and, if
involuntary, if the same are not stayed or dismissed within sixty (60) days, or
the Borrower's assignment for the benefit of creditors or the appointment of a
receiver, trustee, conservator or other judicial representative for the Borrower
or the Borrower's property or the Borrower's being adjudicated a bankrupt or
insolvent.
Upon the occurrence of any event of default, interest shall accrue on the
outstanding balance of this Note at the Prime Rate plus three percent (3%), the
entire unpaid principal amount of this Note and all unpaid interest accrued
thereon shall, at the sole option of the Lender, without notice, become
immediately due and payable, and the Lender shall thereupon have all the rights
and remedies provided hereunder or now or hereafter available or now or
hereafter available at law or in equity.
Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of interest and costs, exceeds $100,000 ("Summary
Proceeding"), arising out of or relating to this Agreement, or the breach,
termination or validity thereof, shall be litigated exclusively in the Superior
Court of the State of Delaware (the "Delaware Superior Court") as a summary
proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any
successor rules (the "Summary Proceeding Rules"). Each of the parties hereto
hereby irrevocably and unconditionally (i) submits to the jurisdiction of the
Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence
any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and
agrees not to plead or to make, any objection to the venue of any Summary
Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead
or to make, any claim that any Summary Proceeding brought in the Delaware
Superior Court has been brought in an improper or otherwise inconvenient forum,
(v) waives, and agrees not to plead or to make, any claim that the Delaware
Superior Court lacks personal jurisdiction over it, (vi) waives its right to
remove any Summary Proceeding to the federal courts except where such courts are
vested with sole and exclusive jurisdiction by statute and (vii) understands and
agrees that it shall not seek a jury trial or punitive damages in any Summary
Proceeding based upon or arising out of our otherwise related to this Agreement
waives any and all rights to any such jury trial or to seek punitive damages.
In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, does not
exceed $100,000 (a "Proceeding"), arising out of or relating to this Agreement
or the breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such
2
<PAGE> 3
time as such application is rejected, such Proceeding shall be treated as a
Summary Proceeding and all of the foregoing provisions of this Section relating
to Summary Proceedings shall apply to such Proceeding.
If a Summary Proceeding is not available to resolve any dispute hereunder,
the controversy or claim shall be settled by arbitration conducted on a
confidential basis, under the U.S. Arbitration Act, if applicable, and the then
current Commercial Arbitration Rules of the American Arbitration Association
(the "Association") strictly in accordance with the terms of this Agreement and
the substantive law of the State of Delaware. The arbitration shall be conducted
at the Association's regional office located closest to the Lender's principal
place of business by three arbitrators, at least one of whom shall be
knowledgeable in general business matters and one of whom shall be an attorney.
Judgment upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction. Neither party shall institute a proceeding hereunder
unless at least 60 days prior thereto such party shall have given written notice
to the other party of its intent to do so.
Neither party shall be precluded hereby from securing equitable remedies
in courts of any jurisdiction, including, but not limited to, temporary
restraining orders and preliminary injunctions to protect its rights and
interests but such remedies shall not be sought as a means to avoid or stay
arbitration or a Summary Proceeding.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder, the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs
and expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
Notices required to be given hereunder shall be deemed validly given (I)
three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by next day delivery or other guaranteed delivery service, (iii) when sent by
facsimile transmission, or (iv) when delivered by hand:
If to the Lender: Safeguard Delaware, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attn: Chief Financial Officer
3
<PAGE> 4
If to the Borrower: eMerge Interactive, Inc.
10315 102nd Terrace
Sebastian, FL 32858
Attn: Michael Janney, Chief Financial Officer
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it. Any provision hereof found to be
illegal, invalid or unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof. This Note shall
apply to and bind the successors of the Borrower and shall inure to the benefit
of the Lender, its successors and assigns.
This Note shall be governed by and interpreted in accordance with the laws
of the State of Delaware.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer intending
to be legally bound hereby, has duly executed this Revolving Note as of the date
first written above.
EMerge Interactive, Inc.
By: /s/: Michael Janney
-------------------
Michael Janney, Chief Financial Officer
4
<PAGE> 5
EXHIBIT 10.21(b)
AMENDED REVOLVING NOTE
(eMERGE INTERACTIVE, INC.)
$3,000,000 Wayne, Pennsylvania
August 3, 1999
WHEREAS, Safeguard Delaware, Inc. (the "Lender") was the holder of a
$3,000,000 Revolving Note dated July 21, 1999 (the $3,000,000 Note") made by
eMerge Interactive, Inc. (the "Borrower"); and
WHEREAS, Borrower and Lender desire to amend the terms of the
$3,000,000 Note to provide for a 60 day term;
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged Borrower and lender hereby agree as follows:
FOR VALUE RECEIVED, eMerge Interactive, Inc., a Delaware corporation (the
"Borrower"), having an office at 10315 102nd Terrace, Sebastian, Florida 32958,
hereby promises to pay to the order of Safeguard Delaware, Inc., a Delaware
corporation (the "Lender"), at the Lender's office located at 103 Springer
Building, 3411 Silverside Road, Wilmington, Delaware 19810 or at such other
place in the continental United States as the Lender may designate in writing,
upon demand, in lawful money of the United States, and in immediately available
funds, the principal sum of up to THREE MILLION DOLLARS ($3,000,000), or so much
thereof as shall have been advanced by the Lender to the Borrower as hereinafter
set forth and then be outstanding, and to pay interest thereon monthly in
arrears on the first business day of each calendar month at an annual rate equal
to the announced prime rate of PNC Bank, N.A. (the "Prime Rate") plus one
percent (1%). All amounts advanced hereon, but not to exceed $3,000,000 at any
one time outstanding in the aggregate, shall be so advanced upon the request of
the Borrower. All amounts so advanced hereon and all payments made on account of
the principal hereof shall be recorded in the books of the Lender, which records
shall be final and binding, but failure to do so shall not release the Borrower
from any of its obligations hereunder.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to late
charges and collection costs, if any, then to accrued interest and then to
principal. Interest payable hereunder shall be calculated for actual days
elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due
and payable upon maturity of this Note. After maturity or in the event of
default, interest shall continue to accrue on the Note at the rate set forth
above and shall be payable on demand of the Lender.
The outstanding principal amount of this Note may be prepaid by the
Borrower upon notice to the Lender in whole at any time or in part from time to
time without any
5
<PAGE> 6
prepayment penalty or premium; provided, that upon such payment any interest due
to the date of such prepayment on such prepaid amount shall also be paid.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by the Borrower at any time shall be applied to the unpaid balance
of any outstanding principal of this Note.
An event of default hereunder shall consist of:
a default in the payment by the Borrower to the Lender of principal or
interest under this Note as and when the same shall become due and payable;
an event of default by the Borrower under any other obligation,
instrument, note or agreement for borrowed money, beyond any applicable notice
and/or grace period;
institution of any proceeding by or against the Borrower under any present
or future bankruptcy or insolvency statute or similar law and, if involuntary,
if the same are not stayed or dismissed within sixty (60) days, or the
Borrower's assignment for the benefit of creditors or the appointment of a
receiver, trustee, conservator or other judicial representative for the Borrower
or the Borrower's property or the Borrower's being adjudicated a bankrupt or
insolvent.
Upon the occurrence of any event of default, interest shall accrue on the
outstanding balance of this Note at the Prime Rate plus three percent (3%), the
entire unpaid principal amount of this Note and all unpaid interest accrued
thereon shall, at the sole option of the Lender, without notice, become
immediately due and payable, and the Lender shall thereupon have all the rights
and remedies provided hereunder or now or hereafter available or now or
hereafter available at law or in equity.
Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of interest and costs, exceeds $100,000 ("Summary
Proceeding"), arising out of or relating to this Agreement, or the breach,
termination or validity thereof, shall be litigated exclusively in the Superior
Court of the State of Delaware (the "Delaware Superior Court") as a summary
proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any
successor rules (the "Summary Proceeding Rules"). Each of the parties hereto
hereby irrevocably and unconditionally (I) submits to the jurisdiction of the
Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence
any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and
agrees not to plead or to make, any objection to the venue of any Summary
Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead
or to make, any claim that the Delaware Superior Court has been brought in an
improper or otherwise inconvenient forum, (v) waives, and agrees not to plead or
to make, any claim that the Delaware Superior Court lacks personal jurisdiction
over it, (vi) waives its right to remove any
6
<PAGE> 7
Summary Proceeding to the federal courts except where such courts are vested
with sole and exclusive jurisdiction by statute and (vii) understands and agrees
that it shall not seek a jury trial or punitive damages in any Summary
Proceeding based upon or arising out of our otherwise related to this Agreement
waives any and all rights to any such jury trial or to seek punitive damages.
In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, does not
exceed $100,000 (a "Proceeding"), arising out of or relating to this Agreement
or the breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
If a Summary Proceeding is not available to resolve any dispute hereunder,
the controversy or claim shall be settled by arbitration conducted on a
confidential basis, under the U.S. Arbitration Act, if applicable, and the then
current Commercial Arbitration Rules of the American Arbitration Association
(the "Association") strictly in accordance with the terms of this Agreement and
the substantive law of the State of Delaware. The arbitration shall be conducted
at the Association's regional office located closest to the Lender's principal
place of business by three arbitrators, at least one of whom shall be
knowledgeable in general business matters and one of whom shall be an attorney.
Judgment upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction. Neither party shall institute a proceeding hereunder
unless at least 60 days prior thereto such party shall have given written notice
to the other party of its intent to do so.
Neither party shall be precluded hereby from securing equitable remedies
in courts of any jurisdiction, including, but not limited to, temporary
restraining orders and preliminary injunctions to protect its rights and
interests but such remedies shall not be sought as a means to avoid or stay
arbitration or a Summary Proceeding.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder, the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs
and expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
7
<PAGE> 8
Notices required to be given hereunder shall be deemed validly given (I)
three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by next day delivery or other guaranteed delivery service, (iii) when sent by
facsimile transmission, or (iv) when delivered by hand:
If to the Lender: Safeguard Delaware, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attn: Chief Financial Officer
If to the Borrower: eMerge Interactive, Inc.
10315 102nd Terrace
Sebastian, FL 32858
Attn: Michael Janney, Chief Financial Officer
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it. Any provision hereof found to be
illegal, invalid or unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof. This Note shall
apply to and bind the successors of the Borrower and shall inure to the benefit
of the Lender, its successors and assigns.
This Note shall be governed by and interpreted in accordance with the laws
of the State of Delaware.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer intending
to be legally bound hereby, has duly executed this Revolving Note as of the date
first written above.
EMerge Interactive, Inc.
By: /s/: Michael Janney
--------------------
Michael Janney, Chief Financial Officer
8
<PAGE> 1
Exhibit 10.23
DEMAND NOTE
(EMERGE INTERACTIVE, INC.)
$2,500,000 August 31, 1999
In consideration of the loan (hereinafter referred to as a "Loan")
Safeguard Delaware, Inc., a Delaware corporation (the "Lender"), has made to
eMerge Interactive, Inc., a Delaware corporation (the "Borrower"), and for value
received, the Borrower hereby promises to pay to the order of the Lender, at the
Lender's office located at 103 Springer Building, 3411 Silverside Road,
Wilmington, DE 19810, or at such other place in the continental United States as
the Lender may designate in writing, in lawful money of the United States, and
in immediately available funds, the principal sum of TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($2,500,000).
