SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported):
September 17, 1998 (September 9, 1998)
X-ceed, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-13049 13-3006788
(Commission File Number) (I.R.S. Employer Identification No.)
488 Madison Avenue, New York, New York 10022
(Address and zip code of principal executive offices)
212-753-5511
(Registrant's telephone Number)
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 9, 1998, X-ceed, Inc. (the "Company" or "X-ceed")
finalized a Plan of Merger with Mercury Seven, Inc. ("Mercury"), a privately
held Delaware corporation specializing in development of Internet based
businesses.
Under the Plan of Merger, Mercury was merged into a newly
created Delaware subsidiary of the Company, X-ceed Merger Inc. Upon completion
of the merger, X-ceed Merger Inc.'s name was changed to Mercury Seven, Inc., and
as such, Mercury Seven, Inc. will operate as a wholly owned subsidiary of the
Company. The Plan of Merger was structured as a reorganization under the
provisions of Section 368 of the Internal Revenue Code of 1986, as Amended.
As consideration for the transaction, the principal
shareholders of Mercury received in exchange for their stock ownership of
Mercury in the aggregate 1,073,333 shares of restricted common stock of X-ceed
having a market value of approximately $8,050,000, together with cash
consideration of $1,500,000. Pursuant to employment agreements with the Company,
the principal shareholders of Mercury will continue to direct the daily affairs
of Mercury.
Mercury is engaged in the business of Internet consulting,
marketing and development in creating Internet-based businesses. Among its
clients are Madison Square Garden, the New York Rangers, Arthur Anderson & Co.,
Radio City Music Hall and the Hearst Corporation. Through its ChannelSeven
division, it offers cross-marketing navigational technologies and centralized
media advertising management to connect Internet professional with valuable
resources and services. Its clients include Netscape, Doubleclick, GTE Superpage
and the @Home Network.
On September 14, 1998, the Company completed a Plan of Merger
with Zabit and Associates, Inc. ("Zabit"), a privately owned California
corporation engaged in corporate communications. It is intended that the Merger
qualify as a tax-free reorganization with the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
The Company paid a total consideration in exchange for all of
the issued and outstanding Zabit common stock consisting of 2,258,724 shares of
restricted common stock of X-ceed and the issuance of notes to the two principal
shareholders of Zabit: (i) two notes totaling $4.8 million due March 15, 1999
together with interest at the Prime Rate per annum and (ii) two notes totaling
$1,930,208 due on or before September 14, 2002 together with interest at 7% per
annum. In a separate transaction, the Company purchased all of the issued and
outstanding common stock of Water Street Design Group, Inc., a company engaged
in design and production and affiliated with Zabit, for $2 million in cash. The
Company purchased in a separate transaction the trade names and trademark of
Zabit for $3.2 million in cash. The total consideration paid in connection with
all of the foregoing transactions amounted to approximately $29.5 million.
Zabit was founded by William N. Zabit and Joyce Wesolowski in
1993. Since that time, Zabit has been engaged in providing creative solutions to
corporate communications, both internally and externally. Zabit, which is
headquartered in Sausalito, California, presently employs
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approximately 70 employees and maintains regional centers in Sausalito, Chicago
and New York. Zabit will operate as a separate division of X-ceed.
Zabit's present clients include Aetna Life Insurance Company,
Advanced Micro Devices, Inc., Cirrus Logic Inc., Dell Computer Inc., Electronic
Data Systems, Inc., Fidelity Investments Institutional Services Company, Inc.,
Fireman's Fund Insurance Company and numerous other major corporate clients.
As part of the transaction, William N. Zabit entered into a
four-year employment agreement with X-ceed. Under the agreement, Mr. Zabit, who
will receive a base salary of $400,000 annually, has now been named president
and chief operating officer of X-ceed and has been appointed a director of the
Company until the Company's next annual meeting. Mr. Bradley K. Nelson has also
entered into a four-year employment agreement with X-ceed. Mr. Nelson will
receive a base salary of $300,000 per year and has been named president of the
Zabit division.
As a condition to closing both the Mercury Seven and Zabit
mergers, the Board of Directors obtained from an independent advisory firm
fairness opinions concluding that both transactions were fair from a financial
point of view to the stockholders of X-ceed and X-ceed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
X-ceed, Inc.
(Registrant)
By: /s/ Werner Haase
Werner Haase, President
DATED: September 17, 1998
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EXHIBITS
2(e) Agreement and Plan of Merger by and among X-ceed, Inc., X-ceed Merger
Inc., Mercury Seven, Inc., and the Shareholders of Mercury Seven, Inc.
2(f) Certificate of Merger of Mercury Seven, Inc. into X-ceed Merger Inc.
2(g) Agreement and Plan of Merger among X-ceed, Inc. Zabit & Associates,
Inc. and the Shareholders Named Therein
2(h) Certificate of Merger of Zabit and Associates, Inc. into X-ceed, Inc.
10(j) Stock Purchase Agreement among X-ceed, Inc., William N. Zabit and Joyce
M. Wesolowski
10(k) Purchase Agreement by and among X-ceed, Inc., William N. Zabit and
Joyce M. Wesolowski
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated September 1, 1998, by and
among X-CEED, INC., a Delaware corporation ("X-ceed"), X-CEED MERGER INC., a
Delaware corporation ("X-ceed Sub"), MERCURY SEVEN, INC., a Delaware corporation
("Mercury"), and KEVIN LABICK, ROBERT RISSE, ALAN GINSBERG and MARA LIPACIS
(each, a "Shareholder" and collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, X-ceed owns beneficially and of record all of the
issued and outstanding shares of capital stock of X-ceed Sub; and
WHEREAS, the Shareholders own beneficially and of record all
of the issued and outstanding shares of capital stock Mercury; and
WHEREAS, Mercury desires to merge with and into X-ceed Sub,
and X-ceed and X-ceed Sub desire to have Mercury merge with and into X-ceed Sub,
with X-ceed Sub being the surviving corporation, in consideration of the
issuance by X-ceed of shares of its common stock and payment by X-ceed of
certain cash consideration in exchange for all of the shares of common stock of
Mercury outstanding at the effective time of the merger; and
WHEREAS, for federal income tax purposes it is intended that
the foregoing merger transaction shall qualify as a reorganization under the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), all upon the terms and subject to the conditions set forth herein and
in accordance with the General Corporation Law of the State of Delaware, as the
same may be amended from time to time (the "GCL").
NOW, THEREFORE, in consideration of the premises and the
mutual agreements and covenants hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER
(a) Merger; Surviving Corporation. In accordance with the provisions of
this Agreement and the GCL, at the Effective Time (as defined in Section 1(e)
hereof), Mercury shall be merged with and into X-ceed Sub (the "Merger"), and
X-ceed Sub shall be the surviving corporation (hereinafter sometimes called the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Delaware, under the name Mercury Seven, Inc. At the
Effective Time, the separate existence of Mercury shall cease. All properties,
franchises and rights belonging to Mercury and X-ceed Sub, by virtue of the
Merger and without further act or deed, shall be vested in the Surviving
Corporation, which shall be responsible for all the liabilities and obligations
of each of X-ceed Sub and Mercury, subject to, with respect to the liabilities
and obligations of Mercury, the provisions of Sections 2(c) and 8(a) of this
Agreement. The Merger will otherwise also have the effects set forth in Section
259 of the GCL.
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It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code and that this
Agreement shall constitute a "plan of reorganization" for purposes of the Code.
(b) Certificate of Incorporation. The Certificate of Incorporation of
X-ceed Sub in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until altered or
amended as provided by law or by such Certificate of Incorporation.
(c) By-laws. The By-laws of X-ceed Sub in effect immediately prior to
the Effective Time shall be the By-laws of the Surviving Corporation until
altered, amended or repealed as provided by law, by the Certificate of
Incorporation of the Surviving Corporation or by such Bylaws.
(d) Directors and Officers. Mercury shall cause the directors of
Mercury to tender their resignations as directors, effective as of the Effective
Time, and X-ceed, as the sole stockholder of the Surviving Corporation, shall
designate and elect, as of the Effective Time, a new Board of Directors of the
Surviving Corporation, which shall consist of the individuals identified on
Schedule 1(d). From and after the Effective Time, the Board of Directors of the
Surviving Corporation shall be composed of two members designated by the
pre-Merger Mercury Board of Directors and one member designated by the X-ceed
Board of Directors. Commencing at the Effective Time, the directors and officers
of the Surviving Corporation shall be as set forth on Schedule 1(d). Each of the
directors and officers of the Surviving Corporation shall hold their respective
offices in accordance with the By-laws of the Surviving Corporation.
(e) Effective Time. The Merger shall become effective at the time of
filing of a certificate of merger in the form attached as Exhibit A to this
Agreement with the Secretary of State of the State of Delaware in accordance
with the provisions of Section 251 of the GCL (the "Certificate of Merger"). The
Certificate of Merger shall be filed immediately after fulfillment of the
conditions set forth in Sections 6 and 7 hereof. The date and time when the
Merger shall become effective are referred to herein as the "Effective Time."
(f) Conversion of Securities.
(1) Each holder of a share of Common Stock, par value $.01 per
share, of Mercury ("Mercury Common Stock") issued and outstanding immediately
prior to the Effective Time (except for shares of Mercury Common Stock then held
in the treasury of Mercury, which shares shall be canceled, and, if appraisal
rights are available under the GCL, other than shares of Mercury Common Stock as
to which a demand for appraisal shall have been duly perfected in accordance
with the GCL) shall, by virtue of the Merger and without any action on the part
of such holder upon payment of the Cash Consideration (as hereinafter defined)
in the amount and to the holders of the Mercury Common Stock as set forth on
Schedule 1(f)(1)(i), receive that number of shares of Common Stock, par value
$.01 per share, of X-ceed ("X-ceed Common Shares") equal to the Stock
Consideration (as hereinafter defined) multiplied by the Stock Consideration
percentage of such holder as reflected on Schedule 1(f)(1)(ii).
