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AGREEMENT AND PLAN OF MERGER
among
L90, INC.,
WM ACQUISITION CORP.,
WEBMILLION.COM, INC.,
ANTHONY HAUSER
AND
KENNETH ADCOCK
______________
July 7, 2000
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.................................................................... 1
ARTICLE II THE MERGER..................................................................... 9
SECTION 2.01 Merger..................................................................... 9
SECTION 2.02 Effective Time............................................................. 9
SECTION 2.03 Articles of Incorporation; Bylaws; Directors and Officers;
Name................................................................................ 9
SECTION 2.04 Assets and Liabilities..................................................... 10
SECTION 2.05 Further Assurances......................................................... 10
SECTION 2.06 Conversion of Securities................................................... 10
SECTION 2.07 Dissenting Shares.......................................................... 11
SECTION 2.08 Exchange of Shares......................................................... 12
SECTION 2.09 Escrow; Indemnification Representative..................................... 14
SECTION 2.10 Requisite Shareholders' Approval........................................... 15
SECTION 2.11 Consummation of Merger..................................................... 15
SECTION 2.12 Closing.................................................................... 15
SECTION 2.13 Actions at the Closing..................................................... 16
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY........................... 16
SECTION 3.01 Organization and Good Standing; Authorization.............................. 16
SECTION 3.02 No Conflicts............................................................... 17
SECTION 3.03 Capitalization............................................................. 17
SECTION 3.04 Financial Statements....................................................... 18
SECTION 3.05 Title to Property; Encumbrances............................................ 19
SECTION 3.06 Accounts Receivable........................................................ 20
SECTION 3.07 Year 2000.................................................................. 20
SECTION 3.08 Trademarks, Patents, Etc................................................... 20
SECTION 3.09 Banking and Insurance...................................................... 21
SECTION 3.10 Indebtedness............................................................... 21
SECTION 3.11 Judgments; Litigation...................................................... 22
SECTION 3.12 Income and Other Taxes..................................................... 22
SECTION 3.13 Compliance with Law........................................................ 24
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SECTION 3.14 Employee Benefit Matters................................................ 24
SECTION 3.15 No Undisclosed Liabilities.............................................. 26
SECTION 3.16 Permits, Licenses, Etc.................................................. 26
SECTION 3.17 Regulatory Filings...................................................... 26
SECTION 3.18 Consents................................................................ 27
SECTION 3.19 Material Contracts; No Defaults......................................... 27
SECTION 3.20 Absence of Certain Changes.............................................. 29
SECTION 3.21 Employees and Labor Matters............................................. 30
SECTION 3.22 Affiliations............................................................ 30
SECTION 3.23 Principal Customers and Suppliers....................................... 31
SECTION 3.24 Warranty Liability...................................................... 31
SECTION 3.25 Corporate Records....................................................... 31
SECTION 3.26 Brokers' Fees........................................................... 31
SECTION 3.27 Disclosure.............................................................. 31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..................................... 32
SECTION 4.01 Organization, Power and Authority of Buyer.............................. 32
SECTION 4.02 Organization, Power and Authority of Newco.............................. 32
SECTION 4.03 Authorization........................................................... 32
SECTION 4.04 Reports and Financial Statements........................................ 33
SECTION 4.05 Capitalization.......................................................... 33
SECTION 4.06 Brokers' Fees........................................................... 34
SECTION 4.07 Representations Complete................................................ 34
SECTION 4.08 No Conflicts............................................................ 34
SECTION 4.09 Judgments; Litigation................................................... 34
SECTION 4.10 Taxes................................................................... 35
SECTION 4.11 Compliance with Law..................................................... 35
ARTICLE V PREPARATION OF INFORMATION STATEMENT........................................ 35
SECTION 5.01 Preparation of Information Statement.................................... 35
ARTICLE VI CONDITIONS TO CONSUMMATION OF MERGER........................................ 36
SECTION 6.01 Conditions to Each Party's Obligations.................................. 36
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SECTION 6.02 Conditions to Obligations of Buyer and Newco........................... 37
SECTION 6.03 Conditions to Obligations of the Company............................... 39
ARTICLE VII CONDUCT OF BUSINESS PENDING CLOSING........................................ 41
SECTION 7.01 Qualification.......................................................... 41
SECTION 7.02 Ordinary Course........................................................ 41
SECTION 7.03 Organic Changes........................................................ 41
SECTION 7.04 Indebtedness........................................................... 42
SECTION 7.05 Accounting............................................................. 42
SECTION 7.06 Compliance with Legal Requirements..................................... 42
SECTION 7.07 Disposition of Assets.................................................. 42
SECTION 7.08 Compensation........................................................... 42
SECTION 7.09 Modification or Breach of Agreements; New Agreements................... 42
SECTION 7.10 Capital Expenditures................................................... 43
SECTION 7.11 Maintain Insurance..................................................... 43
SECTION 7.12 Discharge.............................................................. 43
SECTION 7.13 Actions................................................................ 43
SECTION 7.14 Permits................................................................ 43
SECTION 7.15 Tax Assessments and Audits............................................. 43
ARTICLE VIII ADDITIONAL COVENANTS....................................................... 43
SECTION 8.01 Covenants of the Company............................................... 43
SECTION 8.02 Covenants of Buyer..................................................... 44
SECTION 8.03 Access and Information................................................. 45
SECTION 8.04 Expenses............................................................... 45
SECTION 8.05 Certain Notifications.................................................. 46
SECTION 8.06 Publicity; Employee Communications..................................... 46
SECTION 8.07 Further Assurances..................................................... 46
SECTION 8.08 Competing Offers; Merger or Liquidation................................ 46
SECTION 8.09 Inconsistent Action.................................................... 47
SECTION 8.10 Inconsistent Action.................................................... 47
SECTION 8.11 HSR Act................................................................ 47
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SECTION 8.12 Indemnification of Officers and Directors.............................. 48
SECTION 8.13 Vote by Founders....................................................... 48
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.......................................... 48
SECTION 9.01 Termination............................................................ 48
SECTION 9.02 Effect of Termination.................................................. 49
SECTION 9.03 Amendment.............................................................. 49
SECTION 9.04 Waiver................................................................. 49
ARTICLE X INDEMNIFICATION............................................................ 50
SECTION 10.01 Survival of Representations and Warranties and Covenants.............. 50
SECTION 10.02 Indemnification....................................................... 50
SECTION 10.03 Third Party Claims.................................................... 51
SECTION 10.04 Indemnified Claims.................................................... 52
SECTION 10.05 Limitation of Indemnification......................................... 53
SECTION 10.06 Remedies.............................................................. 53
ARTICLE XI GENERAL PROVISIONS......................................................... 54
SECTION 11.01 Notices............................................................... 54
SECTION 11.02 Severability.......................................................... 55
SECTION 11.03 Entire Agreement...................................................... 55
SECTION 11.04 Successors and Assigns................................................ 55
SECTION 11.05 Counterparts.......................................................... 55
SECTION 11.06 Schedules and Annexes................................................. 56
SECTION 11.07 Construction.......................................................... 56
SECTION 11.08 Waiver of Jury Trial.................................................. 56
SECTION 11.09 Arbitration........................................................... 56
SECTION 11.10 Governing Law......................................................... 57
SECTION 11.11 Remedies.............................................................. 57
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
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as of July 7, 2000 by and among L90, Inc., a Delaware corporation ("Buyer"), WM
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Acquisition Corp., an Idaho corporation and a wholly-owned subsidiary of Buyer
("Newco"), webMillion.com, Inc., an Idaho corporation (the "Company"), Anthony
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Hauser and Kenneth Adcock each, a "Founder," and collectively, the "Founders").
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R E C I T A L S
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A. Buyer owns all of the outstanding shares of capital stock of
Newco.
B. The Board of Directors of each of Buyer, Newco and the Company
have determined that it is in the best interests of, their respective
corporations and stockholders or shareholders, as applicable, for Newco to be
merged with and into the Company upon the terms and subject to the conditions
set forth herein (the "Merger").
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C. The Board of Directors of each of Buyer, Newco and the Company
have approved the Merger in accordance with the General Corporation Law of the
State of Delaware or the State of Idaho, as applicable.
D. For United States federal income tax purposes, it is intended that
the Merger qualify as a reorganization within the meaning of 368(a) of the Code
(as defined below) and that this Agreement shall be, and hereby is, adopted as a
plan of reorganization for purposes of Section 368 of the Code.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
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Unless the context otherwise requires, the terms defined in this
Article I shall have the meanings herein specified for all purposes of this
Agreement, applicable to both the singular and plural forms of any of the terms
herein defined. All accounting terms defined in this Article I and those
accounting terms used in this Agreement and not defined in this Article I shall,
except as otherwise provided for herein, be construed in accordance with GAAP.
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"Action" shall mean any actual claim, action, suit, arbitration,
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hearing, inquiry, proceeding, complaint, charge or investigation by or before
any Governmental Entity or arbitrator and any appeal from any of the foregoing.
"Affiliate" shall mean any Person which directly or indirectly
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controls, is controlled by, or is under common control with, the indicated
Person.
"Agreement" shall have the meaning assigned to such term in the
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introductory paragraph hereof.
"Balance Sheet" and "Balance Sheet Date" shall have the respective
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meanings assigned to such terms in Section 3.04(a).
"Business Day" shall mean any day excluding Saturday, Sunday or any
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day which shall be in the State of Delaware a legal holiday or a day on which
banking institutions are authorized by law to close.
"Buyer" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Buyer Common Stock" shall mean the Common Stock, par value $.001 per
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share, of Buyer.
"Buyer Reports" shall have the meaning assigned to such term in
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Section 4.04.
"Buyer Warrant Shares" shall have the meaning assigned to such term in
--------------------
Section 2.6(b).
"Certificates" shall have the meaning assigned to such term in Section
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2.08(a).
"Closing" and "Closing Date" shall have the respective meanings
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assigned to such terms in Section 2.12.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Commission" shall mean the United States Securities and Exchange
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Commission.
"Common Initial Shares" shall have the meaning assigned to such term
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in Section 2.06(a)(i).
"Company" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
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"Company Common Stock" shall mean the Company Common Stock, no par
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value, of the Company.
"Company Takeover Proposal" shall mean any inquiry, proposal or offer
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from any Person (other than Buyer or an Affiliate thereof) relating to any
direct or indirect (i) sale, lease, exchange, transfer or other disposition
(including a contribution to a joint venture) of at least 20% of the assets or
business of the Company or (ii) a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution,
tender offer, exchange offer or other similar transaction, to which the Company
is a party or of which the Company is the subject, in any of such cases in which
the shareholders of the Company immediately prior to any such transaction own
less than 80% of the outstanding voting securities of the Company immediately
after such transaction.
"Company Warrant(s)" shall have the meaning assigned to such term in
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Section 2.6(b).
"Confidentiality Agreement" shall have the meaning assigned to such
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term in Section 8.03(b).
"Constituent Corporations" shall have the meaning assigned to such
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term in Section 2.01.
"Damages" shall mean any and all losses, liabilities, obligations,
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costs, expenses, damages or judgments of any kind or nature whatsoever
(including reasonable attorneys', accountants' and experts' fees, disbursements
of counsel, and other costs and expenses incurred pursuing indemnification
claims under Article X hereof).
"Delaware Law" shall mean the Delaware General Corporation Law, as
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amended.
"Dissenting Shares" shall have the meaning assigned to such term in
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Section 2.07(a).
"Effective Time" shall have the meaning assigned to such term in
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Section 2.02.
"Employee Shareholders" shall mean those Shareholders set forth on
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Annex I hereto, as amended as of the Closing Date.
"Environmental Laws" shall mean all Legal Requirements pertaining to
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the protection of the environment, the treatment, emission and discharge of
gaseous, particulate and effluent pollutants and the use, handling, storage,
treatment, removal, transport, transloading, cleanup, decontamination, discharge
and disposal of hazardous
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substances, including, without limitation, those statutes, laws, rules and
regulations set forth below in the definition of "Hazardous Material."
"ERISA" shall mean the Employee Retirement Income Security Act of
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1974, as amended from time to time.
"ERISA Affiliate" shall mean any Person which is (or at any relevant
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time was) a member of a controlled group of corporations within the meaning of
Code Section 414(b), all trades or businesses under common control within the
meaning of Code Section 414(c), and all affiliated service groups within the
meaning of Code Section 414(m), of which the Company is (or at any relevant time
was) a member.
"Escrow Agent" shall mean U.S. Bank Trust National Association.
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"Escrow Agreement" shall have the meaning assigned to such term in
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Section 2.09.
"Escrow Shares" shall have the meaning assigned to such term in
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Section 2.09(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended.
"Exchange Agent" shall mean Chase Mellon Shareholder Services.
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"Financial Statements" shall have the meaning assigned to such term in
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Section 3.04(a).
"Founder" shall mean each of Anthony Hauser and Kenneth Adcock.
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"GAAP" means United States generally accepted accounting principles,
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consistently applied.
"Governmental Entity" shall mean any local, state, federal or foreign
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(i) court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
"Guaranties" shall have the meaning assigned to such term in Section
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3.10(b).
"Hazardous Material" shall mean any flammable, ignitable, corrosive,
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reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law currently in effect or as amended or promulgated in the future
and shall include, without limitation:
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(a) those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances" or "solid waste" in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Sections 9601 et seq., the Resource Conservation and Recovery
-- ---
Act, 42 U.S.C. Sections 6901 et seq., and the Hazardous Materials Transportation
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Act, 49 U.S.C. Sections 1801 et seq., and in the regulations promulgated
-- ---
pursuant thereto;
(b) those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);
(c) such other substances, materials and wastes that are or become
regulated under applicable local, state or Federal laws or regulations, or which
are or become classified as hazardous or toxic under any Legal Requirement; and
(d) any material, waste or substance that is, in whole or in part, (i)
petroleum, asbestos, polychlorinated biphenyls, methylene chloride,
trichloroethylene, 1, 2-trans-dichloroethylene, dioxins or dibenzofurans, (ii)
designated as an "extremely hazardous substance" pursuant to Section 302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended, or (iii)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. Sections 1251 et seq. (33 U.S.C. (S) 1321) or listed pursuant to
-- ---
Section 307 of the Clean Water Act (33 U.S.C. (S) 1317), or Section 112 or other
Section of the Clean Air Act, as amended.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
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of 1976, as amended.
"Idaho Law" shall mean the Idaho Business Corporation Act, Idaho Code
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30 1 101, et seq., as amended.
"Indebtedness" shall mean, when used with reference to any Person,
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without duplication, (i) any liability of such Person created or assumed by such
Person, or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a
bond, note, debenture or similar instrument (including a purchase money
obligation, deed of trust or mortgage) given in connection with the acquisition
of, or exchange for, any property or assets (other than inventory or similar
property acquired and consumed in the Ordinary Course), including securities and
other Indebtedness, (C) in respect of letters of credit issued for such Person's
account and "swaps" of interest and currency exchange rates (and other interest
and currency exchange rate hedging agreements) to which such Person is a party
or (D) for the payment of money as lessee under leases that should be, in
accordance with GAAP, recorded as capital leases for financial reporting
purposes; (ii) any liability of others described in the preceding clause (i)
guaranteed as to payment of principal or interest by such Person or in effect
guaranteed by such Person through an agreement, contingent or otherwise, to
purchase, repurchase or pay the related
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Indebtedness or to acquire the security therefor; (iii) all liabilities or
obligations secured by a Lien upon property owned by such Person and upon which
liabilities or obligations such Person customarily pays interest or principal,
whether or not such Person has not assumed or become liable for the payment of
such liabilities or obligations; and (iv) any amendment, renewal, extension,
revision or refunding of any such liability or obligation; provided, however,
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that Indebtedness shall not include any liability for compensation of such
Person's employees or for inventory or similar property acquired and consumed in
the Ordinary Course or for services.