The unpaid principal balance of the Note shall be paid on the date
which is 30 days after the date of demand for payment by the Lender.
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at an annual
rate equal to the announced prime rate of the PNC Bank, N.A. (the "Prime Rate")
plus one percent (1%). Such interest rate shall be changed when and as the Prime
Rate changes. In addition, the Borrower shall pay on demand interest on any
overdue payment of principal and interest (to the extent legally enforceable) at
the fluctuating Prime Rate plus three percent (3%).
Interest shall be payable when the unpaid principal balance of the Note
is paid.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to late
charges and collection costs, if any, then to accrued interest and then to
principal. Interest payable hereunder shall be calculated for actual days
elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due
and payable upon maturity of this Note. After maturity or in the event of
default, interest shall continue to accrue on the Note at the rate set forth
above and shall be payable on demand of the Lender.
The outstanding principal amount of this Note may be prepaid by the
Borrower upon notice to the Lender in whole at any time or in part from time to
time without any prepayment penalty or premium; provided, that upon such payment
any interest due to the date of such prepayment on such prepaid amount shall
also be paid.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by the Borrower at any time shall be applied to the unpaid balance
of any outstanding principal of this Note.
<PAGE> 2
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender of principal
or interest under this Note as and when the same shall become due and
payable;
(ii) an event of default by the Borrower under any other obligation,
instrument, note or agreement for borrowed money, beyond any applicable
notice and/or grace period;
(iii) institution of any proceeding by or against the Borrower under
any present or future bankruptcy or insolvency statute or similar law and,
if involuntary, if the same are not stayed or dismissed within sixty (60)
days, or the Borrower's assignment for the benefit of creditors or the
appointment of a receiver, trustee, conservator or other judicial
representative for the Borrower or the Borrower's property or the Borrower's
being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, interest shall accrue on
the outstanding balance of this Note at the Prime Rate plus three percent (3%),
the entire unpaid principal amount of this Note and all unpaid interest accrued
thereon shall, at the sole option of the Lender, without notice, become
immediately due and payable, and the Lender shall thereupon have all the rights
and remedies provided hereunder or now or hereafter available at law or in
equity.
Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of interest and costs, exceeds $100,000 ("Summary
Proceeding"), arising out of or relating to this Note, or the breach,
termination or validity thereof, shall be litigated exclusively in the Superior
Court of the State of Delaware (the "Delaware Superior Court") as a summary
proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any
successor rules (the "Summary Proceeding Rules"). Each of the parties hereto
hereby irrevocably and unconditionally (i) submits to the jurisdiction of the
Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence
any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and
agrees not to plead or to make, any objection to the venue of any Summary
Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead
or to make, any claim that any Summary Proceeding brought in the Delaware
Superior Court has been brought in an improper or otherwise inconvenient forum,
(v) waives, and agrees not to plead or to make, any claim that the Delaware
Superior Court lacks personal jurisdiction over it, (vi) waives its right to
remove any Summary Proceeding to the federal courts except where such courts are
vested with sole and exclusive jurisdiction by statute and (vii) understands and
agrees that it shall not seek a jury trial or punitive damages in any Summary
Proceeding based upon or arising out of or otherwise related to this Note and
waives any and all rights to any such jury trial or to seek punitive damages.
In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, does not
exceed $100,000 (a "Proceeding"), arising out of or relating to this Note or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the
<PAGE> 3
Summary Proceeding Rules. Until such time as such application is rejected, such
Proceeding shall be treated as a Summary Proceeding and all of the foregoing
provisions of this Section relating to Summary Proceedings shall apply to such
Proceeding.
If a Summary Proceeding is not available to resolve any dispute
hereunder, the controversy or claim shall be settled by arbitration conducted on
a confidential basis, under the U.S. Arbitration Act, if applicable, and the
then current Commercial Arbitration Rules of the American Arbitration
Association (the "Association") strictly in accordance with the terms of this
Note and the substantive law of the State of Delaware. The arbitration shall be
conducted at the Association's regional office located closest to the Lender's
principal place of business by three arbitrators, at least one of whom shall be
knowledgeable in general business matters and one of whom shall be an attorney.
Judgment upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction. Neither party shall institute a proceeding hereunder
unless at least 60 days prior thereto such party shall have given written notice
to the other party of its intent to do so.
Neither party shall be precluded hereby from securing equitable
remedies in courts of any jurisdiction, including, but not limited to, temporary
restraining orders and preliminary injunctions to protect its rights and
interests but such remedies shall not be sought as a means to avoid or stay
arbitration or a Summary Proceeding.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs
and expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
Notices required to be given hereunder shall be deemed validly given
(i) three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
If to the Lender: Safeguard Delaware, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attn: Michael W. Miles, Chief Financial Officer
<PAGE> 4
If to the Borrower: eMerge Interactive, Inc.
10315 102nd Terrace
Sebastian, FL 32958
Attn: Michael Janney, Chief Financial Officer
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it. Any provision hereof found to be
illegal, invalid or unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof. This Note shall
apply to and bind the successors of the Borrower and shall inure to the benefit
of the Lender, its successors and assigns.
The Note shall be governed by and interpreted in accordance with the
laws of the State of Delaware.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer
intending to be legally bound hereby, has duly executed this Demand Note as of
the date first written above.
eMerge Interactive, Inc.
By:/s/ Michael T. Janney
-----------------------------
Michael T. Janney
Chief Financial Officer
<PAGE> 1
Exhibit 10.25
DEMAND NOTE
(eMERGE INTERACTIVE, INC.)
$2,500,000 October 6, 1999
In consideration of the loan (hereinafter referred to as a "Loan")
Safeguard Delaware, Inc., a Delaware corporation (the "Lender"), has made to
eMerge Interactive, Inc., a Delaware corporation (the "Borrower"), and for value
received, the Borrower hereby promises to pay to the order of the Lender, at the
Lender's office located at 103 Springer Building, 3411 Silverside Road,
Wilmington, DE 19810, or at such other place in the continental United States as
the Lender may designate in writing, in lawful money of the United States, and
in immediately available funds, the principal sum of TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($2,500,000).
The unpaid principal balance of the Note shall be paid on the date
which is 30 days after the date of demand for payment by the Lender.
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at an annual
rate equal to the announced prime rate of the PNC Bank, N.A. (the "Prime Rate")
plus one percent (1%). Such interest rate shall be changed when and as the Prime
Rate changes. In addition, the Borrower shall pay on demand interest on any
overdue payment of principal and interest (to the extent legally enforceable) at
the fluctuating Prime Rate plus three percent (3%).
Interest shall be payable when the unpaid principal balance of the Note
is paid.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to late
charges and collection costs, if any, then to accrued interest and then to
principal. Interest payable hereunder shall be calculated for actual days
elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due
and payable upon maturity of this Note. After maturity or in the event of
default, interest shall continue to accrue on the Note at the rate set forth
above and shall be payable on demand of the Lender.
The outstanding principal amount of this Note may be prepaid by the
Borrower upon notice to the Lender in whole at any time or in part from time to
time without any prepayment penalty or premium; provided, that upon such payment
any interest due to the date of such prepayment on such prepaid amount shall
also be paid.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate,
<PAGE> 2
and any excess payment of interest made by the Borrower at any time shall be
applied to the unpaid balance of any outstanding principal of this Note.
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender of principal
or interest under this Note as and when the same shall become due and
payable;
(ii) an event of default by the Borrower under any other obligation,
instrument, note or agreement for borrowed money, beyond any applicable
notice and/or grace period;
(iii) institution of any proceeding by or against the Borrower under
any present or future bankruptcy or insolvency statute or similar law and,
if involuntary, if the same are not stayed or dismissed within sixty (60)
days, or the Borrower's assignment for the benefit of creditors or the
appointment of a receiver, trustee, conservator or other judicial
representative for the Borrower or the Borrower's property or the Borrower's
being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, interest shall accrue on
the outstanding balance of this Note at the Prime Rate plus three percent (3%),
the entire unpaid principal amount of this Note and all unpaid interest accrued
thereon shall, at the sole option of the Lender, without notice, become
immediately due and payable, and the Lender shall thereupon have all the rights
and remedies provided hereunder or now or hereafter available at law or in
equity.
Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of interest and costs, exceeds $100,000 ("Summary
Proceeding"), arising out of or relating to this Note, or the breach,
termination or validity thereof, shall be litigated exclusively in the Superior
Court of the State of Delaware (the "Delaware Superior Court") as a summary
proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any
successor rules (the "Summary Proceeding Rules"). Each of the parties hereto
hereby irrevocably and unconditionally (i) submits to the jurisdiction of the
Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence
any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and
agrees not to plead or to make, any objection to the venue of any Summary
Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead
or to make, any claim that any Summary Proceeding brought in the Delaware
Superior Court has been brought in an improper or otherwise inconvenient forum,
(v) waives, and agrees not to plead or to make, any claim that the Delaware
Superior Court lacks personal jurisdiction over it, (vi) waives its right to
remove any Summary Proceeding to the federal courts except where such courts are
vested with sole and exclusive jurisdiction by statute and (vii) understands and
agrees that it shall not seek a jury trial or punitive damages in any Summary
Proceeding based upon or arising out of or otherwise related to this Note and
waives any and all rights to any such jury trial or to seek punitive damages.
<PAGE> 3
In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, does not
exceed $100,000 (a "Proceeding"), arising out of or relating to this Note or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
If a Summary Proceeding is not available to resolve any dispute
hereunder, the controversy or claim shall be settled by arbitration conducted on
a confidential basis, under the U.S. Arbitration Act, if applicable, and the
then current Commercial Arbitration Rules of the American Arbitration
Association (the "Association") strictly in accordance with the terms of this
Note and the substantive law of the State of Delaware. The arbitration shall be
conducted at the Association's regional office located closest to the Lender's
principal place of business by three arbitrators, at least one of whom shall be
knowledgeable in general business matters and one of whom shall be an attorney.
Judgment upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction. Neither party shall institute a proceeding hereunder
unless at least 60 days prior thereto such party shall have given written notice
to the other party of its intent to do so.
Neither party shall be precluded hereby from securing equitable
remedies in courts of any jurisdiction, including, but not limited to, temporary
restraining orders and preliminary injunctions to protect its rights and
interests but such remedies shall not be sought as a means to avoid or stay
arbitration or a Summary Proceeding.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs
and expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
Notices required to be given hereunder shall be deemed validly given
(i) three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
If to the Lender: Safeguard Delaware, Inc.
800 The Safeguard Building
<PAGE> 4
435 Devon Park Drive
Wayne, PA 19087
Attn: Michael W. Miles, Chief Financial Officer
If to the Borrower: eMerge Interactive, Inc.
10315 102nd Terrace
Sebastian, FL 32958
Attn: Michael Janney, Chief Financial Officer
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it. Any provision hereof found to be
illegal, invalid or unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof. This Note shall
apply to and bind the successors of the Borrower and shall inure to the benefit
of the Lender, its successors and assigns.
The Note shall be governed by and interpreted in accordance with the
laws of the State of Delaware.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer
intending to be legally bound hereby, has duly executed this Demand Note as of
the date first written above.
eMERGE INTERACTIVE, INC.