(2) "Stock Consideration" shall mean 1,073,333 of X-ceed
Common Shares (the "Stock Consideration"). "Cash Consideration" shall mean cash
in an aggregate amount equal to one million five hundred thousand ($1,500,000)
dollars.
(3) Each issued and outstanding share of Common Stock of
X-ceed Sub ("X-ceed Sub Common Stock") issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into and become one validly issued,
fully paid and nonassessable share of Common Stock of the Surviving Corporation.
Each certificate evidencing ownership of X-ceed Sub Common Stock shall continue
to evidence ownership of the same number of shares of the same class of capital
stock of the Surviving Corporation. From and after the Effective Time, each
outstanding certificate theretofore representing X-ceed Sub Common Stock shall
be deemed for all purposes to evidence ownership of and to represent the number
of shares of Common Stock of the Surviving Corporation into which such X-ceed
Sub Common Stock shall have been converted.
(4) As of the Effective Time, the holders of certificates
representing shares of Mercury Common Stock shall cease to have any rights as
stockholders of Mercury, except such rights, if any, as they may have pursuant
to the GCL, and, except as otherwise expressly set forth herein, their sole
right shall be the right to receive X-ceed Common Shares and the Cash
Consideration in accordance with the provisions of this Agreement.
(g) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, but subject to the availability of appraisal rights under Section
262 of the GCL, shares of Mercury Common Stock issued and outstanding
immediately prior to the Effective Time and held by stockholders who have not
voted such shares in favor of the approval and adoption of the Merger and who
shall have delivered a written demand for appraisal of such shares in the manner
(including the time of delivery) provided in Section 262 of the GCL (the
"Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the consideration provided in Section 1(f) of this Agreement,
but shall be entitled to receive such consideration as shall be determined
pursuant to Section 262 of the GCL; provided, however, that if such holder shall
have failed to perfect or shall have effectively withdrawn or lost his right to
appraisal and payment under the GCL, whether before or after the Effective Time,
such holder's shares of Mercury Common Stock shall thereupon be deemed to have
been converted, as of the Effective Time, into the right to receive the
consideration provided for in Section 1(f) hereof, without any interest thereon.
Each holder of Dissenting Shares who becomes entitled pursuant to the provisions
of the GCL to payment of the appraised value of such Dissenting Shares shall
receive payment therefor from the Surviving Corporation promptly after the value
thereof shall have been agreed upon or finally determined pursuant to the
provisions of the GCL.
(h) Surrender and Payment. X-ceed shall, at the Effective Time and upon
surrender of a Mercury Certificate (hereinafter defined), deliver to each holder
of record of one or more certificates representing Mercury Common Stock
(collectively, the "Mercury Certificates") that has been converted into X-ceed
Common Shares as set forth in Section 1(f), (1) a certificate or certificates
representing the number of X-ceed Common Shares into which the shares
represented by the Mercury Certificate so surrendered shall have been converted
as provided in Section 1(f), and (2) cash in an amount equal to the Per Share
Cash Consideration multiplied by the number of shares
of Mercury Common Stock represented by such Mercury Certificate, by certified or
bank check payable to the order of the holder of such Mercury Certificate (or
his or her designee) or by wire transfer of immediately available funds to a
deposit account designated by such holder. If any X-ceed Common Shares are to be
issued in a name other than that in which a Mercury Certificate so surrendered
is then registered, it shall be a condition of such exchange that the Mercury
Certificate surrendered be accompanied by payment of any applicable transfer
taxes and documents required for a valid transfer in the reasonable judgment of
X-ceed and its counsel. From and after the Effective Time, until so surrendered,
each Mercury Certificate shall be deemed for all corporate purposes, except as
set forth below, to evidence the number of X-ceed Common Shares into which the
Mercury Common Stock represented by such Mercury Certificate shall have been
converted. Unless and until any Mercury Certificate shall be so surrendered, the
holder of such Mercury Certificate shall have no right to vote or to receive any
dividends or other distributions made to holders of record of X-ceed Common
Shares after the Effective Time. Upon surrender of a Mercury Certificate, the
holder of record thereof shall receive, together with certificates representing
X-ceed Common Shares to which he shall be entitled in accordance with Section
1(f), all dividends and other distributions which shall have theretofore been
paid or made to holders of record of X-ceed Common Shares after the Effective
Time with respect to such shares. X-ceed shall be authorized to deliver
certificates for X-ceed Common Shares attributable to any Mercury Certificate
theretofore issued which has been lost or destroyed upon receipt of satisfactory
evidence of ownership of the shares of Mercury Common Stock formerly represented
thereby and of appropriate indemnification of X-ceed. Schedule A annexed hereto
sets forth each holder of record of Mercury Common Stock, the number of shares
of Mercury Common Stock owned by such holder, and the Mercury Certificate(s)
representing the shares of Mercury Common Stock owned by such holder.
(i) Fractional Shares. No fractional shares shall be issued by X-ceed
in the Merger. Each fractional interest in an X-ceed Common Share which would
otherwise be issued as a result of the Merger shall be rounded to the nearest
whole X-ceed Common Share.
(j) No Further Transfers. At the Effective Time, the stock transfer
books of Mercury shall be closed, and no further transfers of Mercury Common
Stock shall thereafter be made or be effective.
2. Representations and Warranties of Mercury and the Shareholders. Mercury and
the Shareholders, severally and solely with respect to himself and itself (in
the case of all matters addressed in this Section 2 (other than the statements
relating to title of Mercury Common Stock) to the Shareholders' knowledge),
hereby represent, warrant and agree with X-ceed as follows:
(a) Corporate.
(1) Mercury is a corporation duly organized, validly existing
and in good standing under and by virtue of the laws of its state of
incorporation. Mercury is qualified to do business as a foreign corporation in
such other states in which the ownership of its respective assets or the nature
and conduct of its business requires such qualification and which are set forth
in Schedule 2(a)(1).
(2) Mercury has the power to own its properties and to carry
on its business as and where such business is now conducted. Mercury does not
have any equity interest in any other corporation, partnership, joint venture or
association or control, directly or indirectly, any other
entity. All of the issued and outstanding shares of capital stock of Mercury has
been duly authorized and validly issued, is fully paid and nonassessable, was
not issued in violation of or subject to any preemptive or similar rights and,
except as set forth on Schedule 2(a)(4), there are no other existing outstanding
rights, warrants or options to acquire, or instruments convertible into or
exchangeable for or agreements or understandings with respect to the sale or
issuance of, any other shares of capital stock or other equity interests in
Mercury.
(3) The Shareholders own all of the issued and outstanding
capital stock of Mercury as set forth on Schedule A and all of such shares are
duly authorized, validly issued, fully paid and nonassessable. All of such
shares of Mercury Common Stock are owned free and clear of all liens, claims,
charges, encumbrances, security agreements, restrictive agreements and
assessments and are not subject to any restrictions with respect to
transferability.
(4) The authorized capital stock of Mercury consists of
3,000,000 shares of common stock, $.01 par value, of which 2,000,000 shares are
presently issued and outstanding. There are no preemptive rights on the part of
any holder of any class of securities of Mercury and no options, warrants,
conversion or other rights, agreements or commitments of any kind obligating
Mercury, contingently or otherwise, to issue or sell any shares of its capital
stock of any class or any securities convertible into or exchangeable for any
such shares and no authorization therefor has been given, except as set forth in
Schedule 2(a)(4).
(5) This Agreement has been duly executed and delivered by the
Shareholders and Mercury and constitutes the legal, valid and binding obligation
of the Shareholders and Mercury, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the rights and remedies of creditors generally, and by
general principles of equity. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate or other action on
the part of the Shareholders and Mercury, and no other corporate or other
proceedings on their part are necessary to authorize this Agreement.
(b) Financial.
(1) The unaudited financial statements of Mercury consisting
of a balance sheet and income statement for the twelve months ended December 31,
1997 (hereinafter collectively referred to as the "1997 Financial Information"),
to be delivered to X-ceed pursuant to Section 12(b) hereof, will be complete and
correct in all material respects and will present fairly in all material
respects the gross revenues and net income before interest, taxes and
amortization, hereinafter defined as "Net Income from Operations," of Mercury as
of such date.
(2) Except as set forth in Schedule 2(b)(1), the unaudited
financial statements consisting of a balance sheet and income statements of
Mercury for the six (6) months ended June 30, 1998 hereinafter referred to as
the "1998 Financial Information," and previously delivered to X-ceed and
attached hereto as Exhibit 2(b)(2), are complete and correct in all material
respects and present fairly in all material respects the gross revenues and Net
Income from Operations of Mercury as of such date and for the six months then
ended, respectively.