"Information Statement" shall have the meaning assigned to such term
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in Section 5.2.
"IRS" shall mean the United States Internal Revenue Service.
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"Investor Shareholders" shall mean those Shareholders set forth on
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Annex Q hereto, as amended as of the Closing Date.
"Knowledge," shall mean and an individual will be deemed to have
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"Knowledge" of a particular fact or other matter if: (a) such individual is
actually aware of such fact or other matter; or (b) a prudent individual could
be expected to discover or otherwise become aware of such fact or other matter
after a reasonable inquiry of responsible employees who would normally have
knowledge of such matters.
"Knowledge of Buyer" or other similar phrases shall mean the
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collective Knowledge of John C. Bohan and Thomas A. Sebastian.
"Knowledge of the Company" or other similar phrases shall mean the
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collective Knowledge of Anthony Hauser and Kenneth Adcock.
"Leased Real Property" shall mean all real property leased by the
--------------------
Company.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
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regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Lien" shall mean all liens (including judgment and mechanics' liens,
----
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"Material Adverse Effect" shall mean a material adverse effect on the
-----------------------
business, financial condition, properties or operations of the Company, the
Buyer or Newco, as applicable.
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"Merger" shall have the meaning assigned to such term in Recital B
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hereof.
"Merger Shares" shall have the meaning assigned to such term in
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Section 2.06(a).
"Newco" shall have the meaning assigned to such term in the
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introductory paragraph of this Agreement.
"Ordinary Course" shall mean, when used with reference to the Company
---------------
or Buyer, the ordinary course of the Company's or Buyer's business,
respectively, consistent with past practices.
"Permit" shall have the meaning assigned to such term in Section 3.16
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hereof.
"Permitted Liens" shall mean (a) Liens for ad valorem real or personal
---------------
property taxes or assessments not at the time due, (b) Liens in respect of
pledges or deposits under workers' compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
liens, if the obligations secured by such Liens are not then delinquent and (c)
Liens which do not materially impair the use of or title to the assets subject
to such Lien.
"Person" shall mean all natural persons, corporations, business
------
trusts, associations, companies, partnerships, limited liability companies,
joint ventures, Governmental Entities and any other entities.
"Plan" shall mean any "employee benefit plan" within the meaning of
----
Section 3(3) of ERISA and any other written or oral employee benefit plan,
arrangement, practice, contract, policy, or program (other than arrangements
merely involving the payment of wages) which are or at any time have been
established, maintained, or contributed to by the Company or any ERISA Affiliate
for the benefit of current or former employees, with respect to which the
Company or an ERISA Affiliate has or may in the future have any liability or
obligation to contribute or make payments of any kind.
"Plan of Merger" shall have the meaning assigned to such term in
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Section 2.11.
"Policy" shall have the meaning assigned to such term in Section
------
3.09(b) hereof.
"Proprietary Information" shall have the meaning assigned to such term
-----------------------
in Section 3.08(b).
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"Registered Rights" shall have the meaning assigned to such term in
-----------------
Section 3.08(a).
"Representative" shall mean the Indemnification Representative
--------------
appointed by the Founders pursuant to Section 2.09(b).
"Requisite Shareholder Approval" shall mean the approval of the
------------------------------
requisite number of Shareholders, under Idaho Code Section 30 1 1103 and the
Company's Articles of Incorporation, of the principal terms of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Shareholder" shall mean an owner of Shares, as set forth in Annex A
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hereto, as amended as of the Closing Date.
"Shares" shall mean the issued and outstanding Company Common Stock.
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"Stock Plans" shall mean all stock option plans and other stock or
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equity-related plans of the Company.
"Subsidiary" of a Person shall mean any corporation, partnership,
----------
association or other business entity at least 50% of the outstanding voting
power of which is at the time owned or controlled directly or indirectly by such
Person or by one or more of such subsidiary entities, or both.
"Surviving Corporation" shall have the meaning assigned to such term
---------------------
in Section 2.01.
"Tax" shall mean any Federal, state, local or foreign income, gross
---
receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
imposed by a governmental taxing authority of any kind whatsoever, including,
without limitation, any interest, fine penalty or addition thereto, whether
disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for
----------
refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
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ARTICLE II
THE MERGER
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SECTION 2.01 Merger. Upon the terms and subject to the conditions
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of this Agreement and the Plan of Merger, Newco shall be merged with and into
the Company in accordance with the applicable provisions of the Idaho Law. The
Company and Newco are herein sometimes referred to as the "Constituent
-----------
Corporations." At the Effective Time, the identity and separate corporate
------------
existence of Newco shall cease and the Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
---------
Corporation"). The Merger shall have the effects set forth in Section 30 1 1106
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of the Idaho Law.
SECTION 2.02 Effective Time. The Merger shall become effective on
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the date and at the time the Plan of Merger and Articles of Merger and other
required documents referred to in Section 2.11 hereof are filed with the
Secretary of State of the State of Idaho in accordance with Section 30 1 1105 of
the Idaho Law. The time at which the Merger shall become effective as aforesaid
is referred to hereinafter as the "Effective Time."
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SECTION 2.03 Articles of Incorporation; Bylaws; Directors and
------------------------------------------------
Officers; Name.
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(a) The Articles of Incorporation of Newco, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Surviving Corporation from and after the Effective Time until amended in
accordance with applicable law; provided, however, that Article I of the
Articles of Incorporation of the Surviving Corporation shall be amended to read
as follows: "The name of the corporation is "webMillion.com, Inc."
(b) The Bylaws of Newco, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation from and after
the Effective Time until amended in accordance with applicable law, the
Surviving Corporation's Articles of Incorporation and such Bylaws.
(c) The directors and officers of Newco in office immediately
prior to the Effective Time, shall be the initial directors and officers,
respectively, of the Surviving Corporation, and each shall hold his or her
respective office or offices from and after the Effective Time until his or her
successor shall have been elected and qualified, or as otherwise provided in the
Bylaws of the Surviving Corporation.
(d) The name of the Surviving Corporation from and after the
Effective Time shall be "webMillion.com, Inc." until changed in accordance with
applicable law.
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SECTION 2.04 Assets and Liabilities. At the Effective Time, the
----------------------
Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to all the
restrictions and duties of each of the Constituent Corporations; and all the
rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
any of the Constituent Corporations on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter the property of the Surviving Corporation as they
were of the several and respective Constituent Corporations, and the title to
any real estate vested by deed or otherwise under the laws of any jurisdiction,
in any of the Constituent Corporations, shall not revert or be in any way
impaired by this Article II; but all rights of creditors and all liens upon any
property of any of the Constituent Corporations shall be preserved unimpaired,
and all debts, liabilities and duties of the respective Constituent Corporations
shall thenceforth attach to the Surviving Corporation, and may be enforced
against it to the same extent as if said debts, liabilities and duties had been
incurred or contracted by it.
SECTION 2.05 Further Assurances. If, at any time after the
------------------
Effective Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, properties or assets of the Constituent Corporations
acquired or to be acquired as a result of the Merger, or (ii) otherwise to carry
out the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to execute and
deliver, in the name and on behalf of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of the Constituent Corporations, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, properties or assets of the
Constituent Corporations acquired or to be acquired as a result of the Merger
and otherwise to carry out the purposes of this Agreement.
SECTION 2.06 Conversion of Securities.
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(a) By virtue of the Merger and without any action on the part
of the holder thereof, at the Effective Time all shares of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
Dissenting Shares), including any dividends or other distributions due or
accrued on such shares, shall be converted into the right to receive (subject to
the provisions of Section 2.09) the remainder of 2,000,000 shares of Buyer
Common Stock (adjusted appropriately for any stock splits, stock dividends or
similar recapitalization) less the aggregate number of Dissenting Shares and
Buyer Warrant Shares (the "Merger Shares"). The Merger Shares
-------------
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<PAGE>
shall be distributed among the holders of Company Common Stock in accordance
with this Section 2.06(a).
(i) At the Closing, the holders of Company Common Stock
outstanding at the Effective Time shall be entitled to receive in the aggregate
(subject to the provisions of Section 2.09) such number of shares of Buyer
Common Stock as is equal to the Merger Shares less the number of Escrow Shares
(such remainder being referred to as the "Common Initial Shares"). The Escrow
---------------------
Shares shall be deposited with the Escrow Agent pursuant to Section 2.09 and
shall be held and disposed of in accordance with the terms hereof and of the
Escrow Agreement.
(ii) For purposes of determining the pro rata allocation for
each holder of Company Common Stock of the Common Initial Shares among the
holders of Company Common Stock outstanding at the Effective Time, the Common
Initial Shares shall be multiplied by a fraction, the numerator of which shall
be the number of shares of Company Common Stock held by such holder at the
Effective Time and the denominator of which shall be the aggregate number of
shares of Company Common Stock issued and outstanding at the Effective Time.
(b) As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, each warrant to purchase
shares of the Company Common Stock that is outstanding (each, a "Company
-------
Warrant," and, collectively, the "Company Warrants") immediately prior to the
------- ----------------
Effective Time shall be assumed by Buyer in such manner that each such Company
Warrant shall be exercisable upon the same terms and conditions under the
applicable Company Warrant agreement issued thereunder, except that (i) each
such Company Warrant shall be exercisable for that number of shares of Buyer
Common Stock (rounded up to the nearest whole share) equal to the product of the
number of shares of Company Common Stock subject to such Company Warrant
immediately prior to the Effective Time multiplied by 1.6167 (the "Buyer Warrant
-------------
Shares"), (ii) the warrant price per share of Buyer Common Stock shall be an
------
amount equal to the product of the Company Warrant price per share of Company
Common Stock subject to such Company Warrant in effect immediately prior to the
Effective Time multiplied by 0.6185 (rounded up to the nearest whole cent), and
(iii) each such Company Warrant shall be subject to the provisions of Section
2.09.
(c) Prior to the Effective Time, the Company shall obtain any
consents from holders of outstanding Company Warrants as are necessary to give
effect to the transactions contemplated by this Section 2.06; provided, however,
-------- -------
that any such consents and amendments shall not change the vesting, if any, of
such Warrants in accordance with their current terms.
(d) Each share of common stock of Newco issued and outstanding
immediately prior to the Effective Time shall be converted into and thereafter
evidence one share of common stock of the Surviving Corporation.
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<PAGE>
SECTION 2.07 Dissenting Shares.
-----------------
(a) For purposes of this Agreement, "Dissenting Shares" means
-----------------
Shares held as of the Effective Time by a Shareholder who has not voted such
Shares in favor of the adoption of this Agreement and the Merger and with
respect to which notice of intent to demand payment is duly made and perfected
in accordance with Section 30 1 1321 of the Idaho Law and not subsequently and
effectively withdrawn or forfeited. Dissenting Shares shall not be converted
into or represent the right to receive Merger Shares, unless they cease to be
Dissenting Shares due to forfeiture or withdrawal, with the consent of the
Company, of the demand for purchase. If such Shareholder has so forfeited or
withdrawn such demand, then as of the occurrence of such event, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Common Initial Shares issuable in
respect of such Shares pursuant to Section 2.06(a) and the Escrow Shares
issuable in respect of such Shares to be held and disposed of in accordance with
the terms hereof and of the Escrow Agreement.
(b) The Company shall give Buyer (i) prompt notice of any
written demands for purchase of any shares of Company Common Stock, withdrawals
of such demands, and any other instruments that relate to such demands received
by the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for purchase under the Idaho Law. The
Company shall not, except with the prior written consent of Buyer, make any
payment with respect to any demands for purchase of shares of Company Common
Stock or offer to settle any such demands.
SECTION 2.08 Exchange of Shares.
------------------
(a) Prior to the Effective Time, the Buyer shall appoint the
Exchange Agent to effect the exchange for the Common Initial Shares of
certificates that, immediately prior to the Effective Time, represented Company
Common Stock converted into Merger Shares pursuant to Section 2.06 (including
any Company Common Stock referred to in the last sentence of Section 2.07(a))
("Certificates"). On the Closing Date, the Buyer shall deliver to the Exchange
------------
Agent, in trust for the benefit of holders of Certificates, a stock certificate
(issued in the name of the Exchange Agent or its nominee) representing the
Common Initial Shares, as described in Section 2.06(a). No later than ten (10)
Business Days after the Effective Time, the Buyer shall cause the Exchange Agent
to send a notice and a transmittal form to each holder of a Certificate advising
such holder of the effectiveness of the Merger and the procedure for
surrendering to the Exchange Agent such Certificate in exchange for the Common
Initial Shares issuable pursuant to Section 2.06(a). Each holder of a
Certificate, upon proper surrender thereof to the Exchange Agent in accordance
with the instructions in such notice, shall be entitled to receive in exchange
therefor (subject to any taxes required to be withheld) the Common Initial
Shares issuable pursuant to Section 2.06(a). Until properly surrendered, each
such Certificate (other than Certificates representing Dissenting Shares) shall
be
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<PAGE>
deemed for all purposes to evidence only the right to receive the Common Initial
Shares issuable pursuant to Section 2.06(a) and the Escrow Shares issuable in
respect of such Shares to be held and disposed of in accordance with the terms
hereof and of the Escrow Agreement. Holders of Certificates shall not be
entitled to receive certificates for the Common Initial Shares to which they
would otherwise be entitled until such Certificates are properly surrendered.
(b) If any Common Initial Shares are to be issued in the name of
a person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance of such
Common Initial Shares that (i) the Certificate so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay to the Exchange Agent any transfer
or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
required to be paid. Notwithstanding the foregoing, neither the Exchange Agent,
the Buyer nor the Company shall be liable to a holder of Company Common Stock
for any Common Initial Shares issuable to such holder pursuant to Section
2.06(a) that are delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Buyer shall issue in
exchange for such lost, stolen or destroyed Certificate the Common Initial
Shares issuable in exchange therefor pursuant to Section 2.06(a). The Board of
Directors of the Buyer may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
Certificate to give the Buyer a bond or indemnity against any claim that may be
made against the Buyer with respect to the Certificate alleged to have been
lost, stolen or destroyed.
(d) Promptly following the date which is six months after the
Closing Date, the Exchange Agent shall return to the Buyer all Common Initial
Shares in its possession, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate may surrender such Certificate to the
Buyer and, subject to applicable abandoned property, escheat and similar laws,
receive in exchange therefor the Common Initial Shares issuable with respect
thereto pursuant to Section 2.06(a) and the Escrow Shares issuable in respect of
such Shares to be held and disposed of in accordance with the terms hereof and
of the Escrow Agreement.
(e) From and after the Effective Time, the holders of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Company Common Stock,
except as otherwise provided herein or by law.