By:____________________________
Michael T. Janney
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.26
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT, is made as of July 18, 1997 (the
"Effective Date") by and among eMerge Vision Systems, Inc., a Delaware
corporation (the "Company"), XL Vision, Inc., a Delaware corporation ("XL"),
John Scott, Scott Blackwell, Gregory Haskell, James Willmann, James Wellman,
Dave Szostak, Frederic Derwitsch, Joel Hazlett, Richard Miles and Ottmar Dippold
(the "EVS Stockholders") and each of the stockholders of the Company listed on
Schedule I (the "Preferred Stockholders"). The EVS Stockholders and the
Preferred Stockholders are sometimes referred to herein collectively as the
"Stockholders."
BACKGROUND
The Preferred Stockholders are acquiring on or about the Effective Date
shares of Series A Preferred Stock, par value $.01 per share, of the Company
("Preferred Stock"), in accordance with certain Stock Purchase Agreements. The
Preferred Stock is convertible into shares of common stock, par value $.01 per
share, of the Company ("Common Stock"). XL currently owns 94% of the outstanding
shares of Common Stock of the Company. It is a condition to the obligations of
the parties to consummate the transactions set forth in the Stock Purchase
Agreement that the parties hereto enter into this Agreement. Additional
Preferred Stockholders may join this agreement when they enter into stock
purchase agreements with the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
For convenience, certain terms used in several parts of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as other terms that are defined elsewhere in this Agreement shall be
equally applicable to both singular and plural forms of the terms defined).
"Affiliate" means, with respect to a particular party, any Person
controlling, controlled by or under common control with that party, as well as
any officer, director, partner and majority-owned entity of that party or of its
other Affiliates, and in the case of a natural Person, any member of such
Person's immediate family.
"Agreement" means this Agreement.
<PAGE> 2
"Board of Directors" means the Board of Directors of the Company.
"Common Stock" is defined above in the Background section.
"Company" is defined above in the preamble.
"Effective Date" is defined above in the preamble.
"EVS Stockholder" is defined above in the preamble.
"Fully-Diluted Common Stock" means shares of the Common Stock now or
hereafter issued and outstanding plus any additional shares of Common Stock that
may be issuable upon the conversion, exercise or exchange of any rights that may
be issued and outstanding, including with respect to any Preferred Stock. As to
any Stockholder, such term means the shares of Common Stock owned by such
Stockholder plus the shares of Common Stock issuable to such Stockholder
pursuant to any such rights.
"Non-Selling Stockholder" is defined in Section 3.2(a).
"Offer" is defined in Section 3.2(a).
"Offer Notice" is defined in Section 3.2(a).
"Permitted Transfer" means, with respect to a particular Stockholder,
any Transfer to (i) any Affiliate of such a Stockholder, (ii) any Person holding
an equity interest in such a Stockholder, (iii) any investment fund in which
such Stockholder or an Affiliate thereof has an economic interest, (iv) the
spouse or children of such a Stockholder, (v) a trust or fiduciary that acts for
the benefit of any such spouse or children, (vi) the Company, or (vii) any other
Stockholder, and any Transfer that is part of a Public Offering.
"Permitted Transferee" means a Transferee in a Permitted Transfer,
other than the Company.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Preferred Stock" is defined above in the Background section.
"Public Offering" means a sale of any Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended, that
results in the Company receiving net proceeds of at least $10 million and a
minimum $35 million pre-offering valuation of the Company or a rights offering
of the Company's securities to the shareholders of Safeguard Scientifics, Inc.
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<PAGE> 3
"Safeguard" means Safeguard Scientifics (Delaware), Inc.
"Safeguard Director" is defined in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Stockholder" is defined in Section 3.2(a).
"Stockholders" is defined above in the preamble.
"Stock" means (i) the Common Stock now or hereafter issued and
outstanding, (ii) the Preferred Stock, (iii) any additional shares of capital
stock of the Company hereafter issued and outstanding, and (iv) any securities
convertible into or exercisable or exchangeable for any of the foregoing.
"Stock Purchase Agreement" is defined above in the Background section.
"Technology Leaders" means Technology Leaders L.P. and Technology
Leaders II L.P.
"Technology Leaders Directors" is defined in Section 2.1(a).
"Transfer" means any actual or proposed disposition of all or a portion
of an interest (legal or equitable) by any means, direct or indirect, absolute
or conditional, voluntary or involuntary, including by sale, assignment,
transfer, pledge, hypothecation, mortgage or other encumbrance, court order,
operation of law, distribution, settlement, exchange, waiver, abandonment, gift,
alienation, bequest or disposal; and the correlative terms "Transferred,"
"Transferring," "Transferor" and "Transferee" have corresponding definitions.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. ELECTION OF DIRECTORS.
(a) For so long as Safeguard and Technology Leaders are Preferred
Stockholders, the Preferred Stockholders shall vote all shares of Preferred
Stock, and otherwise use commercially reasonable efforts as stockholders of the
Company, to cause and maintain from time to time the election to the Board of
Directors the following:
(i) one representative designated by Safeguard, which
representative shall initially be Thomas Lynch (the "Safeguard
Director"), and
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<PAGE> 4
(ii) one representative designated by Technology Leaders which
representative shall initially be Christopher Moller (the "Technology
Leaders Director").
(b) Each of the Directors designated in Section 1.1 shall be elected at
any annual or special meeting of the Company's stockholders (or by written
consent in lieu of a meeting of stockholders) and shall serve until his
successor is elected and qualified or until his earlier resignation or removal.
The Company shall cause from time to time the nomination for election to the
Board of Directors of the representatives set forth above.
(c) Safeguard and Technology Leaders shall each have the right to
remove its respective representative for the Board of Directors. In the case of
any such removal, each Stockholder shall vote to remove a Safeguard Director or
Technology Leaders Director as designated by Safeguard or Technology Leaders,
respectively.
(d) In the event of any vacancy on the Board of Directors, each
Stockholder shall vote to fill such vacancy in such manner as to maintain a
Safeguard Director and Technology Leaders Director on the Board of Directors as
described above.
ARTICLE III
TRANSFERS OF SECURITIES
Section 3.1. TRANSFER RESTRICTIONS.
(a) None of the EVS Stockholders shall Transfer all or any part of the
Stock owned by such Stockholder except in compliance with the terms of this
Agreement, and any purported Transfer in violation thereof shall be null and
void.
(b) An EVS Stockholder shall be able to Transfer its Stock only by (i)
offering to Transfer all, but not less than all, of its Stock under Section 3.2
below or (ii) a Permitted Transfer under paragraph (c) of this Section 3.1.
(c) Notwithstanding the other restrictions herein, a EVS Stockholder
shall be entitled to Transfer all or any part of the Stock owned by such
Stockholder by means of a Permitted Transfer so long as the proposed Transferee
becomes a party hereto in accordance with Section 3.3.
Section 3.2. RIGHT OF FIRST REFUSAL ON DISPOSITIONS. If at any time any
EVS Stockholder desires to Transfer all, but not less than all, of the Stock
owned by such Stockholder (a "Selling Stockholder") to a third party (other than
by a Permitted Transfer), the following provisions shall apply:
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<PAGE> 5
(a) The Selling Stockholder shall give written notice (the
"Offer Notice") of the proposed transaction to the Company, identifying
the proposed Transferee and setting forth the terms of the proposed
transaction, which shall be limited to transactions involving cash
against delivery of the Stock. The giving by a Selling Stockholder of
an Offer Notice shall be deemed to be an offer to the Company to
Transfer Stock on the same terms and conditions and at the same price
at which the Selling Stockholder is proposing to Transfer such Stock to
such third party (the "Offer").
(b) If the Company desires to purchase any or all of the Stock
offered for sale, it must accept the Offer within 20 days of receipt of
such Offer Notice by giving notice of the acceptance to the Selling
Stockholder. The Company may assign its right to purchase any or all of
the offered Stock to any other person or persons in the Company's sole
discretion.
(c) Settlement for any Stock purchased by the Company shall be
within 30 days of the date of its acceptance of the Offer.
(d) If after compliance with the foregoing provisions, the
Company does not purchase all of the Stock covered by an Offer Notice,
the Selling Stockholder may, within 30 days from the date of the
expiration of the 20-day acceptance period specified in Section 3.2(b),
Transfer all, but not less than all, of the remaining Stock to such
third party at the price and on the terms set forth in its Offer
Notice, subject to Section 3.3. If such Stock is not so sold within
such 30-day period, the Selling Stockholder shall not Transfer such
Stock without again giving an Offer Notice under this Section 3.2.
Section 3.3. JOINDER TO AGREEMENT. Any Transfer that is otherwise
permissible under or in accordance with Section 3.1 or Section 3.2, and any
Transfer by a Stockholder, shall not be effective unless and until the
Transferee executes and delivers to the Company such documentation as the
Company may request to require the Transferee to become a party to this
Agreement. Upon any such Transfer, the Transferee will have a proportionate
share of the rights of his, her or its Transferor as a Stockholder hereunder and
will be bound by the obligations of such Transferor hereunder. The Company shall
not recognize or record in the stock records of the Company any purported action
that violates the restrictions hereof.
ARTICLE IV
MISCELLANEOUS
Section 4.1. DURATION OF AGREEMENT. The rights and obligations of the
Company and each Stockholder under this Agreement shall terminate immediately
prior to the earliest to occur of the following: (a) the consummation of the
first Public Offering, (b) the consummation of the
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<PAGE> 6
sale of all, or substantially all, of the Company's assets or capital stock
either through a direct sale, merger, reorganization, consolidation or other
form of business combination in which control of the Company is being
transferred or (c) the written consent to such termination by Preferred
Stockholders holding two-thirds of the shares of capital stock held by all
Preferred Stockholders.
Section 4.2. LEGEND. Each certificate representing a share of capital
stock beneficially owned by the Stockholders shall bear a legend in
substantially the following form, until such time as the shares of capital
stock, represented thereby are no longer subject to the provisions hereof:
"The sale, transfer or assignment of the securities
represented by this certificate are subject to the terms and
conditions of a certain Stockholders' Agreement dated
____________, 1997, as amended from time to time, among the
Company and certain holders of its outstanding capital stock.
Copies of such Agreement may be obtained at no cost by written
request made by the holder of record of this certificate to
the Secretary of the Company."
Section 4.3. FURTHER ACTIONS. Each party hereto shall vote all of the
shares of Stock owned or otherwise held by him or it, or take all actions by
written consent in lieu of a meeting, and execute such documents and take all
such other actions within his or its power that may be necessary in order to
carry out the provisions hereof and the actions contemplated hereby, including
taking actions as Stockholders to cause to comply with the obligations imposed
on the Company hereunder and causing any of such party's representatives or the
Board of Directors to take certain actions.
Section 4.4. CONTENTS OF AGREEMENT. This Agreement sets forth the
entire under standing of the parties hereto with respect to the Transactions and
supersedes all prior agreements or understandings among the parties regarding
those matters.
Section 4.5. AMENDMENT, PARTIES IN INTEREST, ETC. This Agreement may be
amended, modified or supplemented only by a written instrument duly executed by
the Company, XL, EVS Stockholders holding at least two-thirds of the shares of
capital stock held by all EVS Stockholders, and Preferred Stockholders holding
at least two-thirds of the shares of capital stock held by all Preferred
Stockholders. If any provision of this Agreement shall for any reason be held to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision hereof, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto. Any
term or provision of this Agreement may be waived at any time by the party
entitled to the benefit thereof by a written instrument duly executed by such
party.