(3) Except as set forth in Schedule 2(b)(1), since June 30,
1998, the business of Mercury has been carried on in the ordinary course in
substantially the same manner as prior to that date, and there has not been:
(i) any material adverse change (as hereinafter
defined) in the financial condition or in the operations or the business of
Mercury from that shown on the 1997 Financial Information or the 1998 Financial
Information, or any event which has occurred that is reasonably likely to result
in such a material adverse change. "Material Adverse Effect" or "Material
Adverse Change" shall mean any significant and substantial adverse effect or
change in the condition (financial or other), business, results of operations,
assets, liabilities, or operations or any event, condition, or state of facts
which is reasonable likely to, with the passage of time, constitute a "Material
Adverse Effect" or "Material Adverse Change";
(ii) any damages, destruction or loss, whether
covered by insurance or not, which have materially and adversely affected the
business, property or assets of Mercury;
(iii) any declaration, setting aside or payment of
any dividend, or any distribution with respect to the capital stock of Mercury
or any direct or indirect redemption, purchase or other acquisition by Mercury
of any such stock;
(iv) any increase in the compensation payable or to
become payable by Mercury to directors, officers or employees, other than as set
forth on Schedule 2(b)(3)(iv) or as mandated by law with respect to minimum
wages; or
(v) any other event or condition of any character,
not in the ordinary course of business, that has materially and adversely
affected the results of operations or business or financial condition of
Mercury.
(c) Undisclosed Liabilities.
(1) Except as set forth on Schedule 2(c), Mercury has no
liabilities or obligations, either accrued, absolute, contingent or otherwise,
except:
(i) to the extent reflected or reserved against in
the 1997 Financial Information or the 1998 Financial Information, and not
heretofore paid or discharged; and
(ii) those incurred in or as a result of the normal
and ordinary course of business since June 30, 1998, all of which have been
consistent with past practices and none of which (x) arise out of, relate to, is
in the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement or violation of law or (y) individually or in the aggregate
is material to the business, properties, financial condition or results, of
operation of Mercury.
(2) Neither Mercury nor the Shareholders are aware of any
reasonable basis for any present or future action, suit, proceeding, hearing,
investigation charge, complaint, demand or claim against Mercury or any
liability of any nature in any material amount arising out of or relating
to facts occurring prior to the Closing not fully set forth in either of the
1997 Financial Information or the 1998 Financial Information or incurred in the
ordinary course of business since January 1, 1998.
(d) Tax Returns.
(1) Mercury has filed with the appropriate governmental
agencies all tax returns (or filed requests for extensions to file) required to
be filed by it or with respect to its business ("such returns") and has paid, or
made provision for the payment of, all taxes as well as penalties and interest
related thereto, if any, which are due pursuant to said tax returns, except
taxes which have not yet accrued or otherwise become due, or for which adequate
provision has been made on the books of Mercury.
(2) None of such returns has been examined and settled, and no
waivers of statutes of limitation have been given or requested.
(3) All such returns and reports have been prepared for the
year 1997, and all federal, state, city and foreign income, profits, franchise,
sales, use, occupation, property, excise or other taxes due in connection with
Mercury's business for the year 1997 has been fully paid or accrued or
adequately reserved for in the 1997 Financial Information.
(4) No deficiency or assessment with respect to or proposed
adjustment of Mercury's Federal, state, county or local taxes is pending or, to
the best of Mercury's knowledge, threatened. There are no tax liens, whether
imposed by any federal, state, county or local taxing authority, outstanding
against the assets, properties or businesses of Mercury, other than for taxes
not yet delinquent.
(e) Title to Property.
(1) Mercury does not lease any real or personal property as
lessee, except as set forth in Schedule 2(e)(1). Each of these leases (the
"Mercury Leases") is in good standing, valid, binding, and in full force and
effect and has not been modified. Mercury is not in default in any material
respect under any of the Mercury Leases and has not received any notice of its
default under any of the Mercury Leases, and Mercury has not given any notice of
any, and, to the best of the Shareholders' knowledge, there is no, default in
any material respect by any other party under any of the Mercury Leases, nor has
any event occurred which, with notice or the passage of time, or both, would
constitute a default in any material respect by any other party under any of the
Mercury Leases. Except as set forth on Schedule 2(e)(1), Mercury's rights in the
property covered under the Mercury Leases (including any improvements and
appurtenances thereto) are paramount to the rights of any other person or entity
other than the lessors under the Mercury Leases. No consent or approval of any
third party is required with respect to such Mercury Leases in order to avoid a
default in any material respect thereunder by reason of the transactions
contemplated by this Agreement, except as set forth on Schedule 2(e)(2). Mercury
has received no notices other than periodic rent, common area maintenance and
other operating expense bills from the landlord under each lease other than as
described in Schedule 2(e)(2).
(2) All real property in which Mercury has an ownership or
leasehold interest, and all tangible personal property owned by Mercury
(collectively, the "Mercury Properties") is in all material respects in good
operating condition and repair and in all material respects conforms to all
applicable laws, including without limitation building and zoning laws,
statutes, ordinances or regulations, and no notice of any violation of such
matters relating to the business, property or assets of Mercury has been
received by Mercury. Except as set forth on Schedule 2(e)(1) or (2), none of the
premises owned or leased by Mercury are in need of maintenance or repairs except
for reasonable wear and tear and ordinary routine maintenance and repairs that
are not material in nature or cost.
(3) Neither the whole nor any portion of any of Mercury
Properties has been condemned or otherwise taken by a public authority, nor do
the Shareholders know or have any reasonable grounds to believe that any such
condemnation or taking is threatened or contemplated.
(f) Contracts and Commitments. Except as set forth on attached Schedule 2(f):
(1) Mercury has no written or oral contracts or commitments
involving a consideration in excess of $10,000.
(2) Mercury has not received any written notice under any
contract whether express or implied, between the customers or clients of Mercury
and Mercury that Mercury is in default in respect of such contract or that the
services to be provided by Mercury under the contract fail to comply with the
contract or that any material contracts have been terminated or that Mercury has
received notice under any contract that its customers or clients intend to
terminate any contract or materially reduce purchases for Mercury's services.
(3) Mercury has not given any revocable or irrevocable power
of attorney to any person, firm or corporation for any purpose whatsoever.
(4) Mercury is not restricted by agreement from carrying
on its business in any state.
(5) No director, officer or stockholder of Mercury, or member
of the family of any such person, or any corporation, partnership, trust or
other entity in which any such person, or any member of the family of any such
person, or to the best knowledge of Mercury, any employee, is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is an entity who is a competitor, customer, supplier or other
entity, who, during the past 12 months, has been a party to any transaction with
Mercury, including any contract, agreement or other arrangement providing for
the employment of (exclusive of Mercury's officers), furnishing of services by,
rental of real or personal property from or otherwise requiring payments to any
such person or firm.
(6) Mercury is not in default, nor is there any reasonable
basis known to Mercury for any claim of default, under any contracts or
commitments made or obligations owed by it, which default has had or is
reasonably likely to have a Material Adverse Effect on Mercury. Mercury has no
present expectation or intention of not fully performing all its obligations
under any lease,
contract or other agreement to which it is a party, and Mercury has no knowledge
of any breach or anticipated breach in any material respect by the other party
to any lease, contract or commitment to which Mercury is a party. Mercury is in
full compliance with all of the terms and provisions of its Charter and By-Laws,
as amended, except as otherwise set forth herein. No consent or approval of any
third party is required with respect to such contract in order to avoid a
default thereunder by reason of the transactions contemplated by this Agreement.
(7) All accounts receivable of Mercury as at June 30, 1998 are
current and collectible in the ordinary course of business consistent with past
practices of Mercury, except to the extent reserved against in the 1997
Financial Information or the 1998 Financial Information.
(g) Bank Accounts. Set forth in Schedule 2(g) are the names and
addresses of all banks in which Mercury has accounts and the names of persons
authorized to sign checks, drafts or other instruments drawn thereon.
(h) Employee Relations.
(1) Annexed hereto as Schedule 2(h)(1) is a true and complete
payroll roster of all employees of Mercury for the six months ending June 30,
1998 showing the rate of pay for each such person entitled to receive
compensation from Mercury, and the gross payments made to each such person for
the period set forth above. No increases in such salaries, other than as set
forth on Schedule 2(h)(1)(a), have been given since June 30, 1998.
(2) (i) Mercury is not a party to any collective bargaining
agreement covering or relating to any of its employees. Mercury is not required
to recognize and has not received a demand for recognition by any collective
bargaining representative;
(ii) Mercury is not a party to any contract with any
of its employees, agents, consultants, officers, salesmen, sales
representatives, distributors or dealers that is not cancelable by Mercury
without penalty or premium on not more than thirty days' notice except as set
forth in Schedule 2(h)(2)(ii);
(iii) Mercury is not a party to any employment
agreement or consulting agreement, except for the employment agreement with Alan
Ginsberg, a true and correct copy of which has been provided to X-ceed; and
(iv) Mercury has not promulgated any policy or
entered into any agreements relating to the payment of severance pay to
employees whose employment is terminated or suspended, voluntarily or otherwise.
(3) Except as set forth in the schedules attached hereto,
Mercury (i) has complied in all material respects with all applicable laws,
rules or regulations relating to employment, including those relating to wages,
hours, collective bargaining and the withholding and payment of taxes and
contributions, and (ii) has complied in all material respects with the National
Labor Relations Act, as amended, Title VII of the Civil Rights Act of 1964, as
amended, the Civil Rights Act of 1991, the Occupational Safety and Health Act,
Executive Order 11246, the regulations under such acts and all other Federal and
state laws relating to the employment of labor, including any provisions thereof
relating to discrimination or harassment. Mercury has, and will have at the
Closing Date, withheld all amounts required by law or agreement to be withheld
from the wages or salaries of its employees and there are no arrearages of
wages, payments under any pension or insurance plan or any other benefit, or any
tax or penalty for failure to comply with the foregoing owed by all of them with
respect to employees which are not either accrued or adequately reserved for in
the unaudited financial statements or set forth on Schedule 2(h)(3). There are
no material controversies pending or, to Mercury's knowledge, threatened,
between Mercury and (A) any of its employees, (B) any labor unions or other
collective bargaining agents representing or purporting to represent its
employees, or (C) any of the Shareholders.