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<PAGE>
(f) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of any shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and promptly exchanged for Merger Shares as
provided in this Section 2.08, or subject to applicable law in the case of
Dissenting Shares.
(g) If the holder of any shares of Company Common Stock shall
become entitled to receive payment for such shares pursuant to Section 30 1 1325
of the Idaho Law, such payment shall be made by the Surviving Corporation.
(h) No certificates or scrip representing fractional shares of
Buyer Common Stock shall be issued to the Shareholders upon the surrender for
exchange of Certificates, and no Shareholder shall be entitled to any voting
rights, rights to receive any dividends or distributions or other rights as a
shareholder of Buyer with respect to any fractional shares of Buyer Common Stock
that would otherwise be issued to such Shareholder. In lieu of any fractional
shares of Buyer Common Stock that would otherwise be issued, each Shareholder
that would have been entitled to receive a fractional share of Buyer Common
Stock shall, upon proper surrender of such person's Certificates, receive a cash
payment equal to such fraction multiplied by the closing price of one share of
Buyer Common Stock as reported on the NASDAQ National Market System two trading
days immediately prior to the Effective Time.
SECTION 2.09 Escrow; Indemnification Representative.
--------------------------------------
(a) On the Closing Date, Buyer, the Representative and the
Escrow Agent shall execute and deliver an Escrow Agreement substantially in the
form of Annex B attached hereto (the "Escrow Agreement") in order to provide
----------------
Buyer with security for indemnifiable claims hereunder. On the Closing Date,
Buyer shall deliver to the Escrow Agent a share certificate (issued in the name
of the Escrow Agent or its nominee) representing 361,063 shares of Buyer Common
Stock (the "Escrow Shares"), all of which shall be allocated to the Founders
-------------
pursuant to Section 2.06(a). The Escrow Shares shall constitute a portion of the
Merger Shares issuable hereunder. The Escrow Shares shall be held by the Escrow
Agent under the Escrow Agreement pursuant to the terms thereof. The Escrow
Shares shall be held as a trust fund and shall not be subject to any lien,
attachment, trustee process or other judicial process of any creditor of any
party, and shall be held and disbursed solely for the purposes, and in
accordance with the terms, of the Escrow Agreement. After the Effective Time,
the Founders shall have the right to vote the Escrow Shares. Any cash dividends
on the Escrow Shares shall be distributed currently to the Founders.
(b) In order to efficiently administer the transactions
contemplated hereby, including (i) the defense or settlement of any claims for
which the Founders may be required to indemnify Buyer pursuant to Article X
hereof, and (ii) entering into the Escrow Agreement, Anthony Hauser has agreed
to his appointment
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<PAGE>
as the Representative. The Representative is hereby authorized to take any and
all action as is contemplated to be taken by the Founders by the terms of this
Agreement and the Escrow Agreement. All decisions and actions by the
Representative shall be binding upon each of the Founders and no Founder shall
have the right to object, dissent, protest or otherwise contest the same. The
Founders agree that:
(i) Buyer shall be able to rely exclusively on the
instructions and decisions of the Representative as to the settlement of claims
for indemnification by Buyer pursuant to Article X hereof, or any other actions
taken by the Representative hereunder, and no party hereunder shall have any
cause of action against Buyer in reliance upon the instructions or decisions of
the Representative;
(ii) all actions, decisions and instructions of the
Representative shall be final, conclusive and binding upon the Founders except
that each Founder shall have the right to vote his Escrow Shares;
(iii) the provisions of this Section 2.09(b) are
independent and severable, are irrevocable and coupled with an interest, and
shall be enforceable notwithstanding any rights or remedies that any Founder may
have in connection with the transactions contemplated by this Agreement and the
Escrow Agreement; and
(iv) the provisions of this Section 2.09(b) shall be
binding upon the assigns, executors, heirs, legal representatives and successors
of each Founder, and any references in this Agreement to a Founder shall mean
and include the successors to the Founders' rights hereunder, whether pursuant
to testamentary disposition, the laws of descent and distribution or otherwise.
SECTION 2.10 Requisite Shareholders' Approval. The Company will take
--------------------------------
all action necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws to convene a special meeting of the Shareholders to
consider and vote upon, or solicit the written consent of the Shareholders to,
approve the principal terms of this Agreement.
SECTION 2.11 Consummation of Merger. As soon as practicable after
----------------------
satisfaction of the conditions set forth in Article VI hereof, the Company and
Newco shall file with the Secretary of State of the State of Idaho a duly
executed copy of the Plan of Merger in substantially the form of Annex C
attached hereto (the "Plan of Merger") with an officers' certificate of each
--------------
Constituent Corporation, Articles of Merger, and such other documents as may be
required by Section 30 1 1105 of the Idaho Law, and the parties shall take all
such other and further actions as may be required by law to make the Merger
effective.
SECTION 2.12 Closing. The closing of the Merger and the other
-------
transactions contemplated hereby (the "Closing") shall take place at the offices
-------
of Paul,
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<PAGE>
Hastings, Janofsky & Walker LLP, Twenty-Third Floor, 555 South Flower Street,
Los Angeles, California 90071, at 10:00 A.M. local time on or before July 25,
2000, or, if all conditions appearing in Article VI hereof to the obligations of
the parties hereto to consummate the transactions contemplated hereby have not
been satisfied or waived by such date, as promptly as practicable, but in no
event later than July 31, 2000, upon satisfaction of such conditions as Buyer
and the Company may mutually establish (such time and date being referred to
herein as the "Closing Date").
------------
SECTION 2.13 Actions at the Closing. At the Closing:
----------------------
(a) The Company shall deliver or cause to be delivered to Buyer
and Newco all of the documents, certificates and instruments required to be
delivered to Buyer or Newco pursuant to Section 6.01 or 6.02.
(b) Buyer and Newco shall deliver or cause to be delivered to
the Company all of the documents, certificates and instruments required to be
delivered to the Company pursuant to Section 6.01 or 6.03.
(c) The Company and Newco shall file with the Secretary of State
of the State of Idaho the Plan of Merger, Articles of Merger and the other
documents contemplated by Section 2.11.
(d) Buyer, the Representative and the Escrow Agent shall execute
and deliver the Escrow Agreement, and Buyer shall deliver to the Escrow Agent
the Escrow Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
REGARDING THE COMPANY
---------------------
The Founders and the Company hereby, jointly and severally, represent
and warrant to, and covenant and agree with, Buyer and Newco that, except as set
forth on the Schedule of Exceptions delivered concurrently with the execution
and delivery of this Agreement by the Company to Buyer:
SECTION 3.01 Organization and Good Standing; Authorization.
---------------------------------------------
(a) The Company has been duly organized and is existing as a
corporation under the laws of the State of Idaho with corporate power and
authority to own and lease its properties and to conduct its business as
currently conducted. The Company is duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of each
jurisdiction set forth on Schedule 3.01(a), such jurisdictions comprising all
jurisdictions in which the nature of its business requires such
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<PAGE>
qualification, except to the extent that the failure to be so qualified and be
in good standing would not have a Material Adverse Effect on the Company.
(b) The Company has no Subsidiaries nor owns or controls, or has
any other equity investment or other interest in, directly or indirectly, any
corporation, joint venture, partnership, association or other Person.
(c) The Company has the corporate power and authority, and each
Founder has the legal capacity, to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its or his
obligations under this Agreement. The execution and delivery by the Company and
the Founders of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
by the Company and other necessary action by the Founders. This Agreement, upon
its execution and delivery by the Company and the Founders, will constitute the
legal, valid and binding obligation of the Company and the Founders, enforceable
against the Company and the Founders in accordance with its terms, except as
such enforceability may be limited by (i) the effects of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally, and (ii) the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.02 No Conflicts. The execution, delivery and performance of
------------
this Agreement and the consummation of the transactions contemplated hereby will
not (a) conflict with or result in a breach or violation of any term or
provision of, or constitute a default under (with or without notice or passage
of time, or both), or otherwise give any Person a basis for accelerated or
increased rights or termination or nonperformance under, any indenture,
mortgage, deed of trust, loan or credit agreement, lease, license or other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of the property or assets of the Company is bound
including, without limitation, all arrangements described in Section 3.19
hereof, where such conflict, breach, violation or acceleration would have a
Material Adverse Effect on the Company, (b) result in the violation of the
provisions of the Articles of Incorporation or Bylaws of the Company or any
Legal Requirement applicable to or binding upon it, (c) result in the creation
or imposition of any Lien, other than Permitted Liens, upon any property or
asset of the Company which would result in a Material Adverse Effect on the
Company, or (d) otherwise materially adversely affect the contractual or other
legal rights or privileges of the Company. There are no agreements to which the
Company is a party which require the consent of any party thereto to any of the
transactions contemplated hereby.
SECTION 3.03 Capitalization. The authorized capital stock of the
--------------
Company consists solely of 10,000,000 shares of Company Common Stock, of which
1,176,069 shares are issued and outstanding. No shares of preferred stock are
authorized, issued or outstanding. Schedule 3.03 sets forth a complete and
accurate list of (i) the
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<PAGE>
Shareholders, indicating the type and number of Shares held by each Shareholder
and their respective addresses, (ii) all holders of Company Warrants, indicating
the type and number of shares of Company Common Stock subject to each Company
Warrant, the date of the Company Warrant agreement or other document evidencing
the Company Warrant, the vesting schedule and the exercise price thereof, and
the restrictions on the disposition of the shares of Company Common Stock
issuable upon the exercise thereof, and (iii) all of the Stock Plans. All of the
issued and outstanding shares of Company Common Stock and all shares of Company
Common Stock that may be issued upon exercise of Company Warrants prior to the
Effective Time will be, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. Other than as set forth on
Schedule 3.03, (i) there are no existing options, warrants, right, calls or
commitments of any character relating to shares of Company Common Stock or other
capital stock of the Company, (ii) there are no outstanding securities or other
instruments convertible into or exchangeable for shares of Company Common Stock
or other capital stock of the Company and no commitments to issue such
securities or instruments and (iii) no Person has any right of first refusal,
preemptive right, subscription right or similar right with respect to any shares
of Company Common Stock or other capital stock of the Company. The offer,
issuance and sale of the Shares were (i) exempt from the registration and
prospectus delivery requirements of the Securities Act, and (ii) registered or
qualified (or exempt from registration or qualification) under the registration
or qualification requirements of all applicable state securities laws and (iii)
accomplished in conformity with all other legal requirements imposed by
applicable securities laws.
SECTION 3.04 Financial Statements.
--------------------
(a) Schedule 3.04(a) contains true and complete copies of (i)
the unaudited balance sheet of the Company at December 31, 1999 (the "Year End
--------
Balance Sheet") and the related unaudited statements of income, shareholders'
-------------
equity and cash flows for the year then ended and (ii) the unaudited balance
sheet of the Company (the "Interim Balance Sheet," and together with the Year
---------------------
End Balance Sheet, the "Balance Sheets") at March 31, 2000 (the "Balance Sheet
-------------- -------------
Date") and the related unaudited statements of income, shareholders' equity and
----
cash flows for the period ended on the Balance Sheet Date (the "Interim
Financial Statement") (the financial statements described in clauses (i) and
(ii) being collectively referred to as the "Financial Statements").
--------------------
(b) Except as set forth on Schedule 3.4(a), the Financial
Statements present fairly the financial condition of the Company as of the dates
indicated therein and the results of operations and changes in financial
position of the Company for the periods specified therein, have been prepared in
conformity with GAAP during the periods covered thereby and are consistent with
the books and records of the Company; provided, however, the Interim Financial
-------- -------
Statements are subject to normal recurring year-end adjustments and do not
include footnotes. The Financial Statements are true and correct in all material
respects.
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<PAGE>
SECTION 3.05 Title to Property; Encumbrances.
-------------------------------
(a) The Company has, and immediately prior to the Closing will
have, good, and marketable title in all personal property reflected on the
Balance Sheets as owned by the Company and personal property acquired by the
Company since the Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Balance Sheet Date in the
Ordinary Course), in each case free and clear of all Liens except (i) Liens
disclosed in the Notes to such financial statements, (ii) as set forth on
Schedule 3.05(a) and (iii) Permitted Liens.
(b) The Company owns no real property.
(c) Schedule 3.05(c) contains a list of all tangible personal
property having a cost or fair market value in excess of $10,000 owned by the
Company (other than personal property held by the Company as lessee under a
personal property lease).
(d) Schedule 3.05(d) contains a list of all real property
leases, licenses and personal property leases under which the Company is the
lessee or licensee, together with (i) the location and nature of each of the
leased or licensed properties (including all Leased Real Property), (ii) the
termination date of each such lease or license, and (iii) the name of the lessor
or licensor. All leases and licenses pursuant to which the Company leases or
licenses from others real or personal property are valid, subsisting in full
force and effect in accordance with their respective terms with respect to the
Company, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditor's rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought, and there is not, under any real property
lease, personal property lease or license, any existing default or event of
default by the Company that would result in a Material Adverse Effect on the
Company (or event that, with notice or passage of time, or both, would
constitute a default, or would constitute a basis of force majeure or other
----- -------
claim of excusable delay or nonperformance). True and complete copies of all
real property leases, licenses and personal property leases listed on Schedule
3.05(d), have been delivered or made available to Buyer heretofore, as well as
copies of any title reports, surveys or environmental reports or audits, all of
which are listed on Schedule 3.05(d), in the Company's possession relating to
any Leased Real Property. Except as set forth on Schedule 3.05(d), no such lease
or license will require the consent of the lessor or licensor to or as a result
of the consummation of the transactions contemplated by this Agreement. For
purposes of this Agreement, a "lease" shall include a sublease.
(e) All personal property owned by the Company and all personal
property held by the Company pursuant to personal property leases is in good
operating condition and repair, subject to ordinary wear and tear, has been
operated, serviced and maintained in accordance with normal industry practice
and is suitable for
-19-
<PAGE>
the purposes for which it is presently used by the Company in its business and
operations. The personal property described in Sections 3.05(a), and 3.05(c) and
the personal property held by the Company pursuant to the leases and licenses
described in Schedule 3.05(d) comprise all of the personal property with value
greater than $10,000 used in the conduct of business of the Company.
SECTION 3.06 Accounts Receivable. Except as set forth on Schedule
-------------------
3.06(i), all accounts receivable of the Company reflected in the Balance Sheets
and all accounts receivable of the Company that have arisen since the Balance
Sheet Date (except such accounts receivable as have been collected since such
dates) are valid and enforceable claims against the account debtor. Such
accounts receivable of the Company are subject to no valid defense, offset or
counterclaim and are collectible within 90 days after the Closing Date, except
to the extent of the allowance for applicable reserves for bad debt reflected on
the Balance Sheets and except as disclosed on Schedule 3.06(i). Schedule
3.06(ii) contains a true and complete aging of the Company's accounts receivable
as of the Balance Sheet Date.
SECTION 3.07 Year 2000. The Company has not experienced any material
---------
malfunction or error in its operating or business systems when the date changed
from 1999 to 2000. The Company does not expect any material impact to its on-
going business as a result of the "Year 2000 issue." Without independent
inquiry, the Company is not aware of any material Year 2000 or similar problems
that have arisen for its customers or suppliers.
SECTION 3.08 Trademarks, Patents, Etc.