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<PAGE> 7
Section 4.6. INTERPRETATION. Unless the context of this Agreement
clearly requires otherwise, (a) references to the plural include the singular,
the singular the plural, the part the whole, (b) references to one gender
include all genders, (c) "or" has the inclusive meaning frequently identified
with the phrase "and/or," (d) "including" has the inclusive meaning frequently
identified with the phrase "but not limited to," and (e) references to
"hereunder" or "herein" relate to this Agreement. The section and other headings
contained in this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified.
Section 4.7. NOTICES. All notices that are required or permitted
hereunder shall be in writing and shall be sufficient if personally delivered or
sent by mail, facsimile message or Federal Express or other delivery service.
Any notices shall be deemed given upon the earlier of the date when received at,
or the third day after the date when sent by registered or certified mail or the
day after the date when sent by Federal Express to, the address or fax number
set forth below, unless such address or fax number is changed by notice to the
other party hereto:
If to the Stockholders, to each Stockholder at the address set forth in
the Company's records.
-7-
<PAGE> 8
If to XL:
Chief Operating Officer
XL Vision, Inc.
10305 102nd Terrace
Sebastian, FL 32952
If to the Company:
President
eMerge Vision Systems, Inc.
10305 102nd Terrace
Sebastian, FL 32958
Section 4.8. SEVERABILITY; GOVERNING LAW. If any provisions of this
Agreement shall be determined to be illegal or unenforceable by any court of
law, the remaining provisions shall be severable and enforceable to the maximum
extent possible in accordance with their terms. This Agreement shall be
construed and interpreted in accordance with the laws of the State of Delaware,
without regard to its provisions concerning conflict of laws.
Section 4.9. INJUNCTIVE RELIEF. It is acknowledged that it will be
impossible to measure the damages that would be suffered by a party if another
party fails to comply with the provisions of this Agreement and that in the
event of any such failure, each non-breaching party will not have an adequate
remedy at law. Therefore, any party shall be entitled to obtain specific
performance of another party's obligations hereunder and to obtain injunctive
relief. No party shall argue, as a defense to any proceeding for such specific
performance or injunctive relief, that another party has an adequate remedy at
law.
Section 4.10. COUNTERPARTS. This Agreement may be executed in one or
more counterparts each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same instrument. Each such
copy shall be deemed an original, and it shall not be necessary in making proof
of this Agreement to produce or account for more than one such counterpart.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders'
Agreement to be executed as of the date first above written.
eMerge Vision Systems, Inc.
By:_____________________________
Title:____________________________
XL VISION, INC.
By:_____________________________
Title:____________________________
________________________________
John Scott
________________________________
Scott Blackwell
________________________________
Gregory Haskell
________________________________
James Willmann
________________________________
James Wellman
________________________________
Dave Szostak
________________________________
Frederic Derwitsch
________________________________
Joel Hazlett
-9-
<PAGE> 10
________________________________
Richard Miles
________________________________
Ottmar Dippold
[Preferred Stockholders have executed Counterpart Signature Pages to this
Agreement.]
-10-
<PAGE> 11
PROMISSORY NOTE
$3,000,000 January 1, 1999
In consideration of the advances (hereinafter referred to as a "Loan")
XL Vision, Inc., a Delaware Corporation (the "Lender"), has made or may in the
future make up to May 1, 1999, to or for the benefit of eMerge Vision System,
Inc., a Delaware corporation (the "Borrower") and its predecessor, and for value
received, the Borrower hereby promises to pay to the order of the Lender, at the
Lender's office located at 10315 102nd Terrace, Sebastian, FL 32958, or at such
other place in the continental United States as the Lender may designate in
writing, in lawful money of the United States, and in immediately available
funds, the principal sum of up to THREE MILLION DOLLARS ($3,000,000), or so much
thereof as shall have been advanced by the Lender to the Borrower from time to
time as hereinafter set forth and then be outstanding. The parties agree that as
of January 1, 1999, the outstanding advances were $300,000.
1. Rate of Interest. Interest on the principal amount outstanding under
this Note shall accrue from and after the date hereof at an annual rate equal to
the announced prime rate of PNC Bank, N.A, (the "Prime Rate") plus 1%. Such
interest rate shall be changed when and as the Prime Rate changes, Interest
payable hereunder shall be calculated for actual days elapsed on the basis of a
360-day year.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by Borrower at any time shall be applied to the unpaid balance of
any outstanding principal of this Note.
2. Advances and Repayments. Any amounts advanced hereon may be repaid
and re-advanced from time to time. This Note shall evidence all advances made
under this Note or Pursuant to any future agreement between the parties which
specifically provides that advances shall be covered by this Note (collectively,
"Advances"). All Advances and all payments made on account of the principal and
interest hereof shall be recorded by Lender, which records shall be conclusive
and binding on the Borrower; but Lender's failure to record shall not release
Borrower from any of its obligations hereunder.
3. Payment of Interest and Principal. The outstanding principal amount
of this Note and all accrued interest thereon shall be paid in fall on the first
to occur of. (i) the closing of
<PAGE> 12
Borrower's initial public offering of its equity securities; (ii) the sale of
all or substantially all of the assets of Buyer; (iii) the sale or exchange of
all of the outstanding capital stock of Borrower in a single transaction or
series of related transactions, including pursuant to a merger or consolidation,
as a result of which Lender and its affiliates and stockholders own less than
majority of the voting securities of the surviving or resulting entity; or (iv)
the dissolution or liquidation of the Borrower (the "Maturity Date").
4. Method and Application of Payment. All amounts payable hereunder
shall be paid by Borrower in immediately available and freely transferable funds
at the place designated by Lender to Borrower for such payment. All payments
made an this Note shall be applied to accrued interest, and then to principal.
5. Events or Default. Each of following events shall constitute an
event of default (an "Event of Default) hereunder:
a. If Borrower shall fail to pay when due any interest or principal or
any other sum payable to Lender hereunder, and such failure shall continue
unremedied for five (5) days after the due date thereof
b. Other Defaults. There shall occur any event of default on the part
of Borrower under any agreement. document or instrument for borrowed money in
excess of $250,000, beyond any applicable grace and/or notice period.
c. Insolvency and Related Proceeding 1.9. Insolvency and Related
Proceeding 1.9. Insolvency and Related Proceeding Borrower shall suffer the
appointment of a receiver, trustee, custodian or similar fiduciary, or shall
make an assignment for the benefit of creditors or any petition for an order for
relief shall be filed by or against Borrower under the Bankruptcy Code (if
against Borrower, the continuation of such proceeding for more than 60 days), or
Borrower shall make any offer of settlement, extension or composition to its
unsecured creditors generally.
6. Remedies. Upon the occurrence of any Event of Default, (9,) interest
shall automatically and without notice begin to accrue on the outstanding
balance of this Note at the Prime Rate plus 30/o, (b) the entire unpaid
principal amount of this Note and all unpaid interest accrued thereon shall, at
the sole option of Lender upon notice to Borrower, become immediately due and
payable, provided, that upon the occurrence of an Event of Default specified in
subsection 5.c. above, principal and interest on this Note shall become
automatically due and payable without declaration, notice or demand by Lender,
(c) Lender shall have the right to offset all amounts owed by Borrower hereunder
against any amounts owed by Lender in any capacity to Borrower, whether or not
due, and (d) Lender shall thereupon have the immediate right to exercise from
time to time all rights and remedies now or hereafter available at law or in
equity,
<PAGE> 13
including, if applicable, the rights of a secured party under the Uniform
Commercial Code, all of which shall be cumulative in nature.
Miscellaneous. Except as expressly set forth herein, Borrower hereby
waives presentment, demand, protest and notice of dishonor and protest,
and also waives all other exemptions; and agrees that extension or
extensions of the time of payment of this Note or any installment or
part thereof may be made before, at or after maturity by agreement by
Lender. Borrower shall pay to Lender, upon demand, all costs and
expenses that may be incurred by Lender in connection with the
enforcement of this Note including, without limitation, fees and
expenses of Lender's counsel. Any failure by Lender to exercise any
right hereunder shall not be construed as a waiver of the right to
exercise the same or any other right at any time. No amendment to or
modification of this Note shall be binding upon Lender unless in
writing and signed by it. Any provision hereof found to be illegal,
invalid or unenforceable for any reason whatsoever shall not affect the
legality. validity or enforceability of the remainder hereof. This Note
shall apply to and bind the successors of Borrower and shall inure to
the benefit of Lender, its successors and assigns; provided, however,
that Borrower may not assign its rights and obligations under this Note
without the express prior written consent of Lender. The Note shall be
governed by and interpreted in accordance with the laws of the State of
Delaware,
IN WITNESS WHEREOF, Borrower, by its duly authorized officer
intending to be legally bound hereby, has duly executed this Note as of
the date first written above.
EMERGE VISION SYSTEMS, INC.
By: /s/ T. Michael Janney
-----------------------
Name: T. Michael Janney
Title:
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders'
Agreement to be executed as of the date first above written.
eMerge Vision Systems, Inc.
By: /s/ Illegible Signature
-----------------------
Title: Chairman
XL VISION, INC.
By: /s/ Illegible Signature
-----------------------
Title: President
/s/ John Scott
---------------------------
John Scott
/s/ Scott Blackwell
---------------------------
Scott Blackwell
/s/ Gregory Haskell
---------------------------
Gregory Haskell
/s/ James Willmann
---------------------------
James Willmann
/s/ James Wellman
---------------------------
James Wellman
/s/ Dave Szostak
---------------------------
Dave Szostak
/s/ Frederic Derwitsch
---------------------------
Frederic Derwitsch
/s/ Joel Hazlett
---------------------------
Joel Hazlett
-9-
<PAGE> 15
/s/ Richard Miles
------------------------
Richard Miles
/s/ O. Dippold
------------------------
Ottmar Dippold
/s/ Linda Dippold
------------------------
Linda Dippold
/s/ Everett Howard
------------------------
Everett Howard
[Attached hereto are EVS Stockholder signature pages, Exhibit A, for
subsequent transferees.]
[Preferred Stockholders have executed Counterpart Signature Pages to this
Agreement]
-10-
(Signature Page Continued)
<PAGE> 16
SIGNATURE PAGE
TO
EVS STOCKHOLDERS' AGREEMENT OF
AUGUST 8, 1997
The undersigned hereby agrees to be bound by the terms and provisions of
the eMerge Vision Systems, Inc. Stockholders' Agreement dated August 8, 1997.
/s/ Maria L. Blackwell
------------------------
Maria Lynn Blackwell
<PAGE> 17
SIGNATURE PAGE
TO
EVS STOCKHOLDERS' AGREEMENT OF
AUGUST 8, 1997
The undersigned hereby agrees to be bound by the terms and provisions of
the eMerge Vision Systems, Inc. Stockholders' Agreement dated August 8, 1997.
/s/ June Bennett
--------------------------------
June Bennett
/s/ Anne Jones
---------------------------------
Anne Jones
/s/ Diana Williams
---------------------------------
Diana Williams
/s/ Amy Wellman
---------------------------------
Amy Wellman
/s/ Darlene Baker
---------------------------------
Darlene Baker
/s/ Julie Poston
---------------------------------
Julie Poston
<PAGE> 18
EXHIBIT 10.26
JOINDER TO STOCKHOLDERS' AGREEMENT
THIS JOINDER TO STOCKHOLDERS' AGREEMENT is made as of the 30th day of
March, 1998 by and between eMerge Vision Systems, Inc., a Delaware
corporation (the "Company"), and _____________________________________ (the
"Stockholder").