(4) Mercury has not promulgated any bonus, profit-sharing,
retirement, stock purchase, deferred compensation, medical, hospitalization,
life insurance or other similar plan providing benefits for its employees and
Mercury has not announced the prospective promulgation thereof except as set
forth in Schedule 2(h)(4) or accrued or adequately reserved for in the 1997
Financial Information or the 1998 Financial Information. There is no unfunded
past service credit liability or any other liability with respect to any such
plans other than as set forth on Schedule 2(h)(4). No reportable event as
defined in Title IV of the Employee Retirement Income Security Act of 1974, as
amended by the Multi Employer Pension Plan Amendments Act of 1980, has occurred
with respect to any such plan subject to the minimum funding requirement of
Section 412 of the Internal Revenue Code of 1986, as amended.
(i) No Breach of Statute or Contract. Neither the execution and
delivery of this Agreement, nor compliance with the terms and provisions of this
Agreement on the part of Mercury or the Shareholders, will (1) violate in any
material respect any statute, license, or regulation of any governmental
authority, domestic or foreign, (2) result in the default in any material
respect by Mercury or any of the Shareholders of any judgment, order, writ,
decree, rule or regulation of any court or administrative agency, (3) breach,
conflict with, or result in a breach in any material respect of any of the
terms, conditions or provisions of any material agreement or instrument to which
either Mercury or the Shareholders is a party, or by which any of them is or may
be bound, or constitute a default in any material respect or require any notice
thereunder, (4) violate any provision of Mercury's certificate of incorporation
or By-Laws, (5) result in the creation or imposition of any claim, lien, charge
or encumbrance in any material respect of any nature whatsoever upon, or (6)
give to others any claim, interest or rights, including rights of termination,
modification, acceleration, or cancellation in, or with respect to, any of their
material property, assets, contracts, licenses or businesses. The conduct of
Mercury's business does not violate in any material respect any law or
regulation applicable to such business. Mercury has complied in all material
respects with all laws, rules, regulations and orders applicable to its
business, operations, properties, assets, products and services, and Mercury has
all necessary permits, licenses and other authorizations required to conduct its
business in all material respects as conducted and as proposed to be conducted.
There is no existing law, rule, regulation or order, and Mercury is not aware of
any proposed law, rule, regulation or order, whether Federal or state, which
would prohibit or materially restrict Mercury from, or otherwise materially
adversely affect Mercury in, conducting its business in any jurisdiction in
which it is now conducting business.
(j) No Litigation. Except as set forth in Schedule 2(j), there is no
suit, action or legal, administrative, arbitration or other proceeding or
governmental investigation, pending or to the best of Shareholders' knowledge
threatened against Mercury. Mercury has not received any written opinion or
memorandum or written legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage which may be
material to its business, financial condition, operations, property or affairs.
Mercury is not in default with respect to any order, writ, injunction or decree
known to or served upon Mercury of any court or of any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by Mercury
pending or threatened against others. Mercury and Shareholders have no actual
knowledge of any unasserted claim, the assertion of which is likely and that, if
asserted, will be for legal or equitable relief that, if granted, would have a
Material Adverse Effect on Mercury. No injunction, stay or restraining order is
in effect against Mercury prohibiting the consummation of any of the
transactions contemplated by this Agreement.
(k) Patents and Trademarks. Schedule 2(k) correctly sets forth a list
of all letters patent, patent applications, inventions upon which patent
applications have not yet been filed, trade names, trademarks, trademark
registrations and applications, copyrights, copyright registrations and
applications, both domestic and foreign, presently owned, possessed, used or
held by Mercury and, except as otherwise indicated in such Schedule, Mercury
owns the entire right, title and interest in and to the same. Such Schedule also
correctly sets forth all patents, patent applications, inventions upon which
patent applications have not yet been filed, trade names, trademarks, trademark
registration and applications, and licenses, both domestic and foreign, which
materially relate to the businesses of Mercury, and which are owned or
controlled by any director, officer, stockholder or employee of Mercury. Such
Schedule also correctly sets forth a list of all licenses materially relating to
the business of Mercury granted to Mercury by others, and to others by Mercury.
Mercury has not received written notice of any pending or threatened challenges
regarding letters patent, patent applications, trade names, trademark
registrations and applications, copyrights, copyright registrations and
applications, or the licenses set forth in such Schedule 2(l), except as set
forth in said Schedule. Mercury has not received written notice that, its
business as heretofore carried on infringes in any material respect upon the
patents, trademarks, trade name rights, copyrights or publication rights of
others, except as set forth in said Schedule 2(l).
(l) Trademark Indemnification. Except as set forth in Schedule 2(l),
Mercury has not given any indemnification for, patent, trademark or copyright
infringement as to any equipment, materials or supplies manufactured, produced,
used or sold by it or with respect to services rendered by it.
(m) Insurance. Mercury holds policies in the amounts and for the
coverage set forth on Schedule 2(m), all of which policies are in full force and
effect, and which coverage is consistent with Mercury's past business practices
covering all of the insurance required to be maintained by it and which is
customary for businesses similar to Mercury. Except as disclosed on the Schedule
2(m) hereto, Mercury has received no written notice of any claims pending
against Mercury under any insurance policies currently in effect and covering
the property, business or employees of Mercury, and all premiums with respect to
the policies maintained by Mercury due and payable through the date hereof have
been paid by Mercury. Mercury has not been refused any insurance coverage sought
or applied for, and Mercury has no reason to believe that it will be unable to
renew its existing insurance coverage upon terms at least as favorable as those
presently in effect, other than possible increases in premiums that do not
result from any act or omission of Mercury. Set forth in Schedule 2(m) are all
insurance policies and bonds in force with respect to Mercury and the date on
which such policies were to be in force and the date on which such policies
expire.
(n) Loans and Advances. Mercury does not have any outstanding loans or
advances to any person and is not obligated to make any such loans or advances,
except, in each case, for advances to employees of Mercury in respect of
reimbursable business expenses anticipated to be incurred by them in connection
with their performance of services for Mercury or as set forth in Schedule 2(n)
annexed hereto. 3. Representations and Warranties of X-ceed. X-ceed represents
and warrants to the Shareholders and Mercury as follows:
(a) Corporate.
(1) X-ceed and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under and by virtue of the laws
of its states of incorporation. X-ceed and each of its subsidiaries is qualified
to do business as a foreign corporation in such other states in which the
ownership of its assets or the nature and conduct of its business requires such
qualification.
(2) X-ceed and each of its subsidiaries has the power to own
its properties and to carry on its businesses as and where such are now
conducted. X-ceed does not have any equity interest in any other corporation,
partnership, joint venture or association or control, directly or indirectly, of
any other entity except for its interests in the subsidiaries listed on Form
10-KSB (as hereinafter defined).
(3) The authorized capital stock of X-ceed consists of
30,000,000 shares of common stock, par value $.01 per share, of which 10,276,914
shares are presently outstanding immediately prior to the date hereof and Two
Million (2,000,000) shares of Preferred Stock, par value $.05 per share, of
which no shares of Preferred Stock are issued and outstanding. All of the issued
and outstanding shares of X-ceed's Common Stock are duly authorized, validly
issued, fully paid and non assessable. There are no preemptive rights on the
part of any holder of any class of securities of X-ceed or any of its
subsidiaries and no options, warrants, conversion or other rights, agreements,
or commitments of any kind obligating X-ceed or any of its subsidiaries,
contingently or otherwise, to issue or sell any shares of its capital stock of
any class or any securities convertible into or exchangeable for any such shares
and no authorization therefor has been given, except as set forth on Schedule
3(a)(3).
(4) This Agreement has been duly executed and delivered by
X-ceed and constitutes the legal, valid and binding obligation of X-ceed,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
rights and remedies of creditors generally, and by general principles of equity.
The execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporation action on the part of X-ceed, and no other corporate
proceedings on its part are necessary to authorize this Agreement.
(b) Financial.
(1) The audited balance sheet of X-ceed as of August 31, 1997,
the related audited statement of earnings and cash flows for the twelve months
ended August 31, 1997, the unaudited balance sheet of X-ceed as of May 31, 1998,
the related unaudited statement of earnings and cash flows for the nine months
ended May 31, 1998, labeled Schedule 3(b) (hereinafter collectively referred to
as the "X-ceed financial statements") and previously delivered to Mercury, are
complete and correct and present fairly the financial condition of X-ceed as of
such date, and the results of its operations for the periods then ended, in
conformity with generally accepted accounting principles applied on a basis
consistent with that of preceding periods.
(2) Since May 31, 1998, the business of X-ceed has been
carried on in the ordinary course in substantially the same manner as prior to
that date, and there has not been:
(i) any Material Adverse Change in the financial
condition or in the operations or the business of X-ceed from that shown on
X-ceed financial statements, or any event which has occurred that may result in
such a Material Adverse Change;
(ii) any damages, destruction or loss, whether
covered by insurance or not, which have materially and adversely affected the
business, property or assets of X-ceed;
(iii) any declaration, setting aside or payment of
any dividend, or any distribution with respect to the capital stock of X-ceed or
any direct or indirect redemption, purchase or other acquisition by X-ceed of
any such stock;
(iv) any increase in the compensation payable or to
become payable by X- ceed to directors, officers or employees other than as set
forth on Schedule 3(b)(iv) annexed hereto, or as mandated by law with respect to
minimum wages, or in the payment of any bonus, or in any insurance, pension or
other benefit plan, payment or arrangement made to, for or with any of such
officers, employees or agents; or
(v) any other event or condition of any character,
not in the ordinary course of business, that has materially and adversely
affected the results of operations or business or financial condition of X-ceed.