------------------------
(a) Schedule 3.08(a) contains a true and complete list of all
letters patent, patent applications, trade names, trademarks, service marks,
trademark and service mark registrations and applications, copyrights, copyright
registrations and applications, grants of a license or right to the Company with
respect to the foregoing, both domestic and foreign, claimed by the Company or
used or proposed to be used by the Company in the conduct of its business,
whether registered or not (collectively herein, "Registered Rights").
-----------------
(b) Except as described in Schedule 3.08(b), the Company owns
and/or has the right to use the Registered Rights and every trade secret, know-
how, process, discovery, development, design, technique, customer and supplier
list, promotional idea, marketing and purchasing strategy, invention, process,
confidential data and other information (collectively herein, "Proprietary
-----------
Information") required for or incident to the design, development, manufacture,
-----------
operation, sale and use of all products and services sold or rendered or
proposed to be sold or rendered by the Company, free and clear of any right,
equity or claim of others. The Company has taken commercially reasonable
security measures to protect the secrecy, confidentiality and value of all
Proprietary Information. The employees listed on Schedule 3.21(a) have signed
terms of employment referred to on Schedule 3.21(a).
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<PAGE>
(c) Schedule 3.08(c) contains a true and complete list and
description of all licenses of, or rights to, Proprietary Information granted to
the Company by others or to others by the Company. Except as described in
Schedule 3.08(c), (i) the Company has not sold, transferred, assigned, licensed
or subjected to any Lien, any Registered Right or Proprietary Information or any
interest therein, and (ii) the Company is not obligated or under any liability
whatever to make any payments by way of royalties, fees or otherwise to any
owner or licensor of, or other claimant to, any Registered Right or Proprietary
Information.
(d) Except as set forth on Schedule 3.08(d), there are no claims
----------------------------------------------
or demands of any Person pertaining to, or any Actions that are pending or, to
the Company's Knowledge, threatened, which challenge the rights of the Company
in respect of any Registered Right or any Proprietary Information.
SECTION 3.09 Banking and Insurance.
---------------------
(a) Schedule 3.09(a) contains a true and complete list of the
names and locations of all financial institutions at which the Company maintains
a checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the numbers or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
(b) Schedule 3.09(b) contains a true and complete list of all
insurance policies, bonds, and self insurance arrangements currently in force
that cover risks or losses to, or associated with, the Company and to which the
Company is a party. Copies of such insurance policies, bonds and self insurance
arrangements have previously been provided to Buyer. The insurance policies,
bonds and self insurance arrangements described on Schedule 3.09(b) (the
"Policies") provide such coverage against such risk of loss and in such amounts
--------
as are customary for corporations engaged in the same or similar business and
similarly situated. The Company has no obligation, liability or other commitment
relating to any contract of insurance containing a provision for retrospective
rating or adjustment of the Company's premium obligation. To the Knowledge of
the Company, no facts or circumstances exist that would cause the Company to be
unable to renew its existing insurance coverage as and when the same shall
expire upon terms at least as favorable as those currently in effect, other than
possible increases in premiums that do not result from any act or omission of
the Company.
SECTION 3.10 Indebtedness.
------------
(a) Other than as set forth on Schedule 3.10(a), the Company has
no liability or obligation for Indebtedness other than (i) as set forth in the
Company's Balance Sheets, (ii) those incurred in the Ordinary Course and not
required to be set forth in the Company's Balance Sheets under GAAP, (iii) those
incurred in the Ordinary Course since the Company's Balance Sheet Date and (iv)
those incurred in connection with this Agreement, and true and complete copies
of all instruments and documents
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<PAGE>
evidencing, creating, securing or otherwise relating to such Indebtedness have
been delivered to Buyer heretofore. Except as described in Schedule 3.09(a), to
the Knowledge of the Company, no event has occurred and no condition has become
known to the Company (including the transactions contemplated hereby) that
constitutes or, with notice or passage of time, or both, would constitute a
default or a basis of force majeure or other claim of accelerated or increased
----- -------
rights, termination, excusable delay or nonperformance by the Company under any
instrument or document relating to or evidencing Indebtedness that would entitle
any Person to require the Company to pay any portion of the principal amount of
such Indebtedness prior to the scheduled maturity thereof. Except as described
in Schedule 3.10(a), no instrument or document evidencing, creating, securing or
otherwise relating to Indebtedness will require the consent of any Person to or
as a result of the consummation of the transactions contemplated by this
Agreement.
(b) Schedule 3.10(b) contains a list of all agreements or
instruments pursuant to which any of the Company's directors, employees or
shareholders have guaranteed any Indebtedness of the Company (the "Guaranties").
----------
True and complete copies of all Guaranties have been delivered or made available
to Buyer heretofore.
SECTION 3.11 Judgments; Litigation. Except as set forth on Schedule
---------------------
3.11:
(a) There is no (i) outstanding judgment, order, decree, award,
stipulation, injunction of any Governmental Entity or arbitrator against or
affecting the Company or its properties, assets or business or (ii) Action
pending against the Company or its properties, assets or business.
(b) To the Knowledge of the Company, there is no (A) outstanding
judgment, order, decree, award, stipulation, injunction of any Governmental
Entity or arbitrator against or affecting any officer, or director of the
Company (in their capacities as such), (B) Action threatened against the Company
or its properties, assets or business, (C) Action pending or threatened against
the Company's officers, or directors of the Company or its business or (D) basis
for the institution of any Action against the Company or any of its officers, or
directors, employees, properties or assets which, if decided adversely, would
have a Material Adverse Effect on the Company.
SECTION 3.12 Income and Other Taxes. Except as set forth on
----------------------
Schedule 3.12:
(a) All material Tax Returns required to be filed through and
including the date hereof in connection with the operations of the Company are
true, complete and correct in all material respects and have been properly and
timely filed. The Company has not requested any extension of time within which
to file any Tax
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<PAGE>
Return, which Tax Return has not since been filed. Buyer has heretofore been
furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past three taxable years, and of all
reports of, and communications from, any governmental taxing authority relating
to such period.
(b) All Taxes required to be paid or withheld and deposited
through and including the date hereof in connection with the operations of the
Company have been duly and timely paid or deposited by the Company. The Company
has properly withheld or collected all amounts required by law for income Taxes
and employment Taxes relating to its employees, creditors, independent
contractors and other third parties, and for Taxes on sales, and has properly
and timely remitted such withheld or collected amounts to the appropriate
Governmental Entity.
(c) The Company has made adequate provision on its books of
account for all Taxes with respect to its business, properties and operations
through the Balance Sheet Date, and the accruals for Taxes in the Balance Sheets
are adequate to cover all liabilities for Taxes of the Company for all periods
ending on or before the Closing Date.
(d) The Company has not heretofore (i) had a Tax deficiency
proposed, asserted or assessed against it, (ii) executed any waiver of any
statute of limitations on the assessment or collection of any Taxes, or (iii)
been delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or been the
subject of other Action by any Governmental Entity. The Company has not received
any notice from any Governmental Entity of any pending examination or any
proposed deficiency, addition, assessment, demand for payment or adjustment
relating to or affecting the Company or its assets or properties.
(f) The Company (i) has not filed any consent or agreement
pursuant to Code Section 341(f), and no such consent or agreement will be filed
at any time on or before the Closing Date; (ii) has not made any payments, is
not obligated to make any payments and is not a party to any agreement that
under certain circumstances could obligate the Company to make any payments that
will not be deductible under Code Section 280G; (iii) is not a United States
real property holding corporation within the meaning of Code Section 897(c)(2);
(iv) is not a party to a tax allocation or sharing agreement; (v) has never been
(or does not have any liability for unpaid Taxes because it was) a member of an
affiliated group with the meaning of Code Section 1504(a); (vi) has never
applied for a tax ruling from a Governmental Entity; and (vii) has never filed
or been the subject of an election under Code Section 338(g) or Code Section
338(h)(10) or caused or been the subject of a deemed election under Code Section
338(e).
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(g) Set forth on Schedule 3.12(g) is the amount, as of the most
recent practicable date, of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax or excess charitable
contribution.
(h) The Company operates at least one significant historic
business line, or owns at least a significant portion of its historic business
assets, in each case within the meaning of Treasury Regulation 1.368-1(d).
SECTION 3.13 Compliance with Law. Through and including the date
-------------------
hereof, the Company (i) has not violated, has not conducted its business or
operations in violation of, and has not used or occupied its properties or
assets in violation of, any Legal Requirement, including those relating to
sweepstakes, lotteries or gaming, (ii) to the Company's Knowledge, has not been
alleged to be in violation of any Legal Requirement, and (iii) has not received
any notice of any alleged violation of, nor any citation for noncompliance with,
any Legal Requirement, in each case, which individually or in the aggregate
would have a Material Adverse Effect on the Company.
SECTION 3.14 Employee Benefit Matters.
------------------------
(a) Schedule 3.14(a) is a complete list of all Plans. True and
complete copies of each of the following documents (and any amendments thereto),
where applicable, have been delivered or made available previously to Buyer:
(i) the Plan documents; (ii) a written description of any Plan which is not in
writing; (iii) if the Plan is funded through a trust or any third-party funding
vehicle, the trust or other funding agreement; (iv) the Plan's most recent
financial statements; (v) the two most recent annual reports (including all
schedules and attachments thereto) required by ERISA; (vi) the most recent
actuarial report and valuation; (vii) the most recent determination letter
received from the IRS with respect to each Plan that is intended to be qualified
under Code Section 401 or to be recognized as tax-exempt under Code Section
501(c); (viii) the most recent summary plan description and each summary of
material modifications required by ERISA; (ix) any agreement providing for the
provision of administrative or investment management services with respect to
the Plan; and (x) all documents and correspondence received from or provided to
the Department of Labor, IRS, and Pension Benefit Guaranty Corporation during
the past two years.
(b) Each Plan and related trust, annuity, or other funding
agreement complies and has been maintained in compliance with all applicable
Legal Requirements. No non-exempt prohibited transaction (as defined in Code
Section 4975 and ERISA Sections 406 and 408) has occurred and, to the Company's
Knowledge, no "fiduciary" (as defined in ERISA Section 3(21)) has committed any
breach of duty which could subject the Company, any ERISA Affiliate, or any
director, officer, or employee thereof to liability under Title I of ERISA or to
tax under Code Section 4975. All material obligations required to be performed
by the Company and any other Person under the terms of each Plan and applicable
Legal Requirements have been performed.
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<PAGE>
(c) All required reports and descriptions, including, without
limitation, annual reports (Form 5500), summary annual reports, and summary plan
descriptions, have been filed and distributed timely. With respect to each Plan
which is a welfare plan (as defined in ERISA Section 3(1)), the requirements of
Part 6 of Subtitle B of Title I of ERISA and of Code Sections 162(k) and 4980B
have been satisfied.
(d) All contributions, premiums, and other payments, including,
without limitation, employer contributions and employee salary reduction
contributions, have been paid when due or accrued in accordance with the past
custom and practice of the Company and any ERISA Affiliate. No Plan that is
subject to Part 3 of Subtitle B of Title I of ERISA or to Code Section 412 has
incurred any accumulated funding deficiency, whether or not waived, and no other
actual or contingent liability for any other expenses or obligations of any Plan
exists.
(e) There are no pending or, to the Company's knowledge,
threatened Actions (other than routine claims for benefits) asserted or
instituted against any Plan or the assets of any Plan, or against the Company,
or any ERISA Affiliate, trustee, administrator, or fiduciary of such Plan, and
the Company has no knowledge of any facts that could form the basis of any such
Action.
(f) Neither the Company nor any ERISA Affiliate has announced
any intention, made any amendment or binding commitment, or given any written or
oral notice providing that the Company or an ERISA Affiliate (i) will create
additional Plans covering employees of the Company or any ERISA Affiliate, (ii)
will increase benefits promised or provided pursuant to any Plan, or (iii) will
not exercise after the Closing Date any right or power it may have to terminate,
suspend, or amend any Plan.
(g) Neither the Company nor any ERISA Affiliate maintains or has
maintained at any time, or contributes to or has contributed to or is or was
required to contribute to, any (i) Plan subject to Title IV of ERISA, including,
without limitation, any multi-employer plan (as defined in ERISA Section 3(37)),
within the past five years, or (ii) funded or unfunded medical, health,
accident, or life insurance plan or arrangement for current or future retirees
or terminated employees or their spouses or dependents (except to the extent
required by Code Sections 162(k) or 4980B or any applicable state law).
(h) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a
termination of employment or other event entitling any Person to any additional
or other benefits, or that would otherwise modify benefits or the vesting of
benefits, provided under any Plan.
(i) No event has occurred which could subject the Company or any
ERISA Affiliate to any material liability (i) under any Legal Requirement
relating to any Plan or (ii) resulting from any obligation of the Company or an
ERISA Affiliate to
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<PAGE>
indemnify any Person against liability incurred with respect to or in connection
with any Plan.
(j) Each Plan which is intended to be qualified under Code
Section 401 has received, within the last three years, a favorable determination
letter from the IRS. No event has occurred and, to the Knowledge of the Company,
no facts or circumstances exist which may cause or result in the loss or
revocation of such determination.
SECTION 3.15 No Undisclosed Liabilities. Except (i) to the extent
--------------------------
set forth or provided for in the Balance Sheet or the notes thereto, (ii) as set
forth on Schedule 3.15, (iii) for current liabilities incurred since the Balance
Sheet Date in the Ordinary Course, or (iv) for liabilities that are not
material, are incurred in the Ordinary Course and are not required by GAAP to be
set forth on the Company's Balance Sheets, as of the date hereof the Company has
no liabilities, whether accrued, absolute, contingent or otherwise, whether due
or to become due and whether the amounts thereof are readily ascertainable or
not, or any unrealized or anticipated losses from any commitments of a
contractual nature.
SECTION 3.16 Permits, Licenses, Etc. To the Knowledge of the
----------------------
Company, the Company possesses, and is operating, in all material respects, in
compliance with, all franchises, licenses, permits, certificates,
authorizations, rights and other approvals of Governmental Entities necessary to
(i) conduct its business as currently conducted, and (ii) maintain and operate
its Plans, in each case, except for those the absence of which would not have a
Material Adverse Effect on the Company (the "Permits"). Schedule 3.16 contains
-------
a true and complete list of all Permits. Each Permit has been lawfully and
validly issued, and no proceeding is pending or, to the Company's Knowledge,
threatened looking toward the revocation, suspension or limitation of any Permit
which individually or in the aggregate would have a Material Adverse Effect on
the Company. The consummation of the transactions contemplated by this
Agreement will not result in the revocation, suspension or limitation of any
Permit, and except as set forth on Schedule 3.16, no Permit will require the
consent of its issuing authority to or as a result of the consummation of the
transactions contemplated hereby.
SECTION 3.17 Regulatory Filings. The Company has made all required
------------------
registrations and filings with and submissions to all applicable Governmental
Entities relating to the operations of the Company as currently conducted,
including, without limitation, all such applicable Governmental Entities having
jurisdiction over matters pertaining to conservation or protection of the
environment, and the treatment, discharge, use, handling, storage or production,
or disposal of Hazardous Materials, except where the failure to make such
registrations or filings would not have a Material Adverse Effect upon the
Company. All such registrations, filings and submissions were in compliance, in
all material respects, with all Legal Requirements (including all Environmental
Laws) and other requirements when filed, no material deficiencies have been
asserted by any
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such applicable Governmental Entities with respect to such registrations,
filings or submissions and, to the Knowledge of the Company, no facts or
circumstances exist which would indicate that a material deficiency may be
asserted by any such authority with respect to any such registration, filing or
submission.