BACKGROUND
The Company is among the parties to a Stockholders' Agreement dated as
of August 8, 1997 (the "Stockholders' Agreement"), by and among the Company and
the securityholders of the Company, which restricts transfers of securities of
the Company. Capitalized terms used herein but undefined herein have the
meanings ascribed thereto in the Stockholders' Agreement.
The Company and the Stockholder desire that the Stockholder become a
"Stockholder" under the Stockholders' Agreement and be subject to the terms and
conditions thereof. Under Section 3.3 of the Stockholders' Agreement, the
Company is authorized to add as a party to the Stockholders' Agreement any
subsequent holder of the Company's securities.
WITNESSETH
NOW, THEREFORE, in consideration of the transfer of the shares in the
Company, and intending to be legally bound hereby, and pursuant to Section 3.3
of the Stockholders' Agreement the parties hereto agree that the Stockholder is
hereby added as a party to the Stockholders' Agreement and shall henceforth be
deemed to be a "Stockholder" for all purposes under the Stockholders' Agreement,
and will have a proportionate share of the rights of his, her or its Transferor
as a Stockholder under the Stockholders' Agreement and will be bound by the
obligations of such Transferor under the Stockholders' Agreement.
This Joinder may be executed in multiple counterparts each of which
shall constitute an original and all of which shall constitute one and the same
document.
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of
the date first written above.
EMERGE VISION SYSTEMS, INC. STOCKHOLDER
By: /s/ J. Scott Blackwell
______________________________ ______________________________
SIGNATURE
CEO
______________________________
PRINT NAME
_________________________________
James W. Dillard and Kristie L. Dillard
Kevin L. Johnson and Sue A. Johnson
The Robert R. Johnson and Alice M. Johnson Living Trust
Tommy J. Tompkins and Golda Tompkins
<PAGE> 1
EXHIBIT 10.27
SUBORDINATED PURCHASE MONEY NOTE
$4,400,000 July 15, 1997
FOR VALUE RECEIVED, eMerge Vision Systems, Inc., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of XL Vision,
Inc. (the "Lender") at the Lender's office located at 10315 102nd Terrace,
Sebastian, FL 32958 or at such other place in the continental United States as
the Lender may designate in writing, in lawful money of the United States, and
in immediately available funds, the principal sum of FOUR MILLION FOUR HUNDRED
THOUSAND DOLLARS ($4,400,000). This Note is being issued in connection with an
Asset Purchase Agreement of even date herewith between Borrower and Lender for
the transfer of the technology and assets from Lender to Borrower.
The Borrower hereby farther promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at an annual
rate equal to 7%.
The principal amount of this Note shall be paid in full on the first to
occur of the following: (i) the closing of Borrower's initial public offering of
its equity securities; (ii) the sale of all or substantially all of the assets
of Borrower; (iii) the sale or exchange of all of the outstanding capital stock
of Borrower in a single transaction or series of related transactions, including
pursuant to a merger or consolidation in which the holders of voting securities
of Borrower immediately before the transaction own less than a majority of the
voting securities of the surviving or resulting entity immediately after the
transaction; or (iv) the dissolution or liquidation of the Borrower.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to late
charges and collection costs, if any, then to principal.
The outstanding principal amount of this Note may be prepaid in whole
or in part without any prepayment penalty or premium at any time or from time to
time by Borrower upon notice to the Lender.
This Note is subordinate in right of payment to all classes and series
of Preferred Stock of the Borrower which is now outstanding or which may be
authorized and issued by the Company in the future while this Note remains
outstanding. Borrower may not make any payments on this Note, and the holder may
not enforce this Note, so long as any such class or series of Preferred Stock
remains outstanding.
<PAGE> 2
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender of
principal under this Note as and when the same shall become due and
payable;
(ii) an event of default by the Borrower under any other
obligation, instrument, note or agreement for borrowed money in excess
of $250,000, beyond any applicable notice and/or grace period;
(iii) institution of any proceeding by or against the Borrower
under any present or future bankruptcy or insolvency statute or similar
law and, if involuntary, if the same are not stayed or dismissed within
sixty (60) days, or the Borrower's assignment for the benefit of
creditors or the appointment of a receiver, trustee, conservator or
other judicial representative for the Borrower or the Borrower's
property or the Borrower's being adjudicated a bankrupt or insolvent.
Upon the occurrence of an event of default hereunder, this Note shall
automatically without any action or notice by Lender, be accelerated and become
immediately due and payable, and Lender shall have all of the rights and
remedies provided for in the Loan Agreement or otherwise available at law or in
equity, all of which remedies shall be cumulative.
Neither the reference to nor the provisions of any agreement or
document referred to herein shall affect or impair the absolute and
unconditional obligation of the Borrower to pay the principal of this Note as
herein provided.
Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of costs, exceeds $ 1,000,000 ("Summary Proceeding"),
arising out of or relating to this Note, or the breach, termination or validity
thereof, shall be litigated exclusively in the Superior Court of the State of
Delaware (the "Delaware Superior Court") as a summary proceeding pursuant to
Rules 124-131 of the Delaware Superior Court, or any successor rules (the
"Summary Proceeding Rules"). Each of the parties hereto hereby irrevocably and
unconditionally (i) submits to the jurisdiction of the Delaware Superior Court
for any Summary Proceeding, (ii) agrees not to commence any Summary Proceeding
except in the Delaware Superior Court, (iii) waives, and agrees not to plead or
to make, any objection to the venue of any Summary Proceeding in the Delaware
Superior Court, (iv) waives, and agrees not to plead or to make, any claim that
any Summary Proceeding brought in the Delaware Superior Court has been brought
in an improper or otherwise inconvenient forum, (v) waives, and agrees not to
plead or to make, any claim that the Delaware Superior Court lacks personal
Jurisdiction over it, (vi) waives its right to remove any Summary Proceeding to
the federal courts except where such courts are vested with sole and exclusive
jurisdiction by statute and (vii) understands and agrees that it shall not seek
a jury trial or punitive damages in any Summary Proceeding based upon or
<PAGE> 3
arising out of or otherwise related to this Note waives any and all rights to
any such jury trial or to seek punitive damages.
In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of costs, does not exceed
$1,000,000 (a "Proceeding"), arising out of or relating to this Note or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding shall be treated as a Summary Proceeding and all of the
foregoing provisions of this Section relating to Summary Proceedings shall apply
to such Proceeding.
If Summary Proceeding is not available to resolve any dispute
hereunder, the controversy or claim shall be settled by arbitration conducted on
a confidential basis, under the U.S. Arbitration Act, if applicable, and the
then current Commercial Arbitration Rules of the American Arbitration
Association (the "Association") strictly in accordance with the terms of this
Agreement and the substantive law of the State of Delaware. The arbitration
shall be conducted at the Association's regional office located closest to the
Lender's principal place of business by three arbitrators, one of whom shall be
an attorney. Judgment upon the arbitrators, award may be entered and enforced in
any court of competent jurisdiction. Neither party shall institute a proceeding
hereunder unless at least 60 days prior thereto such party shall have given
written notice to the other party of its intent to do so.
Neither party shall be precluded hereby from securing equitable
remedies in courts of any jurisdiction, including ,but not limited to, temporary
restraining orders and preliminary injunctions to protect its rights and
interests but shall not be sought as a means to avoid or stay arbitration or
Summary Proceedings.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs
and expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
<PAGE> 4
Notices required to be given hereunder shall be deemed validly given
(i) three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
If to the Lender: XL Vision, Inc.
10315 102nd Terrace
Sebastian, FL 32958
Attn: Chief Financial Officer
If to the Borrower: eMerge Vision Systems, Inc.
10315 102nd Terrace
Sebastian, FL 32958
Attn: Chief Financial Officer
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any failure by the Lender to exercise any right hereunder shall not be construed
as a waiver of the right to exercise the same or any other right at any time. No
amendment to or modification of this Note shall be binding upon the Lender
unless in writing and signed by it. Any provision hereof found to be illegal,
invalid or unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof This Note shall
apply to and bind the successors of the Borrower and shall inure to the benefit
of the Lender, its successors and assigns.
This Note shall be governed by and interpreted in accordance with the
laws of the State of Delaware.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer
intending to be legally bound hereby, has duly executed this Purchase Money Note
as of the date first written above.
EMERGE VISION SYSTEMS, INC.
By: /s/ David Szostak
_________________________________________
Title: David P. SZOSTAK, Chief Financial Officer
<PAGE> 1
Exhibit 10.29
term
NOTE
(eMERGE INTERACTIVE, INC.)
$7,050,000 October 25, 1999
In consideration of the loan (hereinafter referred to as a "Loan")
Safeguard Delaware, Inc., a Delaware corporation (the "Lender"), has made to
eMerge Interactive, Inc., a Delaware corporation (the "Borrower"), and for value
received, the Borrower hereby promises to pay to the order of the Lender, at the
Lender's office located at 103 Springer Building, 3411 Silverside Road,
Wilmington, DE 19810, or at such other place in the continental United States as
the Lender may designate in writing, in lawful money of the United States, and
in immediately available funds, the principal sum of seven million fifty
thousand DOLLARS ($7,050,000).
The unpaid principal balance of the Note shall be paid on the earliest
of: (1) the closing date of an underwritten public offering of the Company's
common stock, (2) the repayment of a Promissory Note dated October 25, 1999, to
Internet Capital Group, Inc. or (3) one year from the date hereof.
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at an annual
rate equal to the announced prime rate of the pnc Bank, N.A. (the "Prime Rate")
plus one percent (1%). Such interest rate shall be changed when and as the Prime
Rate changes. In addition, the Borrower shall pay on demand interest on any
overdue payment of principal and interest (to the extent legally enforceable) at
the fluctuating Prime Rate plus three percent (3%).
Interest shall be payable when the unpaid principal balance of the Note
is paid.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to late
charges and collection costs, if any, then to accrued interest and then to
principal. Interest payable hereunder shall be calculated for actual days
elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due
and payable upon maturity of this Note. After maturity or in the event of
default, interest shall continue to accrue on the Note at the rate set forth
above and shall be payable on demand of the Lender.
The outstanding principal amount of this Note may be prepaid by the
Borrower upon notice to the Lender in whole at any time or in part from time to
time without any prepayment penalty or premium; provided, that upon such payment
any interest due to the date of such prepayment on such prepaid amount shall
also be paid.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not
<PAGE> 2
exceed the maximum rate allowable by applicable law. If any stated interest rate
herein exceeds the maximum allowable rate, then the interest rate shall be
reduced to the maximum allowable rate, and any excess payment of interest made
by the Borrower at any time shall be applied to the unpaid balance of any
outstanding principal of this Note.