(c) Undisclosed Liabilities.
(1) X-ceed has no liabilities or obligations, either accrued,
absolute, contingent or otherwise, except:
(i) to the extent reflected or reserved against in
X-ceed financial statements, and not heretofore paid or discharged; and
(ii) those incurred in or as a result of the normal
and ordinary course of business since May 31, 1998, all of which have been
consistent with past practices and none of which (x) arise out of, relate to, is
in the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement or violation of law or (y) individually or in the aggregate
is material to the business, properties, financial condition or results of
operations of X-ceed.
(2) There is no basis for any present or future action, suit,
proceeding, hearing, investigation charge, complaint, demand or claim against
X-ceed or any liability of any nature in any amount not fully set forth in
X-ceed financial statements.
(d) Tax Returns.
(1) Except as set forth in Schedule 3(d)(1), X-ceed has filed
with the appropriate governmental agencies all the returns required to be filed
by it or with respect to its business ("such returns") and has paid, or made
provision for the payment of, all taxes as well as penalties and interest
related thereto, if any, which have or may become due pursuant to such returns,
except taxes which have not yet accrued or otherwise become due or for which
adequate provision has been made on the books of X-ceed.
(2) None of such returns has been examined and settled, and no
waivers of statutes of limitation have been given or requested.
(3) All such returns and reports have been prepared on the
same basis as those of previous years, and all federal, state, city and foreign
income, profits, franchise, sales, use, occupation, property, excise or other
taxes due in connection with X-ceed's business has been fully paid or accrued or
adequately reserved for in X-ceed financial statements.
(4) No deficiency or assessment with respect to or proposed
adjustment of X-ceed's Federal, state, county or local taxes is pending or, to
the best of X-ceed's knowledge, threatened. There are no tax liens, whether
imposed by any federal, state, county or local taxing authority, outstanding
against the assets, properties or businesses of X-ceed, other than for taxes not
yet delinquent.
(5) Except for X-ceed's existing wholly owned subsidiaries
described in X-ceed's annual report on Form 10-KSB for the year ended August 31,
1997 and X-ceed's quarterly report on Form10-QSB for the quarterly period ended
May 31, 1998 and for the last six (6) years, X-ceed (i) has never been a member
of an affiliated group (within the meaning of section 1504 of the Code), or any
similar group as defined for state, local or foreign tax purposes, filing a
consolidated federal (or combined or unitary state, local, or foreign) income
tax return, (ii) has no liability for the taxes of any person or entity (other
than X-ceed) under U.S. Department of Treasury Regulation ss.1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise, and (iii) is not a party to any agreement
with any person or entity, whether written or unwritten, providing for the
payment of any tax liabilities, tax losses, entitlements to refunds or similar
tax matters.
(6) X-ceed has not filed an election, consent or agreement
under Section 341 (f) of the Code.
(e) Title to Property.
(1) X-ceed owns all right, title and interest in and to all of
X-ceed's Properties (as hereinafter defined), and all other properties and
assets used by X-ceed, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any nature whatsoever,
except as set forth in Schedule 3(e)(1); and has taken all steps necessary or
otherwise required to perfect and protect its rights in and to X-ceed's
Properties.
(2) X-ceed does not lease any real or personal property as
lessee, except as set forth in Schedule 3(e)(2), attached hereto. Each of these
leases (the "X-ceed's Leases") is valid, binding, and in full force and effect
and has not been modified. X-ceed is not in default under any of X-ceed's Leases
and has not received any notice of its default under any of X-ceed's Leases and
X-ceed has not given any notice of any, and, to the best of X-ceed's knowledge,
there is no default by any other party under any of X-ceed's Leases, nor has any
event occurred which, with notice or the passage of time, or both, would
constitute a default by any other party under any of X-ceed's Leases. Except as
set forth on Schedule 3(e)(2), X-ceed's rights in the property covered under
X-ceed's Leases (including any improvements and appurtenances thereto) are
paramount to the rights of any other person or entity other than the landlords
under X-ceed's Leases. No consent or approval of any third party is required
with respect to such X-ceed's Leases in order to avoid a default thereunder by
reason of the transactions contemplated by this Agreement, except as set forth
on Schedule 3(e)(2). X-ceed has received no notices other than periodic rent,
common area maintenance and other operating expense bills from the landlord
under each lease.
(3) All real property in which X-ceed has an ownership or
leasehold interest, and all tangible personal property owned by X-ceed
(collectively, "X-ceed's Properties") are in all material respects in good
operating condition and repair and in all material respects conforms to all
applicable laws, including without limitation building and zoning laws,
statutes, ordinances or regulations and no notice of any violation of such
matters relating to the business, property or assets of X-ceed has been received
by X-ceed. Except as set forth on Schedule 3(e)(1) or (2), none of the premises
owned or leased by X-ceed are in need of maintenance or repairs except for
reasonable wear and tear and ordinary routine maintenance and repairs that are
not material in nature or cost.
(4) Neither the whole nor any portion of any of X-ceed's
Properties has been condemned or otherwise taken by a public authority, nor does
X-ceed know or have any reasonable grounds to believe that any such condemnation
or taking is threatened or contemplated.
(f) Inventories. The inventories of X-ceed consist of items of a
quality and quantity usable or saleable in the normal course of its business,
subject to usability and salability exceptions described on attached Schedule
3(f) which are consistent with past business experience. The present inventories
of X-ceed are maintained at levels that are consistent with past practices.
(g) Contracts and Commitments. Except as set forth on attached Schedule
3(g):
(1) X-ceed is not restricted by agreement from carrying on its
business anywhere in the states or provinces in which it operates;
(2) No director, officer, employee or stockholder of X-ceed,
or member of the family of any such person, or any corporation, partnership,
trust or other entity in which any such person, or any member of the family of
any such person, has a substantial interest or in which any such person is an
officer, director, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof is an entity who is, a competitor, customer, supplier or
other, entity, who, during
the past 12 months has been a party to any transaction with X-ceed, including
any contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm;
(3) X-ceed is not in default, nor is there any known basis for
any claim of default, under any contracts or commitments made or obligations
owed by it which default is reasonably likely to have a Material Adverse Effect
on X-ceed. X-ceed has no present expectation or intention of not fully
performing all its obligations under any lease, contract or other agreement to
which it is a party, and X-ceed has no knowledge of any breach or anticipated
breach by the other party to any lease, contract or commitment to which X-ceed
is a party. X-ceed is in full compliance with all of the terms and provisions of
its Charter and By-Laws, as amended. No consent or approval of any third party
is required with respect to any such contract or agreement to which X-ceed is a
party in order to avoid a default thereunder by reason of the transactions
contemplated by this Agreement.
(4) All accounts receivable of X-ceed are current and
collectible, except to the extent reserved against in the X-ceed financial
statements.
(h) Employee Relations.
(1) (i) X-ceed is not a party to any collective bargaining
agreement covering or relating to any of its employees. X-ceed is not required
to recognize and has not received a demand for recognition by any collective
bargaining representative.
(ii) X-ceed is not a party to any employment
agreement or consulting agreement providing for compensation in excess of
$75,000 per annum, except as set forth in X-ceeds' Annual Report on Form 10-KSB
("Form 10-KSB") for the year ended August 31, 1997; and
(iii) X-ceed has not promulgated any policy or
entered into any agreements
relating to the payment of severance pay to employees whose employment is
terminated or suspended, voluntarily or otherwise.
(2) Except as set forth in the schedules attached hereto, (i)
X-ceed has complied in all material respects with all applicable laws, rules or
regulations relating to employment, including those relating to wages, hours,
collective bargaining and the withholding and payment of taxes and
contributions, and (ii) X-ceed has complied in all material respects with the
National Labor Relations Act, as amended, Title VII of the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1991, the Occupational Safety and
Health Act, Executive Order 11246, the regulations under such acts and all other
Federal and state laws relating to the employment of labor, including any
provisions thereof relating to discrimination or harassment. X-ceed has, and
will have at the Closing Date, withheld all amounts required by law or agreement
to be withheld from the wages or salaries of its employees and there are no
arrearages of wages, payments under any pension or insurance plan or any other
benefit, or any tax or penalty for failure to comply with the foregoing owed by
all of them with respect to employees which are not either accrued or adequately
reserved for in X-ceed's financial statements. There are no material
controversies pending or threatened, between X-ceed and any of its employees or
any labor unions or other collective bargaining agents representing or
purporting to represent its employees.
(3) X-ceed has not promulgated any profit-sharing, retirement,
stock purchase, deferred compensation medical, hospitalization, life insurance
or other similar plan providing benefits for its employees and X-ceed has not
announced the prospective promulgation thereof except as set forth in Schedule
3(h)(3). There is no unfunded past service credit liability or any other
liability with respect to any such plans other than as set forth on Schedule
3(h)(3). No reportable event as defined in Title IV of the Employee Retirement
Income Security Act of 1974, as amended by the Multi Employer Pension Plan
Amendments Act of 1980, has occurred with respect to any such plan subject to
the minimum funding requirement of Section 412 of the Internal Revenue Code of
1986, as amended.