SECTION 3.18 Consents. All consents, authorizations and approvals
--------
of any Person to or as a result of the consummation of the transactions
contemplated hereby that are necessary in connection with the operations and
business of the Company as currently conducted, or for which the failure to
obtain the same might reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, including all consents,
authorizations and approvals described in Schedules 3.02, 3.05(d), 3.10(a) and
3.16 which will have been lawfully and validly obtained prior to the Closing.
SECTION 3.19 Material Contracts; No Defaults.
-------------------------------
(a) Schedule 3.19(a) contains a true and complete list of each
sales contract of the Company having an indicated gross value in excess of
$10,000. All outstanding sales orders and sales contracts of the Company have
been entered into in the Ordinary Course. Except as described in Schedule
3.19(a), the Company has not received any advance, progress payment or deposit
in respect of any sales order or sales contract, and to the Knowledge of the
Company, the Company has no sales order or sales contract that will result, upon
completion or performance thereof, in gross margins materially lower than those
normally experienced by the Company for the services or products covered by such
sales order or sales contract.
(b) Schedule 3.19(b) contains a true and complete list of all
purchase commitments of the Company having a gross indicated value in excess of
$10,000 in the aggregate from any single supplier or other vendor. All
outstanding purchase orders and purchase commitments of the Company have been
incurred in the Ordinary Course.
(c) Schedule 3.19(c) contains a true and complete list of all
sales agency, sales representative and similar contracts or agreements of the
Company, and true and complete copies of the same have been delivered or made
available to Buyer heretofore. Except as described in Schedule 3.19(c), all of
such contracts and agreements are terminable at any time by the Company without
penalty upon not more than thirty (30) days' notice.
(d) Schedule 3.19(d) contains a true and complete list of all
noncompetition agreements and covenants under which the Company or, to the
Knowledge of the Company, any of the Company's officers, directors or key
employees is obligated, and true and complete copies of the same have been
delivered or made available to Buyer heretofore. Except as described in
Schedule 3.19(d), the Company is not restricted by any agreement from carrying
on its business or engaging in any other
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<PAGE>
activity anywhere in the world (including relocating, closing, or terminating
any of its operations or facilities), and, to the Knowledge of the Company, no
such officer, director or key employee is a party to any agreement, that would
restrict or impair his ability to perform diligently his other duties to the
Company. Schedule 3.19(d) also contains a true and complete list and description
of all noncompetition agreements or covenants in favor of the Company, and true
and complete copies of the same have been delivered or made available to Buyer
heretofore.
(e) Schedule 3.19(e) contains a true and complete list of all
material contracts or agreements, written or oral, of the Company with any
officer, director, consultant, employee or Affiliate of the Company or with any
associate, Affiliate or employee of any Affiliate of the Company, other than
those disclosed in Schedule 3.21(a) hereto; in each case a true and complete
copy of each such written contracts or agreements or a true and complete summary
of such oral contract or agreement, if any, has been delivered or made available
to Buyer heretofore.
(f) Schedule 3.19(f) contains a true and complete list of all
other material contracts and agreements, written or oral, of the Company by
which it or its properties, rights or assets are bound that are not otherwise
disclosed in this Agreement or the Schedules hereto. True and complete copies of
such written contracts and agreements and true and complete summaries of each
oral contract or agreement, if any, have been delivered or made available to
Buyer heretofore. For the purposes of this Section 3.19, "material" means any
contract or agreement that (i) involves performance by any party more than six
(6) months from the date hereof, (ii) involves payments or receipts by the
Company in excess of $10,000, (iii) involves capital expenditures in excess of
$10,000 or (iv) otherwise materially affects the Company.
(g) Except as described in Schedule 3.19(g):
(i) Each agreement, contract, arrangement or commitment
described above in this Section 3.19 is, and after the Closing on identical
terms will be, legal, valid, binding, enforceable and in full force and effect
except as may be limited by bankruptcy, insolvency, recapitalization, moratorium
or other similar laws affecting or relating to creditor's rights generally, and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought;
(ii) No event or condition has occurred or is alleged to
have occurred or become Known to the Company that constitutes or, with notice or
the passage of time, or both, would constitute a material default or a basis of
force majeure or other claim of excusable delay, termination, nonperformance or
-------------
accelerated or increased rights by the Company or any other Person under any
contract, agreement, commitment or other understanding, written or oral,
described above in this Section 3.19 or otherwise disclosed pursuant to this
Agreement; and
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<PAGE>
(iii) To the Knowledge of the Company, no Person with whom
the Company has such a contract, agreement, arrangement or commitment is in
default thereunder or has failed to perform fully thereunder by reason of force
-----
majeure or other claim of excusable delay, termination or nonperformance
-------
thereunder, the delay, termination or nonperformance of which, or a default
under which, has had or may have a Material Adverse Effect on the Company.
SECTION 3.20 Absence of Certain Changes. Since the Balance Sheet
--------------------------
Date, except as disclosed in Schedule 3.20, the Company has not: (i) incurred
any debts, obligations or liabilities (absolute or contingent), other than
current liabilities incurred in the Ordinary Course which, individually or in
the aggregate, are not material; (ii) subjected to or permitted a Lien (other
than a Permitted Lien) upon or otherwise encumbered any of its assets, tangible
or intangible; (iii) sold, transferred, licensed or leased any of its assets or
properties except in the Ordinary Course; (iv) discharged or satisfied any Lien
other than a Lien securing, or paid any obligation or liability other than,
current liabilities shown on the Balance Sheets and current liabilities incurred
since the Balance Sheet Date, in each case in the Ordinary Course; (v) canceled
or compromised any debt owed to or by or claim of or against it, or waived or
released any right of material value other than in the Ordinary Course; (vi)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) causing a Material Adverse Effect on the Company; (vii) entered into
any material transaction or otherwise committed or obligated itself to any
capital expenditure other than in the Ordinary Course; (viii) made or suffered
any change in, or condition affecting, its financial condition, properties,
profitability, or operations other than changes, events or conditions in the
Ordinary Course, none of which (individually or in the aggregate) has had or may
have a Material Adverse Effect on the Company; (ix) made any material change in
the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted; (x) other
than in the Ordinary Course, made or suffered any amendment or termination of
any material contract, agreement, lease or license to which it is a party; (xi)
paid, or made any accrual or arrangement for payment of, any severance or
termination pay to, or entered into any employment or loan or loan guarantee
agreement with, any current or former officer, director or employee or
consultant; (xii) paid, or made any accrual or arrangement for payment of, any
increase in compensation, bonuses or special compensation of any kind to any
employee other than pursuant to an agreement disclosed on Schedule 3.21(a) or
Schedule 3.21(b) or other than in the Ordinary Course, or paid, or made any
accrual or arrangement for payment of, any increase in compensation, bonuses or
special compensation of any kind to any officer or director of the Company or
any consultant to the Company other than in the Ordinary Course; (xiii) or
agreed to make any charitable contributions or incurred any nonbusiness
expenses; (xiv) materially changed or suffered change in any Plan or labor
agreement affecting any employee of the Company otherwise than to conform to
Legal Requirements; or (xv) entered into any agreement or otherwise obligated
itself to do any of the foregoing which is not in the Ordinary Course and which
individually, or in the aggregate would have a Material Adverse Effect on the
Company.
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SECTION 3.21 Employees and Labor Matters.
---------------------------
(a) Schedule 3.21(a) contains a true and complete list of all
contracts, agreements, and plans pertaining to terms of employment,
compensation, bonuses, profit sharing, stock purchases, stock repurchases, stock
options, commissions, incentives, loans or loan guarantees, severance pay or
benefits, use of the Company's property and related matters of the Company with
any current or former officer, director, key employee or consultant, and true
and complete copies of all such contracts, agreements, and plans have been
delivered or made available to Buyer heretofore.
(b) Schedule 3.21(b) contains a true and complete list of all
labor, collective bargaining, union and similar agreements under or by which the
Company is obligated, and true and complete copies of all such agreements have
been delivered or made available to Buyer heretofore.
(c) Except for the employment and labor agreements listed on
Schedules 3.21(a) and 3.21(b), neither Buyer nor the Company will have any
responsibility for continuing any person in the employ (or retaining any person
as a consultant) of the Company from and after the Closing or have any liability
for any severance payments to or similar arrangements with any such Person who
shall cease to be an employee of the Company at or prior to the Closing.
(d) As of the date hereof, there is not occurring or, to the
Company's Knowledge, threatened, any strike, material slow down, picket, work
stoppage or other concerted action by any union or other group of employees or
other persons against the Company. To the Knowledge of the Company, no union or
other labor organization has attempted to organize any of the employees of the
Company.
(e) The Company has complied with all Legal Requirements
relating to employment and labor, except where the failure to so comply would
not have a Material Adverse Effect on the Company, and to the Knowledge of the
Company, as of the date hereof, no facts or circumstances exist that could
reasonably be expected to substantiate a viable claim of wrongful termination by
any current or former employee of the Company against the Company the results of
which would have a Material Adverse Effect on the Company.
SECTION 3.22 Affiliations. Except as disclosed on Schedule 3.22, to
------------
the Company's Knowledge, no officer or director of the Company or any Affiliate
of the Company has, directly or indirectly, (i) a financial or profit interest
in any Person that (A) furnishes or sells services or products to the Company or
(B) purchases services or products from the Company or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which the Company or any of the assets of the Company are bound, except for
ownership of no more than 1% of the outstanding voting stock of a publicly
traded corporation.
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<PAGE>
SECTION 3.23 Principal Customers and Suppliers.
---------------------------------
(a) Schedule 3.23(a) contains a true and complete list of the
name and address of each customer that purchased in excess of 5% of the
Company's sales of goods or services during the twelve months ended on the
Balance Sheet Date, and since that date no such customer has terminated its
relationship with or materially curtailed its purchases from the Company or, to
the Knowledge of the Company, indicated its intention so to terminate its
relationship or materially curtail its purchases.
(b) Schedule 3.23(b) contains a true and complete list of each
supplier from whom the Company purchased in excess of 10% of the Company's
purchases of goods or services during the twelve months ended on the Balance
Sheet Date, and since that date no such supplier has terminated its relationship
with or materially curtailed its accommodations, sales or services to the
Company or, to the Knowledge of the Company indicated its intention to terminate
such relationship or materially curtail its accommodations, sales or services.
SECTION 3.24 Warranty Liability. Schedule 3.24 contains a true and
------------------
complete description of (i) all warranties granted or made with respect to
services rendered or goods sold by the Company, and (ii) the Company's aggregate
liability related to such warranties.
SECTION 3.25 Corporate Records. The copies or originals of the
-----------------
Articles of Incorporation, Bylaws, minute books and stock records of the Company
previously delivered to, or made available for inspection by, Buyer are true,
complete and correct as of the date hereof.
SECTION 3.26 Brokers' Fees. Except as set forth on Schedule 3.26,
-------------
no broker, finder or similar agent has been employed by or on behalf of the
Company in connection with this Agreement or the transactions contemplated the
Company has not entered into any agreement or understanding of any kind with any
person or entity for the payment of any brokerage commission, finder's fee or
any similar compensation in connection with this Agreement or the transactions
contemplated hereby.
SECTION 3.27 Disclosure. No representation or warranty of the
----------
Company or any Founder in this Agreement and no information contained in any
Schedule or other writing delivered by the Company pursuant to this Agreement or
at the Closing contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein or therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to, and covenants and agrees
with, the Company that:
SECTION 4.01 Organization, Power and Authority of Buyer.
------------------------------------------
(a) Buyer has been duly organized and is existing as a
corporation in good standing under the laws of the State of Delaware with full
power and authority (corporate and other) to own and lease its properties and to
conduct its business as currently conducted. Buyer has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in which the nature of its business or
location of its properties requires such qualification and in which the failure
to so qualify would have a Material Adverse Effect on the business or operations
of Buyer.
(b) Except for Newco, Buyer has no Subsidiaries nor owns or
controls, or has any other equity investment or other interest in, directly or
indirectly, any corporation, joint venture, partnership, association or other
Person.
SECTION 4.02 Organization, Power and Authority of Newco. Newco has
------------------------------------------
been duly organized and is existing as a corporation under the laws of the State
of Idaho with full power and authority (corporate and other) to own and lease
its properties and to conduct its business as currently conducted. Newco has
been duly qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each jurisdiction in which the nature of
its business or location of its properties requires such qualification and in
which the failure to so qualify would have a Material Adverse Effect on the
business or operations of Newco.
SECTION 4.03 Authorization. Each of Buyer and Newco has the
-------------
corporate power and authority to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
under this Agreement. The execution and delivery by each of Buyer and Newco of
this Agreement, and the consummation by each of them of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
by each of Buyer and Newco. This Agreement, upon its execution and delivery by
each of Buyer and Newco, will constitute the legal, valid and binding obligation
of each of Buyer and Newco, enforceable against each of Buyer and Newco in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency and similar laws relating to creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
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SECTION 4.04 Reports and Financial Statements. The Buyer has
--------------------------------
previously furnished to the Company complete and accurate copies, as amended and
supplemented, of its (a) Annual Report on Form 10-K for its fiscal year ended
December 31, 1999, (b) Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 2000, (c) final prospectus dated January 28, 2000 filed with the
Commission pursuant to Rule 424(b) of the Securities Act, and (d) all other
reports filed by the Buyer under Section 13 of the Exchange Act with the
Commission since January 28, 2000 (such reports are collectively referred to
herein as the "Buyer Reports"). The Buyer Reports constitute all of the
-------------
documents required to be filed by the Buyer under the Exchange Act with the
Commission since January 28, 2000. As of their respective dates, the Buyer
Reports (i) complied in all material respects with the applicable requirements
of the Securities Act and the Exchange Act and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of the Buyer included in
the Buyer Reports (i) comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, (ii) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby (except as
may be indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), (iii)
fairly present the consolidated financial condition, results of operations and
cash flows of the Buyer as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of the
Buyer.
SECTION 4.05 Capitalization. The authorized capital stock of Buyer
--------------
consists solely of (i) 53,333,333 shares of Buyer Common Stock, of which
21,984,269 were issued and outstanding as of May 10, 2000, and (ii) 6,998,000
shares of Buyer Preferred Stock, none of which are outstanding. All of the
issued and outstanding shares of Buyer Common Stock are duly authorized, validly
issued, fully paid, nonassessable, and free of all preemptive rights. All of
the Merger Shares to be issued pursuant to this Agreement, when issued in
accordance with this Agreement, will be duly authorized, validly issued, fully
paid, nonassessable, free of all preemptive rights and, subject to official
notice of issuance, authorized for listing on the NASDAQ National Market System.