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender of principal
or interest under this Note as and when the same shall become due and
payable;
(ii) an event of default by the Borrower under any other obligation,
instrument, note or agreement for borrowed money, beyond any applicable
notice and/or grace period;
(iii) institution of any proceeding by or against the Borrower under
any present or future bankruptcy or insolvency statute or similar law and,
if involuntary, if the same are not stayed or dismissed within sixty (60)
days, or the Borrower's assignment for the benefit of creditors or the
appointment of a receiver, trustee, conservator or other judicial
representative for the Borrower or the Borrower's property or the Borrower's
being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, interest shall accrue on
the outstanding balance of this Note at the Prime Rate plus three percent (3%),
the entire unpaid principal amount of this Note and all unpaid interest accrued
thereon shall, at the sole option of the Lender, without notice, become
immediately due and payable, and the Lender shall thereupon have all the rights
and remedies provided hereunder or now or hereafter available at law or in
equity.
Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of interest and costs, exceeds $100,000 ("Summary
Proceeding"), arising out of or relating to this Note, or the breach,
termination or validity thereof, shall be litigated exclusively in the Superior
Court of the State of Delaware (the "Delaware Superior Court") as a summary
proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any
successor rules (the "Summary Proceeding Rules"). Each of the parties hereto
hereby irrevocably and unconditionally (i) submits to the jurisdiction of the
Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence
any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and
agrees not to plead or to make, any objection to the venue of any Summary
Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead
or to make, any claim that any Summary Proceeding brought in the Delaware
Superior Court has been brought in an improper or otherwise inconvenient forum,
(v) waives, and agrees not to plead or to make, any claim that the Delaware
Superior Court lacks personal jurisdiction over it, (vi) waives its right to
remove any Summary Proceeding to the federal courts except where such courts are
vested with sole and exclusive jurisdiction by statute and
<PAGE> 3
(vii) understands and agrees that it shall not seek a jury trial or punitive
damages in any Summary Proceeding based upon or arising out of or otherwise
related to this Note and waives any and all rights to any such jury trial or to
seek punitive damages.
In the event any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, does not
exceed $100,000 (a "Proceeding"), arising out of or relating to this Note or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
If a Summary Proceeding is not available to resolve any dispute
hereunder, the controversy or claim shall be settled by arbitration conducted on
a confidential basis, under the U.S. Arbitration Act, if applicable, and the
then current Commercial Arbitration Rules of the American Arbitration
Association (the "Association") strictly in accordance with the terms of this
Note and the substantive law of the State of Delaware. The arbitration shall be
conducted at the Association's regional office located closest to the Lender's
principal place of business by three arbitrators, at least one of whom shall be
knowledgeable in general business matters and one of whom shall be an attorney.
Judgment upon the arbitrators' award may be entered and enforced in any court of
competent jurisdiction. Neither party shall institute a proceeding hereunder
unless at least 60 days prior thereto such party shall have given written notice
to the other party of its intent to do so.
Neither party shall be precluded hereby from securing equitable
remedies in courts of any jurisdiction, including, but not limited to, temporary
restraining orders and preliminary injunctions to protect its rights and
interests but such remedies shall not be sought as a means to avoid or stay
arbitration or a Summary Proceeding.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs
and expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
<PAGE> 4
Notices required to be given hereunder shall be deemed validly given
(i) three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
If to the Lender: Safeguard Delaware, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attn: Michael W. Miles,
Chief Financial Officer
If to the Borrower: eMerge Interactive, Inc.
10315 102nd Terrace
Sebastian, FL 32958
Attn: Michael Janney,
Chief Financial Officer
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it. Any provision hereof found to be
illegal, invalid or unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof. This Note shall
apply to and bind the successors of the Borrower and shall inure to the benefit
of the Lender, its successors and assigns.
The Note shall be governed by and interpreted in accordance with the
laws of the State of Delaware.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer
intending to be legally bound hereby, has duly executed this Term Note as of the
date first written above.
eMerge interactive, inc.
By:__________________________________
Michael T. Janney
Chief Financial Officer
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. STS Agriventures, Ltd.
2. Cyberstockyard, Inc.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
eMerge Interactive, Inc.
We consent to the use of our reports dated April 13, 1999 on the financial
statements of Lost Pelican, L.L.C. as of December 31, 1997 and 1998 and for each
of the years in the two-year period ended December 31, 1998, and April 20, 1999
on the consolidated financial statements of eMerge Interactive, Inc. as of
December 31, 1997 and 1998 and for each of the years in the three-year period
ended December 31, 1998, and July 7, 1999 on the financial statements of QDD
Investment Company, L.L.C. as December 31, 1998 and for the year then ended
included herein and to the references to our firm under the headings "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
/s/KPMG LLP
Orlando, Florida
October 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EMERGE INTERACTIVE, INC. AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 368
<ALLOWANCES> 0
<INVENTORY> 707
<CURRENT-ASSETS> 3388
<PP&E> 777
<DEPRECIATION> 263
<TOTAL-ASSETS> 6602
<CURRENT-LIABILITIES> 6294
<BONDS> 0
0
88
<COMMON> 47
<OTHER-SE> (132)
<TOTAL-LIABILITY-AND-EQUITY> 6602
<SALES> 1792
<TOTAL-REVENUES> 1792
<CGS> 2623
<TOTAL-COSTS> 2623
<OTHER-EXPENSES> 4769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 332
<INCOME-PRETAX> (5932)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5932)
<DISCONTINUED> (1900)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7832)
<EPS-BASIC> (2.25)
<EPS-DILUTED> (2.25)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EMERGE INTERACTIVE, INC. AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 663
<SECURITIES> 0
<RECEIVABLES> 405
<ALLOWANCES> 0
<INVENTORY> 740
<CURRENT-ASSETS> 3587
<PP&E> 1969
<DEPRECIATION> 499
<TOTAL-ASSETS> 11928
<CURRENT-LIABILITIES> 10887
<BONDS> 0
0
99
<COMMON> 56
<OTHER-SE> 622
<TOTAL-LIABILITY-AND-EQUITY> 11928
<SALES> 2578
<TOTAL-REVENUES> 2578
<CGS> 2768
<TOTAL-COSTS> 2768
<OTHER-EXPENSES> 5519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> (5998)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5998)
<DISCONTINUED> 10
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5987)
<EPS-BASIC> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[SAFEGUARD SCIENTIFICS, INC. LOGO]
DIRECTED SHARE SUBSCRIPTION PROGRAM FOR
eMERGE INTERACTIVE, INC.
FOR HOLDERS OF
100 OR MORE SHARES OF
SAFEGUARD SCIENTIFICS, INC.
COMMON STOCK
ON __________, 1999
Holders of fewer than 100 shares of Safeguard Scientifics,
Inc. common stock on ________, 1999 are not
eligible to participate in this offer.
IF YOU HAVE ANY QUESTIONS REGARDING THE DIRECTED SHARE SUBSCRIPTION PROGRAM,
PLEASE CALL SAFEGUARD'S AUTOMATED INVESTOR RELATIONS LINE AT (888) SFE-1200
OR THE INFORMATION AGENT AT (877) 460-4356.
PLEASE DO NOT CALL eMERGE INTERACTIVE WITH ANY QUESTIONS REGARDING THIS
PROGRAM. ONLY SAFEGUARD'S AUTOMATED INVESTOR RELATIONS LINE OR THE
INFORMATION AGENT WILL BE ABLE TO ANSWER YOUR QUESTIONS.
<PAGE> 2
_______, 1999
Dear Safeguard Stockholder:
As you may know, we are undertaking an initial public offering of the
common stock of eMerge Interactive. We are permitting Safeguard Scientifics to
use its Directed Share Subscription Program so that we and the selling
stockholders may offer you the opportunity to buy our common stock at our
initial public offering price. We will be offering all of the _____________
shares under the program.
Safeguard has previously sent you materials describing in general terms
how the program works. Set forth below is a detailed description of how the
program will work in connection with our offering. Please review this
description and the attached prospectus carefully in deciding whether or not you
wish to invest.
Who can subscribe
ONLY HOLDERS OF 100 OR MORE SHARES OF SAFEGUARD COMMON STOCK AS OF
_________, 1999 ARE ELIGIBLE TO PURCHASE SHARES OF OUR COMMON STOCK IN THE
PROGRAM. Holders of fewer than 100 Safeguard shares will not be eligible to
participate in this program.
You may not transfer your subscription offer
The offer to purchase shares in this program may only be transferred by
involuntary operation of law such as death or certain dissolutions.
Number of shares for which you may subscribe
To determine how many shares of our common stock you are eligible to
purchase, divide the number of shares of Safeguard common stock that you owned
as of ________, 1999 by _____ and round up to the nearest whole number. For
example, if you held between _____ and _____ shares of Safeguard common stock as
of this date, you may subscribe for ______shares of our common stock. You would
have to have had at least _____ shares of Safeguard common stock to be eligible
to subscribe for _____ shares of our common stock. You may not subscribe for a
fractional share of our common stock.
Minimum Subscription Size
The minimum subscription that we will accept for any account is for 5
shares of our common stock. THEREFORE, HOLDERS OF FEWER THAN 100 SHARES OF
SAFEGUARD COMMON STOCK AS OF _________, 1999 WILL NOT BE ABLE TO PURCHASE OUR
SHARES UNDER THE PROGRAM. THIS LIMIT APPLIES TO EACH OF YOUR ACCOUNTS, NOT THE
AGGREGATE OF ALL OF YOUR ACCOUNTS. If as of ________, 1999 you held ___ shares
of Safeguard common stock in one account and another _____ shares in a different
account, we will not consider you to be the owner of 100 shares of Safeguard
common stock. Since none of your accounts contained at least 100 shares of
Safeguard common stock, you would not be eligible to subscribe.
You are under no obligation to subscribe, but if you subscribe for any
shares it must be for at least __ shares in each account. For example, if you
held _____ shares of Safeguard common stock in a single account as of
__________, 1999 and you choose to purchase our shares under the program, you
may purchase between __ and __ shares.
Subscription Price
The price per share under the program will be the same price that all
investors will pay in our initial public offering. The price per share in the
initial public offering will be determined by negotiations between us and the
<PAGE> 3
underwriters of our offering. The factors that we expect to consider in these
negotiations are described in the attached prospectus under the heading "Plan of
Distribution." We currently anticipate that the offering price will be between
$______ and $_______ per share. We will inform you of the initial public
offering price as described below under "How to Subscribe."
Stock Purchase Agreement with Safeguard Scientifics
We and the selling stockholders intend to enter into a Stock Purchase
Agreement with Safeguard. This agreement will provide that if all ______________
of the shares offered under the program are not purchased by Safeguard
stockholders, then Safeguard will purchase the remaining shares at our initial
public offering price.
How to Subscribe
TO PURCHASE SHARES UNDER THE PROGRAM, YOU MUST ADHERE TO THE FOLLOWING
PROCEDURES:
- Subscriptions and payments will only be accepted after we have
determined our initial public offering price. Any
subscriptions or payments received before then will be
returned to you. We expect to determine the initial public
offering price in __________ 1999, but various factors could
hasten or delay us. We will close the initial public offering
and stop accepting subscriptions four business days after we
determine the initial public offering price.
- Time will not permit us to notify you directly of our initial
public offering price and closing date. Instead, Safeguard
will take the following actions:
- publicize the offering price and the closing date on
its Web site (www.safeguard.com) and through a press
release;
- make every effort to notify each broker, bank, trust
company or other nominee that holds shares on behalf
of Safeguard stockholders of the offering price and
closing date;
- make available an automated investor relations line
(888-SFE-1200) on a 24-hour basis;
- make available an information agent (877-460-4356);
and
- through its Web site, provide you with an opportunity
to request e-mail notification (either directly to
you or your designated representative).