(i) No Breach of Statute or Contract. Neither the execution and
delivery of this Agreement, nor compliance with the terms and provisions of this
Agreement on the part of X-ceed, will (1) violate any statute, license, or
regulation of any governmental authority, domestic or foreign, (2) result in the
default by X-ceed of any judgment, order, writ, decree, rule or regulation of
any court or administrative agency, (3) breach, conflict with, or result in a
breach of any of the terms, conditions or provisions of any material agreement
or instrument to which X-ceed is a party, or by which it is or may be bound, or
constitute a default or require any notice thereunder, (4) violate any provision
of X-ceed's certificate of incorporation or By-Laws or (5) result in the
creation or imposition of any claim, lien, charge or encumbrance of any nature
whatsoever upon, or (6) give to others any claim, interest or rights, including
rights of termination, modification, acceleration or cancellation in, or with
respect to, any of their property, assets, contracts, licenses or businesses.
The conduct of X-ceed's business does not violate any law or
regulation applicable to such business. X-ceed's has complied with all laws,
rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and X-ceed has all necessary permits,
licenses and other authorizations required to conduct its business as conducted
and as proposed to be conducted. There is no existing law, rule, regulation or
order, and X-ceed is not aware of any proposed law, rule, regulation or order,
whether Federal or state, which would prohibit or materially restrict X-ceed
from, or otherwise materially adversely affect X-ceed in, conducting its
business in any jurisdiction in which it is now conducting business.
(j) No Litigation. Except as set forth in Form 10-KSB, a copy of which
is annexed hereto as Schedule 3(j), there is no suit, action or legal,
administrative, arbitration or other proceeding or governmental investigation,
or any change in the zoning or building ordinances affecting the real property
or leasehold interests of X-ceed, pending or to the best of X-ceed's knowledge
threatened against X-ceed. X-ceed has not received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, financial condition, operations, property or affairs. X-ceed is not in
default with respect to any order, writ, injunction or decree known to or served
upon X-ceed or its subsidiaries of any court or of any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by X-ceed or
its subsidiaries pending or threatened against others. X-ceed has no knowledge
of any unasserted claim, the assertion of which is likely and that, if asserted,
will be for legal or equitable relief that, if granted, would have a Material
Adverse Effect. No injunction, stay or restraining order is in effect
prohibiting the consummation of any of the transactions contemplated by this
Agreement.
(k) Patents and Trademarks. Form 10-KSB correctly sets forth a list of
all letters
patent, patent applications, inventions upon which patent applications have not
yet been filed, trade names, trademarks, trademark registrations and
applications, copyrights, copyright registrations and applications, both
domestic and foreign, presently owned, possessed, used or held by X-ceed and
which are material to the business of X-ceed and, except as otherwise indicated
in Form 10-KSB, X-ceed owns the entire right, title and interest in and to the
same. Form 10-KSB also correctly sets forth all patents, patent applications,
inventions upon which patent applications have not yet been filed, trade names,
trademarks, trademark registration and applications, and licenses, both domestic
and foreign, which materially relate to the businesses of X-ceed, and which are
owned or controlled by any director, officer, stockholder or employee of X-ceed.
Form 10-KSB also correctly sets forth a list of all licenses materially relating
to the business of X-ceed granted to X-ceed by others, and to others by X-ceed.
X-ceed has not received written notice of and to the best of X-ceed's knowledge,
there does not exist any pending or threatened challenges regarding any letters
patent, patent applications, trade names, trademark registrations and
applications, copyrights, copyright registrations and applications, or licenses
except as set forth in Form 10-KSB. Except as set forth in Form 10-KSB, X-ceed
has not received written notice that its business as heretofore carried
infringes upon the patents, trademarks, trade name rights, copyrights or
publication rights of others.
(l) Trademark Indemnification. Except as set forth in Form 10-KSB,
X-ceed has not given any indemnification for, patent, trademark or copyright
infringement as to any equipment, materials or supplies manufactured, produced,
used or sold by it or with respect to services rendered by it.
(m) [Intentionally Omitted.]
(n) Insurance. X-ceed holds insurance policies consistent with X-ceed's
past business practices, covering all of the insurance required to be maintained
by it and which is customary for businesses similar to Mercury. X-ceed has
received no written notice of any claims pending against X-ceed under any
insurance policies currently in effect and covering the property, business or
employees of X-ceed, and all premiums with respect to the policies maintained by
X-ceed due and payable through the date hereof have been paid by X-ceed. X-ceed
has not been refused any insurance coverage sought or applied for, and has no
reason to believe that it will be unable to renew its existing insurance
coverage upon terms at least as favorable as those presently in effect, other
than possible increases in premiums that do not result from any act or omission
of X-ceed.
(o) Loans and Advances. Except as set forth in Form 10-KSB with respect
to the outstanding loan to Werner Haase, X-ceed does not have any outstanding
loans or advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of X-ceed in respect
of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for X-ceed.
(p) Significant Customers and Suppliers. No customer or supplier to
X-ceed of more than $50,000 of products or services for any year which was
significant to X-ceed during the period covered by X-ceed financial statements
or which has been significant to X-ceed thereafter, has terminated, materially
reduced or provided written notice of its intent or threatened to terminate or
materially reduce its purchases from or provision of products or services to
X-ceed or any subsidiary, as the case may be.
(q) Environmental Protection. Except as set forth in Form 10-KSB, no
notice, notification, demand, request for information, citation, summons or
order has been issued, no complaint has been filed, no penalty has been assessed
and no investigation or review is pending or threatened by any governmental or
other entity with respect to any alleged failure by X-ceed to have any permit,
license or authorization required in connection with the conduct of its business
or with respect to any Environmental Laws, including without limitation,
Environmental Laws relating to the generation, treatment, storage, recycling,
transportation, disposal or release of any hazardous materials.
(r) Disclosure. No representation or warranty by X-ceed in this
Agreement, nor any statement, certificate or Schedule furnished, or to be
furnished, by or on behalf of X-ceed pursuant to this Agreement, nor any
document or certificate delivered to Mercury or any of the Shareholders pursuant
to this Agreement, or in connection with actions contemplated hereby, contains
or shall contain any untrue statement of a material fact, or omits, or shall
omit to state a material fact necessary to make the statements contained therein
not misleading. X-ceed has no knowledge of any unasserted claim, the assertion
of which is likely and that, if asserted, will be for legal or equitable relief
that, if granted, would have a Material Adverse Effect. No injunction, stay or
restraining order is in effect prohibiting the consummation of any of the
transactions contemplated by this Agreement.
(s) SEC Reports. X-ceed has heretofore delivered to the Company and the
Shareholders complete and correct copies of X-ceed's Form 10-KSB and Forms
10-QSB for the fiscal quarters ended November 30, 1997, February 28, 1998 and
May 31, 1998 as filed by X-ceed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act, as amended (collectively, the "SEC
Reports"). As of their respective dates, the SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3A. Representations and Warranties Regarding X-ceed Sub. X-ceed and
X-ceed Sub jointly and severally represent and warrant to the Shareholders and
Mercury as follows:
(a) Organization. X-ceed Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is a
wholly owned subsidiary of X-ceed. There are no options, warrants, conversion or
other rights, agreements or commitments of any kind obligating X-ceed or X-ceed
Sub, contingently or otherwise, to issue or sell any shares of capital stock of
X-ceed Sub or any securities convertible into or exchangeable for any such
shares, and no authorization therefore has been given.
(b) Authority Relative to this Agreement. X-ceed Sub has the requisite
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by X-ceed Sub's
Board of Directors and approved by its sole stockholder, and no other corporate
proceedings on the part of X-ceed Sub are necessary to authorize the execution
and delivery of this Agreement and the transactions contemplated hereby.
(c) Binding Agreement. This Agreement has been duly and validly
executed and delivered by X-ceed Sub and constitutes the legal, valid and
binding obligation of X-ceed Sub,
enforceable against X-ceed Sub in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity.
(d) Special Purpose Subsidiary. X-ceed Sub has been organized by X-ceed
solely for the purpose of entering into this Agreement and consummating the
Merger. X-ceed Sub has not engaged, and prior to the Merger will not engage, in
any other business or activity.
4. Conduct of the Business of Mercury Pending the Closing Date. From and after
the date of this Agreement and until the Closing Date:
(a) Full Access. X-ceed and its respective authorized representatives
shall have full access, during normal business hours, to all properties, books,
records, contracts and documents of Mercury, and Mercury shall furnish or cause
to be furnished to X-ceed and its authorized representatives all information
with respect to its affairs and business as X-ceed may reasonably request.
X-ceed agrees to and shall cause its authorized representatives to treat and
hold as confidential all proprietary business information and any other
confidential information X-ceed receives with respect to Mercury's business. In
the event this Agreement is terminated pursuant to the provisions of Section 10
hereof, X-ceed shall promptly return to Mercury all materials relating to
Mercury which have been delivered by or on behalf of Mercury to X-ceed pursuant
to this Agreement.
(b) Carry On In Regular Course. Mercury shall carry on its business
diligently and substantially in the same manner as heretofore and shall not make
or institute any unusual or novel methods of trade, purchase, sale, lease,
management, accounting or operation.
(c) Contracts and Commitments. Mercury shall not enter into any
contract or commitment or engage in any transaction not in the usual and
ordinary course of its business and consistent with past practices without the
prior written consent of X-ceed.
(d) Indebtedness. Mercury will not create any indebtedness, other than
that incurred in the usual and ordinary course of business, that incurred
pursuant to existing contracts disclosed in the Schedules attached hereto, that
incurred pursuant to commitments permitted hereby, and that reasonably incurred
in doing the acts and things contemplated by this Agreement.
(e) Investments. Mercury will not make any investments, loans, advances
or contributions to any other person, corporation, partnership, joint venture or
association; provided, however, that Mercury may invest in United States
government obligations, certificates of deposit and commercial paper rated a-1
by Standard & Poor's Corporation or P-1 by Moody's.