The authorized capital stock of Newco consists solely of 10,000 shares of
Company Common Stock, of which 10,000 are, and on the Closing Date will be,
issued and outstanding. All of the issued and outstanding shares of capital
stock of Newco are, and on the Closing Date will be, owned beneficially and of
record by Buyer. Other than as set forth on Schedule 4.05, (i) there are no
existing options, warrants, rights, call or commitments of any character
relating to shares of Buyer Common Stock or other capital stock of Buyer or
Newco, (ii) there are no outstanding securities or other instruments convertible
into or exchangeable for shares of Buyer Common Stock or other capital stock of
Buyer or Newco and no commitments to issue such securities or instruments, and
(iii) no Person has any right of first refusal, preemptive right, subscription
right or
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similar right with respect to any shares of Buyer Common Stock or other capital
stock of Buyer or Newco.
SECTION 4.06 Brokers' Fees. No broker, finder or similar agent has
-------------
been employed by or on behalf of Buyer or Newco in connection with this
Agreement or the transactions contemplated hereby, and neither Buyer nor Newco
have entered into any agreement or understanding of any kind with any person or
entity for the payment of any brokerage commission, finder's fee or any similar
compensation in connection with this Agreement or the transactions contemplated
hereby.
SECTION 4.07 Representations Complete. No representation or warranty
------------------------
of the Buyer or Newco, as applicable in this Agreement and no information
contained in any Schedule or other writing delivered by Buyer or Newco pursuant
to this Agreement or at the Closing contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
SECTION 4.08 No Conflicts. The execution, delivery and performance of
------------
this Agreement by Buyer and Newco and the consummation by Buyer and Newco of the
transactions contemplated hereby will not (a) conflict with or result in a
breach or violation of any term or provision of, or constitute a default under
(with or without notice or passage of time, or both), or otherwise give any
Person a basis for accelerated or increased rights or termination or
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement or instrument to which the Buyer or
Newco is a party or by which the Buyer or Newco is bound or to which any of the
property or assets of the Buyer or Newco is bound where such conflict, breach,
violation or acceleration would have a Material Adverse Effect on the Buyer or
Newco, (b) result in the violation of the provisions of the Certificate of
Incorporation or Bylaws of the Buyer or Newco or any Legal Requirement
applicable to or binding upon them, (c) result in the creation or imposition of
any Lien, other than Permitted Liens, upon any property or asset of the Buyer or
Newco or (d) otherwise materially adversely affect the contractual or other
legal rights or privileges of the Buyer or Newco. There are no agreements to
which Buyer or Newco is a party which require the consent of any party thereto
to any of the transactions contemplated hereby.
SECTION 4.09 Judgments; Litigation. Except as set forth in the Buyer
---------------------
Reports:
(a) There is no (i) outstanding judgment, order, decree, award,
stipulation, injunction of any Governmental Entity or arbitrator against or
affecting Buyer or Newco or their properties, assets or business or (ii) Action
pending against the Buyer or Newco or its properties, assets or business.
(b) To the Knowledge of the Buyer, there is no (A) outstanding
judgment, order, decree, award, stipulation, injunction of any Governmental
Entity or
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arbitrator against or affecting any officer or director of the Buyer or Newco
(in their capacities as such), (B) Action threatened against the Buyer or Newco
or its properties, assets or business, (C) Action pending or threatened against
the officers or directors of the Buyer or Newco or their business or (D) basis
for the institution of any Action against the Buyer or Newco or any of their
officers or directors, properties or assets which, if decided adversely, would
have a Material Adverse Effect on the Buyer or Newco.
SECTION 4.10 Taxes. It is the present intention of Buyer to continue
-----
at least one significant historic business line of the Company, or to use at
least a significant portion of the Company's historic business assets in a
business, in each case within the meaning of Treasury Regulation Section
1.368-1(d).
SECTION 4.11 Compliance with Law. Through and including the date
-------------------
hereof, the Buyer (i) has not conducted its business or operations in violation
of, and has not used its properties or assets in violation of, any Legal
Requirement, (ii) to the Buyer's Knowledge, has not been alleged to be in
violation of any Legal Requirement, and (iii) has not received any notice of any
alleged violation of, nor any citation for noncompliance with, any Legal
Requirement, in each case, which individually or in the aggregate would have a
Material Adverse Effect on Buyer.
ARTICLE V
PREPARATION OF INFORMATION STATEMENT
------------------------------------
SECTION 5.01 Preparation of Information Statement.
------------------------------------
(a) As soon as practicable after the execution of this
Agreement, the Buyer with the cooperation of the Company, shall prepare an
information statement (the "Information Statement ") for the shareholders of the
---------------------
Company in connection with their approval of the principal terms of this
Agreement to be transmitted with a notice of special meeting of shareholders or
in connection with the solicitation of such shareholders' written consent. The
Information Statement shall constitute a disclosure document for the offer and
sale of the shares of Buyer Common Stock to be received pursuant to the Merger.
Such Information Statement shall include the recommendation of the Boards of
Directors of the Company and the Buyer, respectively, in favor of the Merger.
The Company or Buyer shall furnish to the Buyer or the Company (as applicable)
all information concerning the Company or Buyer and the holders of capital stock
of the Company or Buyer as may be reasonably requested by Buyer or the Company
(as applicable) in connection with any action contemplated by this Section 5.01.
(b) Each of the Buyer and Company agrees to provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Information Statement, or in
any amendments
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or supplements thereto, and to cause its counsel and auditors to cooperate with
the other party's counsel and auditors in the preparation of the Information
Statement. The Buyer and Company shall each use their best efforts to cause the
Information Statement to comply with applicable federal and state securities
laws requirements. The Company will promptly advise the Buyer, and the Buyer
will promptly advise the Company, in writing if at any time prior to the
Effective Time either the Company or the Buyer shall obtain knowledge of any
facts that might make it necessary or appropriate to amend or supplement the
Information Statement in order to make the statements contained or incorporated
by reference therein not misleading or to comply with applicable law. The
Information Statement shall contain the recommendation of the Board of Directors
of the Company that the shareholders of the Company approve the principal terms
of this Agreement and the conclusion of the Board of Directors of the Company
that the terms and conditions of the Merger are fair and reasonable to the
shareholders of the Company from a financial point of view. The Company shall
otherwise use its best efforts to obtain the Requisite Shareholder Approval.
(c) None of the information supplied or to be supplied by or on
behalf of the Company, for inclusion in the Information Statement will, at the
date such information is supplied and, as thereafter amended or supplemented,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or, as thereafter
amended or supplemented.
(d) None of the information supplied or to be supplied by or on
behalf of the Buyer, for inclusion in the Information Statement will, at the
date such information is supplied and, as thereafter amended or supplemented,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
------------------------------------
SECTION 6.01 Conditions to Each Party's Obligations. Notwithstanding
--------------------------------------
any other provision of this Agreement, the obligations of each party hereto to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) The principal terms of this Agreement shall have received
the Requisite Shareholder Approval.
(b) There shall not be instituted and pending or threatened any
Action before any Governmental Entity (i) challenging the Merger or otherwise
seeking to restrain or prohibit the consummation of the transactions
contemplated hereby, or
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(ii) seeking to prohibit the direct or indirect ownership or operation by Buyer
of all or a material portion of the business or assets of the Company, or to
compel Buyer or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Buyer.
(c) Buyer shall have received all permits and other
authorizations, if any, required under applicable securities laws for the
issuance of the Merger Shares, and such issuance shall otherwise comply with all
applicable securities laws.
(d) Any Person required in connection with the transactions
contemplated hereby to file a Notification and Report Form in compliance with
the HSR Act shall have filed such form and the applicable waiting period with
respect to each such form (including any extension thereof by reason of a
request for additional information) shall have expired or been terminated.
(e) The Merger Shares shall have been authorized for listing on
the NASDAQ National Market upon official notice of issuance.
SECTION 6.02 Conditions to Obligations of Buyer and Newco.
--------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of Buyer
and Newco to consummate the Merger and the other transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The number of Dissenting Shares shall not exceed ten percent
(10%) of the aggregate number of outstanding Shares of Company Common Stock as
of the Effective Time.
(b) The representations and warranties of the Company in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date and the Company
shall have complied with all covenants and agreements and satisfied all
conditions on the Company's part to be performed or satisfied on or prior to the
Closing Date.
(c) Buyer shall have received from Hall, Farley, Oberrecht &
Blanton, counsel for the Company, a written opinion dated the Closing Date and
addressed to Buyer and Newco, in substantially the form attached as Annex D
hereto;
(d) Buyer shall have received the written opinion of its counsel
to the effect that the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code.
(e) Buyer shall have received a certificate of the Company,
signed by its President, in substantially the form attached as Annex E hereto.
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(f) Buyer shall have received a certificate of the Founders,
signed by each Founder, in substantially the form attached as Annex F hereto.
(g) Buyer shall have received the following under cover of a
certificate of the Secretary of the Company dated the Closing Date in
substantially the form attached as Annex G hereto:
(i) Copies of resolutions (A) of the Board of Directors
of the Company authorizing and approving the execution, delivery and performance
of this Agreement and all other documents and instruments to be delivered by the
Company pursuant hereto and thereto, and (B) of the Company's shareholders
evidencing the Requisite Shareholder Approval;
(ii) A certificate of incumbency certifying the names,
titles and signatures of the officers authorized to execute the documents
referred to in subparagraph (i) above and further certifying that the Articles
of Incorporation and Bylaws of the Company delivered to Buyer at the time of, or
prior to, the execution of this Agreement have been validly adopted and have not
been amended or modified; and
(iii) True and complete copies of the Financial Statements;
and
(iv) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as Buyer or its
counsel may reasonably request.
(h) Buyer shall have received the resignations, effective as of
the Effective Time, of each member of the Company's board of directors.
(i) Each of the Founders shall each have executed a Covenant Not
to Compete in favor of Buyer, effective concurrently with the Closing,
substantially in the form of Annex H attached hereto.
(j) Buyer, the Company, the Escrow Agent and the Representative
shall have entered into the Escrow Agreement.
(k) Buyer shall have received from each Employee Shareholder so
indicated on Annex I an executed Lock-Up Agreement substantially in the form of
Annex J hereto.
(l) All material authorizations, consents, waivers and approvals
by or from third parties required for the consummation of the transactions
contemplated hereby shall have been obtained, and all Liens on the assets and
properties of the Company shall have been released or terminated.
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<PAGE>
(m) No act, event or condition shall have occurred after the
date hereof that has had or could reasonably be expected to have a Material
Adverse Effect on the Company.
(n) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
(o) The Company shall have completed the audit of the Financial
Statements which shall not result in a material adverse change from the
Financial Statements, appended to Schedule 3.04, for the respective periods
covered therein.
(p) The Company shall have applied for registration and
subsequent bonding of its online sweepstakes game in New York and Florida and
Buyer shall be reasonably satisfied with the consequences thereof.
SECTION 6.03 Conditions to Obligations of the Company.
----------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of the
Company to consummate the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction, at or prior to the Closing Date, of the
following conditions:
(a) The representations and warranties of Buyer in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date, and Buyer
shall have complied with all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied on or prior to the Closing
Date.
(b) The Company shall have received from Paul, Hastings,
Janofsky & Walker LLP, counsel for Buyer and Newco, a written opinion dated the
Closing Date and addressed to the Company in substantially the form attached as
Annex K hereto.
(c) The Company shall have received the following under cover of
a certificate of the Secretary of Buyer dated the Closing Date in substantially
the form attached as Annex L hereto:
(i) Copies of resolutions of the Board of Directors of
Buyer authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered by Buyer
pursuant hereto and thereto;
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(ii) A certificate of incumbency certifying the names,
titles and signatures of the officers authorized to execute the documents
referred to in subparagraph (i) above and further certifying that the
Certificate of Incorporation and Bylaws of Buyer delivered to the Company at the
time of, or prior to, the execution of this Agreement have been validly adopted
and have not been amended or modified; and
(iii) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as the Company
or its counsel may reasonably request.
(d) The Company shall have received a certificate of Buyer,
signed by its President, in substantially the form attached as Annex M hereto.
(e) The Company shall have received the following under cover of
a certificate of the Secretary of Newco dated the Closing Date in substantially
the form attached as Annex N hereto:
(i) Copies of resolutions of (A) the Board of Directors
of Newco authorizing and approving the execution, delivery and performance of
this Agreement and all other documents and instruments to be delivered by Newco
pursuant hereto and thereto, and (B) the shareholder of Newco approving this
Agreement and the Merger;
(ii) A certificate of incumbency certifying the names,
titles and signatures of the officers authorized to execute the documents
referred to in subparagraph (i) above and further certifying that the Articles
of Incorporation and Bylaws of Newco delivered to the Company at the time of, or
prior to, the execution of this Agreement have been validly adopted and have not
been amended or modified; and
(iii) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as the Company
or its counsel may reasonably request.
(f) The Company shall have received a certificate of Newco,
signed by its President, in substantially the form attached as Annex O hereto.
(g) The Company shall have received the written opinion of its
counsel to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
(h) All corporate and other proceedings and actions taken in
connection with the transactions contemplated hereby and all certificates,
opinions, agreements, instruments, releases and documents referenced herein or
incident to the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to the Company and its counsel.
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(i) The Buyer and the Investor Shareholders shall have entered
into a Registration Rights Agreement substantially in the form attached hereto
as Annex P.
(j) Buyer, the Escrow Agent and the Representative shall have
entered into the Escrow Agreement.
(k) Buyer shall have executed and delivered to the holders of
Company Warrants to purchase the Buyer Warrant Shares.
(l) The Promissory Note dated May 2, 2000 executed by the
Company in favor of Prime Ventures, LLC, a Delaware limited liability company,
in the amount of $250,000, shall have been paid in full.
ARTICLE VII
CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
During the period commencing on the date hereof and continuing through
the Closing Date, the Company covenants and agrees (except as expressly
contemplated by this Agreement or to the extent that Buyer shall otherwise
expressly consent in writing) that:
SECTION 7.01 Qualification. The Company shall maintain all
-------------
qualifications to transact business and remain in good standing in the foreign
jurisdictions set forth on Schedule 3.01(a).
SECTION 7.02 Ordinary Course. The Company shall conduct its business
---------------
in, and only in, the Ordinary Course and shall preserve intact its current
business organizations, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it. The Company shall maintain its properties and
assets in good condition and repair.
SECTION 7.03 Organic Changes. The Company shall not (a) amend its
---------------
Articles of Incorporation or Bylaws (or equivalent documents), (b) acquire by
merging or consolidating with, or agreeing to merge or consolidate with, or
purchase substantially all of the stock or assets of, or otherwise acquire any
business or any corporation, partnership, association or other business
organization or division thereof, (c) enter into any partnership or joint
venture, (d) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock or purchase or redeem, directly or indirectly,
any shares of its capital stock, (e) issue or sell any shares of its capital
stock of any class or any options, warrants, conversion or other rights to
purchase any such shares or any securities convertible into or exchangeable for
such shares, or (f) liquidate or dissolve or obligate itself to do so.
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SECTION 7.04 Indebtedness. The Company shall not incur any
------------
Indebtedness, sell any debt securities or lend money to or guarantee the
Indebtedness of any Person. The Company shall not restructure or refinance its
existing Indebtedness.
SECTION 7.05 Accounting. The Company shall not make any change in
----------
the accounting principles, methods, records or practices followed by it or
depreciation or amortization policies or rates theretofore adopted by it except
insofar as may be required by GAAP. The Company shall maintain its books,
records and accounts in accordance with GAAP.