You will have to monitor these media to know when to place
your order and deliver payment.
ALSO, IF YOU DO NOT HOLD YOUR SAFEGUARD SHARES DIRECTLY, YOU
WILL NEED TO KEEP IN CLOSE CONTACT WITH YOUR BROKER, BANK,
TRUST COMPANY OR OTHER NOMINEE THAT HOLDS YOUR SAFEGUARD
SHARES ON YOUR BEHALF SINCE THEY WILL NEED TO PROCESS THE
SUBSCRIPTION FOR OUR SHARES AND PAYMENT ON YOUR BEHALF.
- WE WILL STOP ACCEPTING ORDERS UNDER THE PROGRAM AT 5:00 P.M.
NEW YORK CITY TIME ON THE FOURTH BUSINESS DAY AFTER WE
DETERMINE THE INITIAL PUBLIC OFFERING PRICE. Subscriptions and
payments that have not been received by ChaseMellon
Shareholder Services, L.L.C. by this deadline will not be
honored. For example, if we determine the initial public
offering price on a Thursday, ChaseMellon must receive all
orders and payments by 5:00 p.m. New York City time on the
following Wednesday. This deadline would be extended to the
following Thursday if there was an intervening holiday on
which the Nasdaq National Market was closed.
- To place an order for our shares under this program, you will
have to take the following actions:
- If you hold your Safeguard shares in your own name,
you must complete and sign the subscription form
included with this prospectus and return it with full
payment to ChaseMellon. YOUR SUBSCRIPTION FORM AND
PAYMENT MUST BE RECEIVED BY CHASEMELLON BEFORE 5:00
P.M.
<PAGE> 4
NEW YORK CITY TIME ON THE FOURTH BUSINESS DAY AFTER
WE DETERMINE THE INITIAL PUBLIC OFFERING PRICE. We
will not honor any subscription form received by
ChaseMellon after that date.
We suggest, for your protection, that you deliver
your subscription form and payment to ChaseMellon by
overnight or express mail courier (or by facsimile
transmission if you intend to wire funds) as follows:
By Hand Delivery:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
120 Broadway - 13th Floor
New York, NY 10271
By Overnight or Express Mail Courier:
ChaseMellon Shareholder Services, L.L.C.
Reorganization Department
85 Challenger Road
Mail Drop Reorg
Ridgefield Park, NJ 07660
By Facsimile Transmission and Wire Transfer:
<TABLE>
<S> <C> <C>
ChaseMellon Shareholder Services, L.L.C.
Facsimile Transmission: (201) 296-4293
To confirm fax, call: (201) 296-4860
Wire instructions: Wire to: The Chase Manhattan Bank, New York, NY
ABA #: 021000021
Attention: ChaseMellon Shareholder Services
Account: Reorg Account 323-859577
For: Safeguard Scientifics, Inc./eMerge
Interactive
Reference: FBO [insert your name as it appears on the
your subscription form]
</TABLE>
- If you hold your Safeguard shares through a broker,
bank, trust company or other nominee, then after we
determine the initial public offering price, you will
have to contact the nominee that holds your Safeguard
shares if you wish to place an order and arrange for
payment. WE CAUTION YOU THAT BROKERS AND OTHER
NOMINEES WILL REQUIRE SOME TIME TO PROCESS
SUBSCRIPTIONS FROM SAFEGUARD STOCKHOLDERS. THEREFORE,
THEY MOST LIKELY WILL STOP ACCEPTING SUBSCRIPTIONS
EARLIER THAN THE FOURTH BUSINESS DAY AFTER WE
DETERMINE THE INITIAL PUBLIC OFFERING PRICE.
- YOU MUST PAY THE SUBSCRIPTION PRICE BY VALID CHECK OR
MONEY ORDER IN U.S. DOLLARS PAYABLE TO "CHASEMELLON
SHAREHOLDER SERVICES, L.L.C." OR BY WIRE TRANSFER.
UNTIL THIS OFFERING HAS CLOSED, YOUR PAYMENT WILL BE
HELD IN ESCROW BY CHASEMELLON SHAREHOLDER SERVICES,
L.L.C.
- We will provide to each broker, bank, trust company, and other
nominee who holds Safeguard shares for the account of other
persons copies of the preliminary and final prospectus to
provide to these persons. Each of those entities will be
responsible for providing you with a copy of the preliminary
and final prospectus. ChaseMellon Shareholder Services will
mail copies of the preliminary and final prospectus to all
record holders of Safeguard common stock as of _________,
1999.
<PAGE> 5
- Safeguard will decide all questions as to the validity, form
and eligibility (including times of receipt, beneficial
ownership and compliance with minimum exercise provisions).
Safeguard also will determine the acceptance of subscriptions
and the aggregate price. Alternative, conditional or
contingent subscriptions will not be accepted. Safeguard
reserves the absolute right to reject any subscriptions not
properly submitted. In addition, Safeguard may reject any
subscription if the acceptance of the subscription would be
unlawful. Safeguard also may waive any irregularities or
conditions in the subscription for our shares, and Safeguard's
interpretation of the terms and conditions of the program will
be final and binding.
- Once your Subscription Form and payment have been received and
accepted, your subscription may not be revoted by you.
- We are not obligated to give you notification of defects in
your subscription. We will not consider a subscription to be
made until all defects have been cured or waived. If your
subscription is rejected, your payment of the exercise price
will be promptly returned by ChaseMellon.
- Sales under the directed share subscription program will close
on the same business day as the closing of the sale of the
other shares offered to the public. If you purchase your
shares through a broker, bank, trust company or similar
nominee, we expect that your purchase will be reflected in
your account with the nominee as soon as practicable after the
closing of these sales. Otherwise, ChaseMellon will mail a
stock certificate to you as soon as practicable after the
closing of these sales.
Cancellation of Initial Public Offering
WE MAY CANCEL OUR INITIAL PUBLIC OFFERING AT ANY TIME UP UNTIL THE
CLOSING. IF THE INITIAL PUBLIC OFFERING IS CANCELED, SAFEGUARD WILL PUBLICIZE
THE CANCELLATION ON ITS WEB SITE AND THROUGH A PRESS RELEASE. THE PROGRAM GIVES
YOU NO RIGHTS TO PURCHASE SHARES OF OUR COMMON STOCK IF WE CANCEL OUR INITIAL
PUBLIC OFFERING AND ANY FUNDS PREVIOUSLY SUBMITTED BY YOU WILL BE RETURNED
PROMPTLY. SAFEGUARD AND/OR EMERGE INTERACTIVE ALSO MAY CANCEL OR MODIFY, IN
WHOLE OR IN PART, THE DIRECTED SHARE SUBSCRIPTION PROGRAM.
Federal Tax Consequences
We believe that you will not be considered to have received a taxable
distribution of property as a result of your having the opportunity to
participate in this offering. The Internal Revenue Service is not bound by this
position, and you are encouraged to consult with your tax advisors about the
federal, state and other tax consequences of the program.
Stabilization
The underwriters of our initial public offering may engage in certain
transactions that stabilize the price of our common stock. We make no
representation as to the direction or magnitude of any effect that these
transactions may have on the price of our common stock.
Risk Factors
Investing in our common stock involves certain risks which are
disclosed on page 6 of the attached preliminary prospectus.
Certain Restrictions
In managing the program, we and Safeguard will take reasonable steps to
comply with the laws of the different countries in which Safeguard stockholders
live. If compliance is too burdensome in one or more countries, Safeguard
stockholders residing in those countries will not be offered the opportunity to
purchase our shares under the program.
* * *
<PAGE> 6
IF YOU HAVE ANY QUESTIONS REGARDING THE DIRECTED SHARE SUBSCRIPTION PROGRAM,
PLEASE CALL SAFEGUARD'S AUTOMATED INVESTOR RELATIONS LINE AT (888)
SFE-1200 OR INFORMATION AGENT AT (877) 460-4356.
PLEASE DO NOT CALL eMERGE INTERACTIVE WITH ANY QUESTIONS REGARDING THIS
PROGRAM. ONLY SAFEGUARD'S AUTOMATED INVESTOR RELATIONS LINE OR INFORMATION
AGENT WILL BE ABLE TO ANSWER YOUR QUESTIONS.
Sincerely,
Charles Abraham
Chief Executive Officer
<PAGE> 1
EXHIBIT 99.3
____________, 1999
Dear Broker:
As you may know, we are undertaking an initial public offering of our shares of
common stock. We are permitting Safeguard Scientifics, Inc. to use its Directed
Share Subscription Program to offer Safeguard stockholders the opportunity to
buy shares of our common stock at the initial public offering price. The price
per share under this program will be the same price that all investors will pay
in our initial public offering.
The enclosed questions and answers will provide you with the key terms of the
Directed Share Subscription Program.
IF YOU HAVE ANY QUESTIONS REGARDING THE DIRECTED SHARE SUBSCRIPTION PROGRAM,
PLEASE CALL SAFEGUARD'S AUTOMATED INVESTOR RELATIONS LINE AT (888) SFE-1200 OR
CORPORATE INVESTOR COMMUNICATIONS, THE INFORMATION AGENT FOR THIS OFFER, AT
(877) 460-4356. PLEASE DO NOT CALL eMERGE INTERACTIVE REGARDING THIS PROGRAM.
You also may find information about this program on Safeguard's web site at
www.safeguard.com.
Preliminary prospectuses for distribution to Safeguard stockholders are being
distributed through Corporate Investor Communications, Attention: Processing
Department, 111 Commerce Road, Carlstadt, NJ 07072-2586, telephone number (201)
896-1900. Please call Corporate Investor Communications if you do not receive a
sufficient number of prospectuses for distribution to Safeguard stockholders.
You should provide a copy of the preliminary prospectus to each Safeguard
stockholder on whose behalf you hold shares.
Sincerely,
Charles Abraham
Chief Executive Officer
<PAGE> 2
SAFEGUARD SCIENTIFICS, INC.
DIRECTED SHARE SUBSCRIPTION PROGRAM
FOR eMERGE INTERACTIVE, INC.
Q: WHO IS ELIGIBLE TO PARTICIPATE IN THE DIRECTED SHARE SUBSCRIPTION
PROGRAM FOR EMERGE INTERACTIVE, INC.?
A: Only record holders of at least 100 shares of Safeguard stock on
______, 1999.
Q: HOW WAS THE OPPORTUNITY TO PURCHASE IPO SHARES ALLOCATED TO SAFEGUARD
STOCKHOLDERS?
A: Safeguard stockholders received a subscription offer to purchase ____
share of eMerge Interactive for each ____ shares of Safeguard owned on
_______, 1999, subject to the minimum purchase requirement.
If a Safeguard stockholder owned at least 100 shares of Safeguard
common stock but the number of shares was not evenly divisible by
_____, Safeguard will round up the subscription offer to the next whole
number. The Depository Trust Company will notify its participants of
the date by which the roundup requests must be submitted.
The offer to purchase shares under the directed share subscription
program is nontransferable and cannot be combined among multiple
accounts.
There will not be an oversubscription privilege under this program.
Q: IS THERE A MINIMUM PURCHASE REQUIREMENT?
A: The minimum subscription that will be accepted is for ____ shares of
eMerge Interactive common stock. Therefore, holders of fewer than 100
Safeguard shares as of ________, 1999 will be unable to purchase shares
in the directed share subscription program for eMerge Interactive.