(f) Dividends and Distributions. Mercury will not declare or pay any
dividend or make any distribution with respect to its capital stock, or directly
or indirectly redeem, purchase or otherwise acquire any of its capital stock or
issue or in any way dispose of any shares of its capital stock or any rights
therein or thereto.
(g) Amendment of Charter. Mercury will not amend its Certificate of
Incorporation or By-Laws or make any change in the authorized or unissued
capital stock or its officers or directors without the prior written consent of
X-ceed.
(h) Insurance. All property, real and personal, owned or leased by
Mercury will be insured to the same extent as such properties were insured
immediately prior to the date of this Agreement by reputable insurance companies
against all insurable risks normally insured against by companies conducting a
business the same as, or similar to, the business conducted by Mercury, and all
property shall be used, operated and maintained in a normal businesslike manner.
(i) Preservation of Organization and Employees. Mercury will use its
best efforts (without making any commitments on behalf of X-ceed) to preserve
its business organization intact, to keep available to X-ceed its key officers
and employees, and to preserve for X-ceed the present relationships of Mercury
and its clients and others having business relations with it. Mercury will not
change its present relationships with its employees as set forth in Section 2(h)
hereof.
(j) No Default. Mercury shall not do any act or omit to do any act, or
permit any act or omission to act, which will cause a breach of any contract,
lease commitment or obligation by it.
(k) Compliance with Laws. Mercury and the Shareholders will duly comply
with all applicable laws as may be required for the valid and effective transfer
of Mercury Common Stock as contemplated by this Agreement.
(l) Tax Returns. Mercury will prepare and file all state, federal and
other tax returns, and amendments thereto (or extensions to file the foregoing)
required to be filed between the date of this Agreement and the Closing Date.
X-ceed shall have a reasonable opportunity to review all such returns, and
amendments and extensions thereto, prior to their being filed.
(m) Sale of Capital Assets. Mercury will not sell or dispose of any
single capital asset with an original cost in excess of $5,000 without the prior
written consent of X-ceed or capital assets in the aggregate with an original
cost of $10,000 without the prior written consent of X-ceed.
5. Survival of Representations and Warranties. All representations, warranties,
and agreements of the Shareholders, Mercury and X-ceed contained herein
(including all schedules annexed hereto) or in any document, statement,
certificate or other instrument referred to herein or delivered hereunder in
connection with the transactions contemplated hereby shall survive until
eighteen (18) months after the Closing Date, except that all representations and
warranties relating to taxes and tax returns shall survive for a period equal to
the applicable statute of limitations period.
6. Conditions Precedent to X-ceed's Obligations. Each and every obligation of
X-ceed to be performed on the Closing Date or, to the extent expressly provided
in this Agreement, to be performed thereafter, as the case may be, shall be
subject to the satisfaction prior thereto of the following conditions:
(a) Representations and Warranties True at the Closing Date. The
representations and warranties made by Mercury and the Shareholders in this
Agreement or given on their behalf hereunder shall be true on and as of the
Closing Date with the same effect as though such representations and warranties
had been made or given on and as of the Closing Date.
(b) No Material Adverse Change. There shall not have occurred any
Material Adverse Changes in the financial condition, capitalization, business,
operations, properties or investments of Mercury or in the ability of Mercury to
perform or on the ability of Mercury to perform its obligations under this
Agreement.
(c) Compliance with Agreement. Mercury shall have performed and
complied in all material respects with all of its obligations under this
Agreement which are to be performed or complied with by it prior to or on the
Closing Date.
(d) Employees Continuing in Employment. X-ceed shall have entered into
employment agreements with the individuals listed on Schedule 6(d) substantially
in the form annexed hereto as Exhibit 6(d).
(e) Certificate of Fulfillment of Conditions. There shall be delivered
to X-ceed a certificate of Mercury certifying in such detail as X-ceed may
specify, the fulfillment of conditions set forth in subsections (a), (b), (c)
and (d) of this Section 6.
(f) Opinion of Counsel for Mercury and the Shareholders. X-ceed shall
have received a written opinion of counsel for Mercury and the Shareholders
dated as of the Closing Date, addressed to X-ceed in form and substance to the
effect that: (1) Mercury is a corporation duly organized, validly existing and
in good standing under and by virtue of the laws of its state of incorporation;
(2) Mercury has no subsidiaries except as set forth in the Schedules attached
hereto and Mercury and its subsidiaries, if any, are entitled to own or lease
their respective property; (3) without any independent investigation, counsel
has no actual knowledge of any pending litigation to which Mercury is a party or
any threatened litigation against Mercury; (4) without any independent
investigation, to such counsel's actual knowledge, except as disclosed on
Schedule 2(f), Mercury is not in default of any of the agreements disclosed on
Schedule 2(f); (5) all of the shares of Mercury Common Stock are duly
authorized, validly issued, fully paid and nonassessable; (6) without any
independent investigation and based solely upon counsel's review of the stock
books and ledgers of Mercury, counsel has no actual knowledge of any
restrictions on the transferability of the Mercury Common Stock, except for (i)
such restrictions as may be imposed by federal or state securities laws, and
(ii) restrictions contained in that certain Shareholders' Agreement with respect
to the Mercury Common Stock dated November 29, 1996, which Shareholders'
Agreement will be terminated at or prior to Closing; (7) none of the
transactions contemplated by this Agreement will be a violation of or constitute
a default or ground for revocation under any provisions of any lease, contract,
agreement, indenture, license or any instrument to which Mercury or the
Shareholders is bound and which is disclosed in a Schedule to this Agreement or
will violate any of the above which is or purports to be binding upon Mercury or
its assets; and (8) this Agreement is a valid and binding obligation of the
Shareholders and Mercury enforceable in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity.
(g) Certificates of Good Standing. Mercury shall have delivered to
X-ceed a certificate issued by appropriate governmental authorities evidencing
the good standing of Mercury as of a date not more than thirty (30) days prior
to the Closing Date as a corporation of the state of its incorporation and in
each state where it is qualified to do business.
(h) Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transaction contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to X-ceed, and Mercury shall have made
available to X-ceed for examination the originals or true and correct copies of
all records and documents relating to the business and affairs of Mercury, which
X-ceed may reasonably request in connection with said transaction. Mercury and
the Shareholders shall have complied in all material respects with all statutory
requirements for the valid consummation by Mercury and the Shareholders of the
transaction contemplated by this Agreement.
(i) No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency which in
the opinion of X-ceed's counsel is reasonably likely to result in the restraint,
prohibition or the obtaining of damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, or in
connection with any claim against Mercury, not disclosed by the Schedules
attached hereto.
(j) All Documents. All documents required by Section 11(a) of this
Agreement shall have been delivered to X-ceed.
(k) No Material Limitations. There shall not have occurred any
enactment, promulgation or entry of any order, rule, regulation or statute that
could in the reasonable judgment of X-ceed, impose material limitations upon the
ability of X-ceed to hold or exercise effectively all rights of ownership with
respect to Mercury Stock.
(l) Regulatory Approvals. Mercury shall have obtained all necessary
consents, approvals, authorizations, registration, filings and declarations from
all appropriate federal, state or local governmental bodies in connection with
the transactions contemplated hereby.
(m) Financial Statements. Mercury shall have retained, at X-ceed's sole
cost and expense, independent auditors to prepare audited consolidated balance
sheets of Mercury for the year ended December 31, 1997 and the related audited
consolidated statements of operations, stockholders' equity and cash flows, in
each case prepared in accordance with generally accepted accounting principles,
consistently applied (the "audited financial statements").
(n) Options, Warrants. There shall be no outstanding options or
warrants to purchase securities of Mercury or any other rights or securities
which are convertible or exchangeable for securities of Mercury.
(o) Fairness Opinion. X-ceed shall have obtained an opinion from an
independent financial institution or an investment banking institution that the
terms of the Merger from the perspective of both X-ceed and the holders of the
outstanding X-ceed Common Shares is fair and reasonable.
7. Conditions Precedent to the Shareholders' Obligations. Each and every
obligation of the Shareholders to be performed on the Closing Date shall be
subject to the satisfaction prior thereto of the following conditions:
(a) Representations and Warranties True at the Closing Date. X-ceed's
representations and warranties contained in this Agreement shall be true at and
as of the Closing Date as though such representations and warranties were made
at and as of the Closing Date.
(b) Compliance with Agreement. X-ceed shall have performed and complied
with its obligations under this Agreement which are to be performed or complied
with prior to or on the Closing Date.
(c) No Material Adverse Change. There shall not have occurred any
Material Adverse Change in the financial condition, capitalization, business
operations, properties or investments of X-ceed or on the ability of X-ceed to
perform its obligations under this Agreement.
(d) Employees Continuing in Employment. X-ceed shall have entered into
employment agreements with Kevin Labick, Robert Risse and Alan Ginsberg on terms
mutually acceptable to X-ceed and such individuals substantially in the form
annexed hereto as Exhibit 6(d).
(e) Certificate of Fulfillment of Conditions. There shall be delivered
to Mercury a certificate of X-ceed certifying in such detail as the Shareholders
may specify the fulfillment of conditions set forth in subsections (a), (b), (c)
and (d) of this Section 7.