SECTION 7.06 Compliance with Legal Requirements. The Company shall
----------------------------------
comply promptly with all requirements that applicable law may impose upon it and
its operations and with respect to the transactions contemplated by this
Agreement, and shall cooperate promptly with, and furnish information to, Buyer
in connection with any such requirements imposed upon the Company or Buyer, or
upon any of its affiliates, in connection therewith or herewith.
SECTION 7.07 Disposition of Assets. The Company shall not sell,
---------------------
transfer, license, lease or otherwise dispose of, or suffer or cause the
encumbrance by any Lien upon any of, its properties or assets, tangible or
intangible, or any interest therein other than the sale of inventory and the
collection of accounts receivable in the Ordinary Course.
SECTION 7.08 Compensation. The Company shall not (a) adopt or amend
------------
in any material respect any collective bargaining, bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other plan, agreement, trust, fund or arrangement for the benefit
of employees (whether or not legally binding) other than to comply with any
Legal Requirement or (b) pay, or make any accrual or arrangement for payment of,
any increase in compensation, bonuses or special compensation of any kind, or
any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any current or former officer, director, employee
or consultant of the Company other than pursuant to obligations existing as of
the date hereof which are disclosed in the Schedules hereto.
SECTION 7.09 Modification or Breach of Agreements; New Agreements.
----------------------------------------------------
The Company shall not terminate or modify, or commit or cause or suffer to be
committed any act that will result in a breach or violation of any material term
of, or (with or without notice or passage of time, or both) constitute a
material default under or otherwise give any person a basis for nonperformance
under, any indenture, mortgage, deed of trust, loan or credit agreement, or
other agreement, instrument, lease, license, or arrangement, written or oral,
disclosed in this Agreement or the Schedules hereto. The Company shall refrain
from becoming a party to any contract or commitment other than in the Ordinary
Course. The Company shall, in all material respects, meet all of its
contractual obligations in accordance with their respective terms.
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SECTION 7.10 Capital Expenditures. Except in the Ordinary Course or
--------------------
except for capital expenditures or commitments necessary to maintain its
properties and assets in good condition and repair (the amount of which shall
not exceed $10,000 in the aggregate), the Company shall not purchase or enter
into any contract to purchase any capital assets.
SECTION 7.11 Maintain Insurance. The Company shall maintain its
------------------
Policies in full force and effect and shall not do, permit or willingly allow to
be done any act by which any of the Policies may be suspended, impaired or
canceled.
SECTION 7.12 Discharge. The Company shall not cancel, compromise,
---------
release or discharge any material claim of the Company upon or against any
person or waive any right of the Company of material value, and not discharge
any Lien (other than Permitted Liens) upon any asset of the Company or
compromise any debt or other obligation of the Company to any person other than
Liens, debts or obligations with respect to current liabilities of the Company.
SECTION 7.13 Actions. The Company shall not institute, settle or
-------
agree to settle any Action before any Governmental Entity.
SECTION 7.14 Permits. The Company shall maintain in full force and
-------
effect, and comply with, all Permits.
SECTION 7.15 Tax Assessments and Audits. The Company shall furnish
--------------------------
promptly to Buyer a copy of all notices of proposed assessment or similar
notices or reports that are received from any taxing authority and which relate
to the Company's operations for periods ending on or prior to the Closing Date.
The Company shall promptly inform Buyer of, and permit the participation by
Buyer in, any investigation, audit or other proceeding by a Governmental Entity
in connection with any Taxes, assessment, governmental charge or duty and shall
not consent to any settlement or final determination in any proceeding without
the prior written consent of Buyer, not to be unreasonably withheld.
ARTICLE VIII
ADDITIONAL COVENANTS
--------------------
SECTION 8.01 Covenants of the Company. During the period commencing
------------------------
on the date hereof and continuing through the Closing Date, the Company agrees
to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
Buyer in
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connection with any such requirements imposed upon Buyer or upon any of its
Affiliates in connection therewith or herewith;
(b) use its reasonable best efforts to obtain (and to cooperate
with Buyer in obtaining) any consent, authorization or approval of, or exemption
by, any Person required to be obtained or made by the Company in connection with
the transactions contemplated by this Agreement;
(c) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Sections 6.01
and 6.02 of this Agreement;
(d) promptly advise Buyer orally and, within three business days
thereafter, in writing of any change in the Company's business or condition that
has had or may have a Material Adverse Effect on the Company; and
(e) deliver to Buyer prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any omission to
state any material fact required to make the statements herein or therein
contained complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however, that
-------- -------
the disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 9.01(c) hereof at any time at or
prior to the Closing in respect of any original untrue or misleading statement.
SECTION 8.02 Covenants of Buyer. During the period commencing on
------------------
the date hereof and continuing through the Closing Date, Buyer agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions contemplated by
this Agreement, and shall cooperate promptly with, and furnish information to,
the Company in connection with any such requirements imposed upon the Company or
upon any of the Affiliates of the Company in connection therewith or herewith;
(b) use its reasonable best efforts to obtain any consent,
authorization or approval of, or exemption by, any Person required to be
obtained or made by Buyer in connection with the transactions contemplated by
this Agreement;
(c) use its reasonable best efforts to preserve intact its
business organization, employees and other business relationships, to operate
its business in the Ordinary Course and to maintain its books, records and
accounts in accordance with GAAP;
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(d) use its reasonable best efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Sections 6.01
and 6.03 of this Agreement;
(e) promptly advise Company orally and, within three business
days thereafter, in writing of any change in the Buyer's business or condition
that has had or may have a Material Adverse Effect on the Buyer; and
(f) deliver to the Company prior to the Closing a written
statement disclosing any untrue statement in this Agreement or any Schedule
hereto (or supplement thereto) or document furnished pursuant hereto, or any
omission to state any material fact required to make the statements herein or
therein contained complete and not misleading, promptly upon the discovery of
such untrue statement or omission, accompanied by a written supplement to
any Schedule to this Agreement that may be affected thereby; provided, however,
-------- -------
that the disclosure of such untrue statement or omission shall not prevent the
Company from terminating this Agreement pursuant to Section 9.01(d) hereof at
any time at or prior to the Closing in respect to any original untrue or
misleading statement.
SECTION 8.03 Access and Information.
----------------------
(a) Between the date hereof and the Closing Date, the Company
will permit Buyer and its representatives and agents reasonable access to the
Company's books and records, facilities, key personnel, customers, suppliers,
independent accountants and attorneys, as reasonably requested by Buyer.
(b) The Confidentiality Agreement dated May 5, 2000 and entered
into by the Company and Buyer (the "Confidentiality Agreement") shall survive
-------------------------
the execution and delivery of this Agreement.
SECTION 8.04 Expenses. Except as otherwise specifically provided
--------
herein, each party to this Agreement shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions contemplated
hereby, including, without limitation, all legal fees and fees of any brokers,
finders or similar agents. Upon the Closing, Buyer hereby agrees to pay
directly the fees and expenses incurred by the Company and the Shareholders in
connection with the transactions contemplated hereby (including, without
limitation, all fees and expenses of counsel and accountants to the Company), up
to an aggregate of $25,000 with the Founders or the other Shareholders to pay
all fees and expenses incurred by the Company or the Shareholders which exceed
$25,000; provided that, regardless of whether the transactions contemplated
hereby are consummated, Buyer shall pay the fees and expenses of the Company's
accountants in connection with the audit of the Financial Statements.
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SECTION 8.05 Certain Notifications. At all times from the date
---------------------
hereof to the Closing Date, each party shall promptly notify the others in
writing of the occurrence of any event that will or may (i) constitute or result
in the breach by such party of, or a failure to comply with, any agreement or
covenant in this Agreement applicable to such party or (ii) result in the
failure by such party to satisfy any of the conditions specified in Article VI
hereof.
SECTION 8.06 Publicity; Employee Communications. At all times prior
----------------------------------
to the Closing Date, Buyer, on the one hand, and the Company, on the other hand,
shall obtain the consent of the other prior to issuing, or permitting any of its
directors, officers, employees or agents to issue, any press release or other
information to the press, employees of the Company or any third party with
respect to this Agreement or the transactions contemplated hereby; provided,
--------
however, that no party shall be prohibited from supplying any information to any
-------
of its representatives, agents, attorneys, advisors, financing sources and
others to the extent necessary to complete the transactions contemplated hereby
so long as such representatives, agents, attorneys, advisors, financing sources
and others are made aware of and agree to be bound by the terms of this Section
8.06; provided, further, that Buyer shall be permitted to issue, with the
-------- -------
consent of the Company, which consent shall not be unreasonably withheld, a
press release or public statement with respect to the transactions contemplated
by this Agreement. Nothing contained in this Agreement shall prevent any party
to this Agreement at any time from furnishing any required information to any
Governmental Entity or authority pursuant to a Legal Requirement or from
complying with its legal obligations.
SECTION 8.07 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement, each
of the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and make
effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers or directors of the Company, Buyer or Newco, as the case may be, shall
take or cause to be taken all such necessary or convenient action and execute,
and deliver and file, or cause to be executed, delivered and filed, all
necessary or convenient documentation.
SECTION 8.08 Competing Offers; Merger or Liquidation. The Company
---------------------------------------
shall not, directly or indirectly, through any officer, director, agent or
otherwise (a) solicit, respond to any solicitation or inquiry concerning,
initiate, engage, or participate in any discussions or negotiations with any
Person (other than Buyer) concerning, any merger, consolidation, sale of
material assets, tender offer, recapitalization, purchase or accumulation of
Shares, proxy solicitation or other business
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combination involving the Company or any division of the Company constituting a
Company Takeover Proposal or (b) provide any non-public information concerning
the business, properties or assets of the Company to any Person (other than
Buyer) constituting a Company Takeover Proposal. The Company shall notify Buyer
of, and shall disclose to Buyer all material details of, any inquiries after the
date hereof of the nature described in the first sentence of this Section 8.08.
The Company further agrees that it will not engage any broker, financial advisor
or other consultant on a basis which might provide such broker, financial
advisor or consultant with an incentive to initiate or encourage proposals or
offers from other parties with respect to the Company, the Shares or the
Company's assets or any interest therein.
SECTION 8.09 Inconsistent Action. The Company shall not take or
-------------------
suffer to be taken, any action that would cause any of the representations or
warranties of the Company in this Agreement to be untrue, incorrect, incomplete
or misleading.
SECTION 8.10 Inconsistent Action. The Buyer shall not take or
-------------------
suffer to be taken, any action that would cause any of the representations or
warranties of the Buyer in this Agreement to be untrue, incorrect, incomplete or
misleading.
SECTION 8.11 HSR Act. Each of the parties hereto shall promptly
-------
file any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act, shall use its best
efforts to obtain an early termination of the applicable waiting period, and
shall make any further filings or information submissions pursuant thereto that
may be necessary, proper or advisable.
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SECTION 8.12 Indemnification of Officers and Directors. Buyer or the
-----------------------------------------
Surviving Corporation shall fulfill and honor in all respects and shall cause to
be maintained in effect for a period of four years after the Effective Time the
current provisions regarding exculpation and indemnification of current or
former officers and directors (each an "Indemnified Webmillion Person")
-----------------------------
contained in the Articles of Incorporation and Bylaws of the Company as in
effect on the date hereof, provided that, in the event any claim or claims are
asserted or made within such four year period, all rights to indemnification in
respect of any claim or claims shall continue until final disposition of any and
all such claims; provided, further, that if any claim or claims are made between
the third and fourth anniversary of the Effective Time, coverage under this
first sentence of this Section 8.12 shall be limited to claims against the
Indemnified Webmillion Persons arising from alleged breaches of their respective
duties to the Company's shareholders related to this Agreement and the
transactions contemplated hereby. For a period of three years after the
Effective Time (provided that in the event any claim or claims are asserted or
made within such three year period, all rights to indemnification in respect of
any claim or claims shall continue until final disposition of any and all such
claims), Buyer or the Surviving Corporation shall maintain in effect a policy of
directors' and officers' liability insurance with coverage of not less than $5.0
million for those persons who are currently the Company's directors and officers
with respect to claims arising from facts or events which occurred before the
Effective Time. The agreements contained in this Section 8.12 shall survive the
closing of the Merger and other transactions contemplated hereby and are
intended to be for the benefit of, Buyer, the Company and each of the
Indemnified Webmillion Persons and their respective heirs and legal
representatives and shall be binding, jointly and severally on all successors
and assigns of Buyer and the Company, and shall be enforceable by the
Indemnified Webmillion Persons. Notwithstanding anything herein to the
contrary, no beneficiary of the covenants contained in the first sentence of
this Section 8.12 shall be entitled to any benefits under the first sentence of
this Section 8.12 to the extent such Person's claim for benefits under the first
sentence of this Section 8.12 arises from, or gives rise to, a breach of the
representations, warranties or covenants of the Company or the Founders
hereunder.
SECTION 8.13 Vote by Founders. Each of the Founders, in his capacity
----------------
as a shareholder of the Company, agrees to vote for, or give his consent to, the
Merger and the approval of this Agreement and the transactions contemplated
hereby.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 9.01 Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by mutual consent of Buyer and the Company;
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(b) by the Company, on the one hand, or by Buyer, on the other
hand, by written notice to the other party or parties hereto if (i) the Merger
shall not have been consummated on or before July 31, 2000 (or such later date
as Buyer and the Company may agree), provided that in the case of a termination
under this clause, the party terminating this Agreement shall not then be in
material breach of any of its obligations under this Agreement;
(c) by Buyer if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by the Company under this Agreement and
such breach shall not have been cured, if susceptible to cure, within five (5)
business days of receipt by the Company of written notice of such breach or (ii)
any of the conditions precedent to Closing set forth in Section 6.01 or 6.02
have not been met on the Closing Date, and, in each case, Buyer is not then in
material default of its obligations hereunder; or
(d) by the Company if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Buyer under this
Agreement and such breach shall not have been cured, if susceptible to cure,
within five (5) business days of receipt by Buyer of written notice of such
breach or (ii) any of the conditions precedent to Closing set forth in Section
6.01 or 6.03 have not been met on the Closing Date, and, in each case, the
Company is not then in material default of its obligations hereunder.
SECTION 9.02 Effect of Termination.
---------------------
(a) In the case of any termination of this Agreement, the
provisions of Sections 8.03(b) and 8.04 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section
9.01(a), this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of any party hereto or their respective
directors, officers, employees, agents or other representatives.
(c) In the event of termination of this Agreement as provided in
Section 9.1(b), (c) or (d) hereof, such termination shall be without prejudice
to any rights that the terminating party or parties may have against the
breaching party or parties or any other Person under the terms of this Agreement
or otherwise.
SECTION 9.03 Amendment. This Agreement may be amended only by a
---------
written instrument executed by each of the parties hereto. Any amendment
effected pursuant to this Section 9.03 shall be binding upon all parties hereto.
SECTION 9.04 Waiver. Any term or provision of this Agreement may be
------
waived in writing at any time by the party or parties entitled to the benefits
thereof. No failure to exercise and no delay in exercising any right, power or
privilege shall operate
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as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude the exercise of any other right, power or privilege.
No waiver of any breach of any covenant or agreement hereunder shall be deemed a
waiver of any preceding or subsequent breach of the same or any other covenant
or agreement. The rights and remedies of each party under this Agreement are in
addition to all other rights and remedies, at law or in equity, that such party
may have against the other party.