Q: HOW WILL I KNOW WHEN THE OFFERING PRICES AND WHAT THE EXPIRATION DATE
FOR THE OFFERING WILL BE?
A: When the offering is declared effective by the SEC and the offering
price is set, Safeguard will
- issue a press release to the wire services
- send you an e-mail alert if you signed up for this on its Web
page at www.safeguard.com
- post this information on its Web page
- update its automated investor relations line (888) SFE-1200
through which you will be able to listen to the text of the
press release announcing the price and the expiration date or
request a faxed copy of the release
- update the information available through its information
agent, who can be reached at (877) 460-4356
- notify the New York Stock Exchange, which will notify all of
its members
- notify the Depository Trust Company, which will electronically
notify all of its participants
<PAGE> 3
Q: WHEN CAN SUBSCRIPTIONS AND PAYMENT BE SUBMITTED?
A: Subscriptions and payment will only be accepted by the offering agent
after the initial public offering price of the eMerge Interactive
common stock has been determined. ChaseMellon Shareholder Services,
L.L.C. is the offering agent.
THE OFFERING AGENT WILL STOP ACCEPTING SUBSCRIPTIONS AND PAYMENTS AT
5:00 P.M. NEW YORK CITY TIME ON THE FOURTH BUSINESS DAY AFTER THE IPO
PRICE HAS BEEN SET.
The Depository Trust Company will handle subscriptions on behalf of its
participants. When you subscribe for shares of eMerge Interactive
through DTC's automated subscription system, you will be required to
confirm that you are subscribing only on behalf of holders that meet
the minimum per account purchase requirement of ___ shares.
<PAGE> 1
EXHIBIT 99.4
- -------------------
Subscription Number
- ---------------------------- ------------------------ ------------------
Shares of eMerge Interactive Share Subscription Offer Record Date Shares
Eligible to Subscribe
SAFEGUARD SCIENTIFICS, INC.
DIRECTED SHARE SUBSCRIPTION PROGRAM
- --------------------------------------------------------------------------------
EMERGE INTERACTIVE, INC.
SUBSCRIPTION FORM
The shareholder named above has the right to purchase, pursuant to the terms and
conditions of the Safeguard Scientifics, Inc. Directed Share Subscription
Program, the number of fully paid and non-assessable shares of common stock,
$.001 par value, of eMerge Interactive, Inc. indicated above at a subscription
price that will be determined as outlined below. THE DIRECTED SHARE SUBSCRIPTION
PROGRAM WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON THE FOURTH BUSINESS DAY
AFTER THE INITIAL PUBLIC OFFERING PRICE IS DETERMINED. As described in the
preliminary prospectus accompanying this Subscription Form, each holder of at
least 100 shares of Safeguard Scientifics, Inc. common stock may subscribe for
_____ share of eMerge Interactive common stock for every ____ shares of
Safeguard Scientifics common stock held as of __________, 1999, in any account,
rounded upward. THE MINIMUM SUBSCRIPTION THAT WE WILL ACCEPT IS FOR __SHARES OF
eMERGE INTERACTIVE PER ANY INDIVIDUAL ACCOUNT. Therefore, holders with accounts
containing fewer than 100 shares of Safeguard common stock as of __________,
1999, will not be able to subscribe for shares of eMerge Interactive. The right
to participate in this program and purchase shares of eMerge Interactive is
nontransferable except involuntarily by operation of law (e.g. death or certain
dissolutions). Should an involuntary transfer occur by operation of law, please
contact ChaseMellon Shareholder Services, L.L.C., the agent for the program, by
telephone at 800-777-3674 for appropriate instructions.
The subscription price per share under the program will be the same price that
all investors will pay in eMerge Interactive's initial public offering. The
price per share will be determined by negotiations between eMerge Interactive
and the underwriters of the offering. The factors to be considered in these
negotiations are described in the preliminary prospectus accompanying this
Subscription Form. eMerge Interactive currently anticipates that its initial
public offering price will be determined in __________ 1999 but various factors
could hasten or delay this determination. Time will not permit eMerge
Interactive to notify you directly of the subscription price and the expiration
date for this offering, but Safeguard Scientifics will take the actions
described in the accompanying preliminary prospectus to publicize this
information.
No offer to buy securities can be accepted, and no part of the subscription
price can be received, until the initial public offering price has been
determined and the registration statement, of which the preliminary prospectus
accompanying this Subscription Form is a part, has been declared effective. Any
Subscription Forms or payments received before then will be returned to you. All
persons electing to subscribe for shares of eMerge Interactive, Inc. must
complete the Election to Purchase on the reverse side of this Subscription Form
and return the Subscription Form, together with full payment of the subscription
price, to ChaseMellon at the addresses on the back of this Subscription Form. If
you do not properly complete and sign this Subscription Form, it may be
rejected. Once your Subscription Form and payment have been received and
accepted, your subscription may not be revoked by you. THE SUBSCRIPTION FORM AND
FULL PAYMENT OF THE SUBSCRIPTION PRICE MUST BE RECEIVED BY CHASEMELLON NO LATER
THAN 5:00 P.M. NEW YORK CITY TIME ON THE FOURTH BUSINESS DAY AFTER THE INITIAL
PUBLIC OFFERING PRICE IS DETERMINED. CHASEMELLON WILL NOT HONOR ANY
SUBSCRIPTIONS RECEIVED AFTER THAT TIME AND DATE. If you do not wish to subscribe
for shares, you do not need to return this Subscription Form. Before completing
and returning this Subscription Form, you are urged to read carefully the
preliminary prospectus mailed to you with this Subscription Form for a more
complete explanation of the offering and for information about eMerge
Interactive. If eMerge Interactive cancels the initial public offering, you will
have no rights to purchase shares of eMerge Interactive and any funds previously
submitted by you will be returned. eMerge Interactive and/or Safeguard also may
cancel or modify, in whole or in part, the directed share subscription program.
<PAGE> 2
YOU SHOULD NOT RETURN THIS SUBSCRIPTION FORM OR DELIVER ANY PAYMENT UNTIL AFTER
EMERGE INTERACTIVE HAS DETERMINED ITS INITIAL PUBLIC OFFERING PRICE. ANY
SUBSCRIPTION FORMS OR PAYMENT RECEIVED BEFORE THEN WILL BE RETURNED TO YOU. Once
the initial public offering price has been determined, Safeguard Scientifics
will take the actions described in the preliminary prospectus to publicize the
subscription price and the date by which you must respond to the offer that has
been made to you under this program. If you wish to subscribe for shares at that
time, you should complete this Subscription Form and deliver payment of the
subscription price to ChaseMellon. CHASEMELLON MUST RECEIVE THE PROPERLY
COMPLETED AND SIGNED SUBSCRIPTION FORM AND FULL PAYMENT OF THE SUBSCRIPTION
PRICE BY 5:00 P.M. NEW YORK CITY TIME ON THE FOURTH BUSINESS DAY AFTER EMERGE
INTERACTIVE DETERMINES ITS INITIAL PUBLIC OFFERING PRICE. CHASEMELLON WILL STOP
ACCEPTING SUBSCRIPTION FORMS AFTER THAT TIME AND DATE. We suggest, for your
protection, that you deliver the completed Subscription Form and payment of the
subscription price to ChaseMellon Shareholder Services, L.L.C. by overnight or
express mail courier, or by facsimile transmission and wire transfer. The
addresses for ChaseMellon are as follows:
<TABLE>
<S> <C>
By Hand Delivery: By Overnight Delivery/Express Mail Courier
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Attn: Reorganization Dept. Attn: Reorganization Dept.
120 Broadway, 13th Floor 85 Challenger Road, Mail Drop -- Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
By Facsimile Transmission and Wire Transfer:
ChaseMellon Shareholder Services, L.L.C. Wire to: The Chase Manhattan Bank, New York, NY
Facsimile Transmission: (201) 296-4293 ABA # 021000021
To confirm fax, call: (201) 296-4860 Attention: ChaseMellon Shareholder Services
Account: Reorg Account 323-859577
For: Safeguard Scientifics, Inc./eMerge Interactive
Reference: FBO [insert your name as it appears on the reverse
side of this form]
</TABLE>
SUBSCRIPTION FORM -- ELECTION TO PURCHASE
Subject to the terms and conditions of the Directed Share Subscription Program
described in the preliminary prospectus, receipt of which is hereby
acknowledged, the undersigned hereby elects to purchase shares of common stock
of eMerge Interactive, Inc. as indicated below.
<TABLE>
<S> <C> <C>
Number of shares purchased(1) (NOTE: 5 SHARE MINIMUM REQUIRED IN EACH ACCOUNT)(2)
--------------------------
Per share subscription price $
--------------------------
Payment submitted(3) $
--------------------------
</TABLE>
(1) You may only purchase up to the number of shares specified on the reverse
side of this form. If the amount submitted is not sufficient to pay the
subscription price for all shares that are stated to be purchased, or if
the number of shares being purchased is not specified, the number of shares
purchased will be assumed to be the maximum number that could be purchased
upon payment of such amount. Any remaining amount will be returned to the
purchaser.
(2) Any order for less than the minimum purchase requirement will be rejected.
(3) The subscription price must be paid by valid check or money order in U.S.
dollars payable to ChaseMellon Shareholder Services, L.L.C. or by wire
transfer as described above. The payment submitted should equal the total
shares purchased multiplied by the per share subscription price.
Shares of common stock of eMerge Interactive, Inc. will be issued promptly
following the closing of the directed share subscription program. The shares
will be registered in the same manner set forth on the face of this Subscription
Form. If your shares are held in joint ownership, all joint owners must sign
this election to purchase. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title as such. If signing for a
corporation, an authorized officer must sign and provide title. If signing for a
partnership, an authorized partner must sign and indicate title.
Please provide a telephone number at which you can be reached in the event that
we have questions regarding the information that you have supplied.
Daytime Telephone Number ( )
-----------------------------------
Evening Telephone Number ( )
-----------------------------------
(IF JOINTLY OWNED, BOTH MUST SIGN)
SIGNATURE(S):
-------------------------------
-------------------------------
Dated: , 1999
-----------
NOTE: The above signature(s) must correspond
with the name(s) as written upon the face of
this Subscription Form in every particular
without alteration.
SUBSTITUTE FORM W-9
DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE -- PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION NUMBER (TIN) FAILURE TO COMPLETE THIS
FORM MAY SUBJECT YOU TO 31% FEDERAL INCOME TAX WITHHOLDING.
<TABLE>
<S> <C>
Part 1: PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER IN THE SPACE TIN
PROVIDED AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW -------------------------------------------------
Social Security or Employer Identification Number
Part 2: Check the box if you are awaiting a TIN / /
</TABLE>
Part 3: CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number (or a TIN
has not issued to me but I have mailed or delivered an application to receive a
TIN or intend to do so in the near future), (2) I am not subject to backup
withholding either because I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends or the IRS has notified me that I am
no longer subject to backup withholding, and (3) all other information provided
on this form is true, correct and complete.
Dated: , 1999 SIGNATURE:
------------ --------------------------------
You must cross out item (2) above if you have been notified by the IRS that you
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return. However, if after being notified by the IRS
that you were subject to backup withholding, you received another notification
from the IRS that you are no longer subject to backup withholding, do not cross
out item (2).