ARTICLE X
INDEMNIFICATION
---------------
SECTION 10.01 Survival of Representations and Warranties and
----------------------------------------------
Covenants.
---------
(a) The representations and warranties of the parties hereto
contained in this Agreement or in any writing delivered pursuant hereto or at
the Closing shall survive the execution and delivery of this Agreement and the
Closing and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) until March
31, 2001 (except for claims in respect thereof pending at such time, which shall
survive until finally resolved or settled); provided, however, (i) that the
-------- -------
representations and warranties contained in Sections 3.05, 3.14 and 3.21 shall
survive until the second anniversary of the Closing Date (except for claims in
respect thereof pending at such time, which shall survive until finally resolved
or settled), and (ii) the representations and warranties contained in Sections
3.03, 3.08, 3.12, 3.13 and 3.16 shall survive until the expiration of the
applicable statute of limitations (except for claims in respect thereof pending
at such time, which shall survive until finally resolved or settled).
(b) No Action may be commenced with respect to any
representation, warranty, covenant or agreement in this Agreement, or in any
writing delivered pursuant hereto, unless written notice, setting forth in
reasonable detail the claimed breach thereof, shall be delivered pursuant to
Section 11.01 to the party or parties against whom liability for the claimed
breach is charged on or before the termination of the survival period specified
in Section 10.01(a) for such representation, warranty, covenant or agreement.
SECTION 10.02 Indemnification.
---------------
(a) The Founders covenant and agree to defend, indemnify and
hold harmless Buyer and each Person who controls Buyer within the meaning of the
Securities Act, and after the Closing, the Surviving Corporation, (hereinafter
referred to individually as a "Founder Indemnified Party" and collectively as
"Founder Indemnified Parties") from and against any Damages arising out of or
resulting from: (i) any inaccuracy in or breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement or in any writing
delivered pursuant to this Agreement or
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at the Closing; or (ii) the failure of the Company to perform or observe fully
any covenant, agreement or provision to be performed or observed by the Company
pursuant to this Agreement.
(b) The Founders' liability under this Section 10.02 shall be
allocated among them pro rata in accordance with their respective pro rata share
of the Escrow Shares. No Founder shall have any right of contribution or
equitable indemnification against the Company or the Surviving Corporation for
the Founders' obligations under Section 10.02(a).
(c) The Buyer covenants and agrees to defend, indemnify and hold
harmless the Company and each Shareholder and each Person who controls the
Company and any Shareholder within the meaning of the Securities Act
(hereinafter referred to individually as a "Buyer Indemnified Party" and
collectively as "Buyer Indemnified Parties"), from and against any Damages
arising out of or resulting from: (i) any inaccuracy in or breach of any
representation, warranty, covenant or agreement made by Buyer or Newco in this
Agreement or in any writing delivered pursuant to this Agreement or at the
Closing; or (ii) the failure of Buyer or Newco to perform or observe fully any
covenant, agreement or provision to be performed or observed by Buyer or Newco
pursuant to this Agreement.
SECTION 10.03 Third Party Claims.
------------------
(a) If any party entitled to be indemnified pursuant to Section
10.02 (an "Indemnified Party") receives notice of the assertion by any third
-----------------
party of any claim or of the commencement by any such third person of any Action
(any such claim or Action being referred to herein as an "Indemnifiable Claim")
-------------------
with respect to which another party hereto (an "Indemnifying Party") is or may
------------------
obligated to provide indemnification, the Indemnified Party shall promptly
notify the Representative in writing (the "Claim Notice") of the Indemnifiable
------------
Claim; provided, however, that the failure to provide such notice shall not
-------- -------
relieve or otherwise affect the obligation of the Indemnifying Party to provide
indemnification hereunder, except to the extent that any Damages directly
resulted or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30) days after
receipt of the Claim Notice to undertake, conduct and control, through counsel
of his own choosing, and at the Indemnifying Party's expense (as provided in the
Escrow Agreement), the settlement or defense thereof, and the Indemnified Party
shall cooperate with the Indemnifying Party in connection therewith; provided,
--------
however, that (i) the Indemnifying Party shall permit the Indemnified Party to
-------
participate in such settlement or defense through counsel chosen by the
Indemnified Party (subject to the consent of the Indemnifying Party, which
consent shall not be unreasonably withheld), provided that the fees and expenses
of such counsel shall not be borne by the Indemnifying Party, and (ii) the
Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting
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any such Indemnifiable Claim in good faith, the Indemnified Party shall not pay
or settle such claim without the Indemnifying Party consent, which consent shall
not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days after receipt of the Claim Notice that it elects
to undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided,
--------
however, that the Indemnified Party shall notify the Indemnifying Party of any
-------
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 10.03 to the contrary
notwithstanding, the Indemnifying Party shall not be entitled to assume the
defense for any Indemnifiable Claim if the Indemnifiable Claim seeks an order,
injunction or other equitable relief or relief for other than money damages
against the Indemnified Party which Indemnified Party determines, after
conferring with its counsel, cannot be separated from any related claim for
money damages and which, if successful, would adversely affect the business,
properties or prospects of the Indemnified Party; provided, however, if such
-------- -------
equitable relief portion of the Indemnifiable Claim can be so separated from
that for money damages, the Indemnifying Party shall be entitled to assume the
defense of the portion relating to money damages.
SECTION 10.04 Indemnified Claims.
------------------
(a) In order to seek indemnification under this Article X, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party and the Escrow Agent (provided, however, that the failure to
-------- -------
provide such notice shall not relieve or otherwise affect the obligation of the
Indemnifying Party to provide Indemnification however, except to the extent that
any Damages directly resulted or were caused by such failure) which contains (i)
a description and the amount (the "Claimed Amount") of any Damages incurred or
reasonably expected to be incurred by the Indemnified Party, (ii) a statement
that the Indemnified Party is entitled to indemnification under this Article X
for such Damages and a reasonable explanation of the basis therefor, and (iii) a
demand for payment (in the manner provided in paragraph (b) or (c) below) in the
amount of such Damages. The procedures set forth in clause (b) below shall
apply with respect to any claim for indemnification brought by a Founder
Indemnified Party and the procedures set forth in clause (c) below shall apply
with respect to any claim for indemnification brought by a Buyer Indemnified
Party.
(b) Within 20 days after delivery of a Claim Notice delivered by
a Founder Indemnified Party, the Indemnifying Party shall deliver to the Founder
Indemnified Party a written response (the "Response") in which the Indemnifying
Party shall: (i) agree that the Founder Indemnified Party is entitled to receive
all of the Claimed Amount (in which case the Indemnifying Party and the Founder
Indemnified party shall deliver to the Escrow Agent, within two (2) days
following the delivery of the
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<PAGE>
Response, a written notice executed by both parties instructing the Escrow Agent
to distribute to the Founder Indemnified Party such number of Escrow Shares as
have an aggregate Value (defined below) equal to the Claimed Amount), (ii) agree
that the Founder Indemnified Party is entitled to receive part, but not all, of
the Claimed Amount (the "Agreed Amount") (in which case the Indemnifying Party
and the Founder Indemnified Party shall deliver to the Escrow Agent, within five
days following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to Founder Indemnified Party
such number of Escrow Shares as have an aggregate Value equal to the Agreed
Amount) or (iii) dispute that the Founder Indemnified Party is entitled to
receive any of the Claimed Amount. If the Indemnifying Party in the Response
disputes its liability for all or part of the Claimed Amount, the Indemnifying
Party and the Founder Indemnified party shall follow the procedures set forth in
Section 11.09 for the resolution of such dispute. For purposes of this Article
X, the "Value" of any Escrow Shares delivered in satisfaction of an indemnity
claim shall be the average of the last reported sale prices per share of Buyer
Common Stock on Nasdaq over the five (5) consecutive trading days ending on the
Closing Date (subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split or similar recapitalization event affecting
Buyer Common Stock) multiplied by the number of such Escrow Shares.
(c) Within 20 days after delivery of a Claim Notice delivered by
a Buyer Indemnified Party, the Indemnifying Party shall deliver to the Buyer
Indemnified Party a written response (the "Response") in which the Indemnifying
Party shall: (i) agree that the Buyer Indemnified Party is entitled to receive
all of the Claimed Amount (in which case the Response shall be accompanied by a
payment by the Indemnifying Party to the Buyer Indemnified Party of the Claimed
Amount, by check or by wire transfer), (ii) agree that the Buyer Indemnified
Party is entitled to receive part, but not all, of the Claimed Amount (the
"Agreed Amount') (in which case the Response shall be accompanied by a payment
by the Indemnified Party to the Buyer Indemnified Party of the Agreed Amount, by
check or by wire transfer) or (iii) dispute that the Buyer Indemnified Party is
entitled to receive any of the Claimed Amount. If the Indemnifying Party in the
Response disputes its liability for all or part of the Claimed Amount, the
Indemnifying Party and the Buyer Indemnified Party shall follow the procedures
set forth in Section 11.09 for the resolution of such dispute.
SECTION 10.05 Limitation of Indemnification. Notwithstanding
-----------------------------
anything to the contrary herein, (i) the aggregate liability of the Founders for
Damages under this Article X shall be limited to the Escrow Shares, (ii) the
Founders shall not be liable under this Article X unless and until the aggregate
Damages for which they would otherwise be liable exceed $25,000 (at which point
the Founders shall become liable only for Damages in excess of $25,000), and
(iii) each Founder shall only be liable for his pro rata share of the Escrow
Shares.
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<PAGE>
SECTION 10.06 Remedies. Absent a showing of fraud, the rights and
--------
remedies in this Article X shall be exclusive as to any Damages incurred by a
party under this Agreement; provided however, that nothing herein shall preclude
-------- -------
a party from exercising its rights under this Agreement and applicable law to
available equitable remedies, including without limitation specific performance
and injunctions.
ARTICLE XI
GENERAL PROVISIONS
------------------
SECTION 11.01 Notices. All notices and other communications under or
-------
in connection with this Agreement shall be in writing and shall be deemed given
(a) if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three Business Days after being mailed, or (c) if given by telecopy, upon
confirmation of transmission by telecopy (or, if such confirmation does not
occur during normal business hours on a Business Day then on the next Business
Day), in each case to the parties at the following addresses:
(a) If to Buyer or Newco, addressed to:
L90, Inc.
2020 Santa Monica Boulevard
Suite 400
Santa Monica, California 90404
Telecopy: (310) 315-1199
Attention: Chief Financial Officer
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street, 23rd Floor
Los Angeles, California 90071
Telecopy: (213) 627-0705
Attention: Robert A. Miller, Jr., Esq.
(b) If to the Company, addressed to:
webMillion.com, Inc.
1770 West State Street
Suite 318
Boise, Idaho 83702
Telecopy: (208) 938-0741
Attention: Mr. Anthony Hauser
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<PAGE>
With a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071-2007
Telecopy: (213) 891-8763
Attention: W. Alex Voxman, Esq.
And copy to:
Hall, Farley, Oberrecht & Blanton, P.A.
702 West Idaho Street, Suite 700
Boise, Idaho 83702
Telecopy: (208) 395-8585
Attention: Michael J. McDonagh, Esq.
SECTION 11.02 Severability. If any term or provision of this
------------
Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
such term or provision in any other jurisdiction, the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
SECTION 11.03 Entire Agreement. This Agreement, including the annexes
----------------
and schedules attached hereto and other documents referred to herein, and the
Confidentiality Agreement, contain the entire understanding of the parties
hereto in respect of their subject matter and supersede all prior and
contemporaneous agreements and understandings, oral and written, among the
parties with respect to such subject matter.
SECTION 11.04 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of each of the parties hereto and their respective
successors, heirs and assigns; provided, however, that no party may assign
-------- -------
either this Agreement or any of its rights, interests or obligations hereunder
in whole or in part without the prior written consent of the other parties
hereto (other than to the Surviving Corporation as a result of the Merger), and
any such transfer or assignment without said consent shall be void, ab initio.
---------
Subject to the immediately preceding sentence, this Agreement is not intended to
benefit, and shall not run to the benefit of or be enforceable by, any other
person or entity other than the parties hereto and their permitted successors
and assigns.
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SECTION 11.05 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 11.06 Schedules and Annexes. The schedules and annexes to
---------------------
this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
SECTION 11.07 Construction.
------------
(a) The article, section and sub headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
SECTION 11.08 Waiver of Jury Trial. Each party hereto hereby
--------------------
knowingly, voluntarily and intentionally waives any right it may have to a jury
trial in any legal proceeding which may be hereafter instituted by any party
hereto to assert a claim arising out of or relating to this Agreement or any
other agreement, instrument or document contemplated hereby or thereby.
SECTION 11.09 Arbitration.
-----------
(a) Any controversy, claim or dispute involving the parties (or
their affiliated persons) directly or indirectly concerning this Agreement or
the subject matter hereof, including any issues and matters arising under the
federal and state securities laws and questions concerning the scope and
applicability of this Section 11.09 shall be finally settled by arbitration held
in Los Angeles, California, in accordance with the rules of commercial
arbitration then followed by the American Arbitration Association or any
successor to the functions thereof. The arbitrator shall have the right and
authority to determine how his decision or determination as to each issue or
matter in dispute may be implemented or enforced. Any decision or award of the
arbitrator shall be final and conclusive on the parties to this Agreement and
their respective affiliates, and there shall be no appeal therefrom other than
from gross negligence or willful misconduct.
(b) The parties hereto agree that any action to compel
arbitration pursuant to this Agreement may be brought in the appropriate Los
Angeles, California, court and in connection with such action to compel the laws
of the State of
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California shall control. Application may also be made to such court for
confirmation of any decision or award of the arbitrator, for an order of the
enforcement and for any other remedies which may be necessary to effectuate such
decision or award. The parties hereto hereby consent to the jurisdiction of the
arbitrator and the exclusive jurisdiction of such court and waive any objection
to the jurisdiction of such arbitrator and court.
(c) Notwithstanding the foregoing in this Section 11.09,
however, nothing contained herein shall require arbitration of any issue arising
under this Agreement for which injunctive relief is successfully sought by any
party hereto.
SECTION 11.10 Governing Law. Except with respect to the effects of
-------------
the Merger (which shall be governed by Idaho Law), this Agreement shall be
governed by and construed in accordance with the internal laws (and not the law
of conflicts) of the State of California.
SECTION 11.11 Remedies. The rights and remedies of each party under
--------
this Agreement are in addition to all other rights and remedies, at law or in
equity, that such party may have against the other parties.
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IN WITNESS WHEREOF, the parties have duly executed, or have caused
this Agreement to be duly executed on their behalf, as of the day and year first
above written.
WM ACQUISITION CORP.,
an Idaho corporation
By: /s/[ILLEGIBLE]^^
------------------------
An Authorized Officer
L90, INC.,
A Delaware corporation
By: /s/[ILLEGIBLE]^^
------------------------
An Authorized Officer
WEBMILLION.COM, INC.,
an Idaho corporation
By: /s/[ILLEGIBLE]^^
------------------------
An Authorized Officer
FOUNDERS:
/s/ Anthony Hauser
----------------------------
Anthony Hauser
/s/ Kenneth Adcock
----------------------------
Kenneth Adcock
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