(f) Opinion of Counsel for X-ceed. The Shareholders shall have received
a written opinion of counsel for X-ceed dated as of the Closing Date, addressed
to the Shareholders in form and substance to the effect that: (1) X-ceed and its
subsidiaries are corporations duly organized, validly existing and in good
standing under and by virtue of the laws of their respective states of
incorporation; (2) all of the X-ceed Common Shares are duly authorized, validly
issued, fully paid and nonassessable; (3) upon transfer and delivery of said
X-ceed Common Shares to the Shareholders as contemplated by this Agreement, the
Shareholders will receive good and absolute title thereto free from any liens,
charges, encumbrances, restrictive agreements, equities, claims and restrictions
whatsoever, except such restrictions as are imposed by federal or state
securities laws; (4) none of the transactions contemplated by this Agreement
will be a violation of or constitute a default or ground for revocation under
any provisions of any lease, contract, agreement, indenture, license or any
instrument to which X-ceed or any of its subsidiaries is bound and which is
disclosed in a Schedule to this Agreement, or will violate any of the above
which is or purports to be binding upon X-ceed, any of its subsidiaries or any
of their respective assets; (5) this Agreement and the other agreements
delivered by X-ceed at Closing are valid and binding obligations of X-ceed
enforceable in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the rights and remedies of creditors generally, and by general principles of
equity; (6) this Agreement and the other agreements delivered by X-ceed at
Closing have been duly executed and delivered by X-ceed, and the execution,
delivery and performance of this Agreement and the other agreements delivered by
X-ceed at Closing have been duly authorized by all requisite corporate action on
the part of X-ceed; (7) X-ceed has all necessary power and authority to enter
into this Agreement and the other agreements to be delivered
by X-ceed at Closing; and (8) the execution, delivery and performance of this
Agreement and the other agreements to be delivered by X-ceed at Closing do not
require on the part of X-ceed any consent, approval, authorization or other
order of, action by, filing with or notification to any governmental authority.
(g) All Documents. All documents and payments required by Section 11(b)
of this Agreement shall have been delivered or made to the Shareholders.
(h) [Intentionally Omitted.]
(i) Certificates of Good Standing. X-ceed shall have delivered to the
Shareholders a certificate issued by appropriate governmental authorities
evidencing the good standing of X-ceed as of a date not more than thirty (30)
days prior to the Closing Date as a corporation of the state of its
incorporation and in each state where it is qualified to do business.
(j) Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transaction contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to the Shareholders, and X-ceed shall have
made available to the Shareholders for examination the originals or true and
correct copies of all records and documents relating to the business and affairs
of X-ceed, which the Shareholders may reasonably request in connection with said
transaction. X-ceed shall have complied in all material respects with all
statutory requirements for the valid consummation by X-ceed of the transaction
contemplated by this Agreement.
(k) Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency which in
the opinion of the Shareholders' counsel is reasonably likely to result in the
restraint, prohibition or the obtaining of damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated hereby,
or in connection with any claim against X-ceed, not disclosed by the Schedules
attached hereto.
(l) Regulatory Approvals. X-ceed shall have obtained all necessary
consents, approvals, authorizations, registration, filings and declarations from
all appropriate federal, state and local governmental bodies in connection with
the transaction contemplated hereby.
8. Indemnification and Resolution of Disputes.
(a) Indemnification by Shareholders. Each of the Shareholders severally
but not jointly, each as to himself or itself but not as to any other
Shareholder, indemnifies, defends and holds harmless X-ceed, and shall reimburse
X-ceed for, any loss, liability, claim, damage, expense (including, but not
limited to, reasonable cost of investigation and defense and reasonable
attorneys' fees) (collectively, "Damages") arising from or in connection with
(1) any inaccuracy in any of the representations and warranties of such
Shareholder or Mercury set forth in this Agreement or in any certificate
delivered by such Shareholders or Mercury pursuant to this Agreement, or any
actions, omissions or states of facts inconsistent with any such representations
or warranties, or (2) any failure by such Shareholders to perform or comply with
any provision of this Agreement. Notwithstanding the foregoing, the Shareholders
shall not be liable for Damages unless such Damages in the aggregate exceed
$100,000 and then the Shareholders shall only be liable for such excess. The
term "Damages" includes Damage incurred or sustained in the absence of third
party claims. The obligations of the Shareholders to indemnify and hold harmless
X-ceed shall also apply to any action, claim or suit which arises from the
operations of Mercury prior to the Closing Date if such action, claim or suit is
not disclosed in a Schedule to this Agreement and Mercury's liability therefor
is not covered by insurance. The liability of each Shareholder for any item of
Damages shall be limited to the amount of such item of Damages multiplied by a
fraction, the numerator of which is the number of shares of X-ceed Common Stock
issued to such Shareholder pursuant to the Merger and the denominator of which
is the number of shares of X-ceed Common Stock issued to all Shareholders
pursuant to the Merger.
(b) Indemnification by X-ceed. X-ceed shall indemnify, defend and hold
harmless the Shareholders, and shall reimburse the Shareholders for, any Damages
arising from or in connection with (1) any inaccuracy in any of the
representations and warranties of X-ceed set forth in this Agreement or in any
certificate delivered by X-ceed pursuant to this Agreement, or any actions,
omissions or states of facts inconsistent with any such representation or
warranty, or (2) any failure by X-ceed to perform or comply with any provision
of this Agreement. X-ceed shall not be liable for the amount of any such Damages
unless the aggregate amount of Damages payable by X-ceed pursuant to this
Section 8 attributable to any breach of any representation or warranty exceeds
$100,000 and then X-ceed shall only be liable for such excess.
(c) Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 8(a) or 8(b) above of notice of the commencement
of any action, such indemnified party shall give notice to the indemnifying
party of the commencement thereof, but the failure so to notify the indemnifying
party shall not relieve it of any liability that it may have to any indemnified
party except to the extent the defense of such action by the indemnifying party
is prejudiced thereby. In case any such action shall be brought against an
indemnified party and it shall give notice to the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such section for any fees of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party in
connection with the defense thereof. If an indemnifying party assumes the
defense of such an action, (1) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's consent
(which shall not be unreasonably withheld) unless (i) such compromise or
settlement includes an unconditional release of the indemnified party from all
liability that may arise out of such action, (ii) there is no finding or
admission of any violation of law or any violation of the rights of any person
which is not fully remedied by the payment referred to in clause (iii) below and
such compromise or settlement does not have any adverse effect on any other
claims that may be made by or against the indemnified party, and (iii) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party, (2) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its consent (which shall not
be unreasonably withheld) and (3) the indemnified party will reasonably
cooperate with the indemnifying party in the defense of such action. If notice
is given to an indemnifying party of the commencement of any action and it does
not, within 15 days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense thereof, the
indemnified party may assume the defense of such action with counsel reasonably
acceptable to the
indemnifying party. Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that an action
may materially and adversely affect it or its affiliates other than as a result
of monetary damages, such indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend, compromise or settle such action,
but the indemnifying party shall not be bound by any determination of an action
so defended or any compromise or settlement thereof effected without its consent
(which shall not be unreasonably withheld). All reasonable fees of counsel and
costs of litigation of the indemnified party which are required to be paid by
any indemnifying party pursuant to this Section 8 will be paid by the
indemnifying party as incurred.
9. Stock Consideration Adjustment. The Stock Consideration shall be subject to
reduction after the Closing in the event that gross revenues of Mercury and the
Surviving Corporation on a combined basis during the calendar year ending on
December 31, 1998 ("Reference Gross Revenues") are less than $2,880,000 (the
"Threshold Amount"), as determined in accordance with this Section 9.
(a) Reference Financial Statements. As promptly as practicable after
December 31, 1998, but in any event on or before March 31, 1999, X-ceed shall
deliver or cause to be delivered to the Shareholders, at the sole cost and
expense of X-ceed, audited special purpose financial statements of Mercury and
the Surviving Corporation on a combined basis for the twelve-month period ending
on December 31, 1998, consisting of a balance sheet and income statement setting
forth the amount of Reference Gross Revenues (the "Reference Financial
Statements"), prepared by X-ceed's independent certified public accountants (the
"Independent Accounting Firm") in accordance with United States generally
accepted accounting principles and practices as in effect from time to time and
consistently applied ("GAAP"). The Reference Financial Statements shall be
deemed to be and shall be final, conclusive and binding on the parties hereto,
except that the Shareholders may dispute the computation of Reference Gross
Revenues on the basis that the amount thereof was not arrived at in conformity
with GAAP.
(b) Adjustment. In the event that a final determination is made that
Reference Gross Revenues are less than the Threshold Amount, then and in such
event (1) the number of X-ceed Common Shares constituting the Stock
Consideration shall be reduced by an amount (the "Adjustment Amount"), not to
exceed the number of X-ceed Common Shares constituting the Stock Consideration,
equal to (i)(A) .035 multiplied by (B) a fraction, the numerator of which is the
amount by which the amount of Reference Gross Revenues is less than the
Threshold Amount and the denominator of which is 100,000, multiplied by (ii) the
number of X-ceed Common Shares equal to $7.52 million divided by the average of
the closing bid price and asked price of each share of X-ceed Common Stock as
quoted on the NASDAQ SmallCap Market at the close of business on the five (5)
business days immediately preceding the Closing Date, (2) the Exchange Factor
shall be reduced with reference to the amount of the Stock Consideration minus
the Adjustment Amount (the "Adjusted Stock Consideration"), and (3) promptly
after written notice from X-ceed to the Shareholders, the Shareholders shall
surrender the X-ceed Stock Certificates (as defined in Section 11(b) hereof) in
exchange for replacement certificates representing an aggregate number of X-ceed
Common Shares equal to the Adjusted Stock Consideration. Set forth on Schedule
9(b) is an example of how the Adjustment Amount would be computed. Any
provisions of this Section 9 to the contrary notwithstanding, in no event shall
the value of the Stock Consideration, valued at the Closing, (a) be less than
fifty (50%) percent of the total consideration, or (b) be adjusted in excess
of fifty (50%) percent of the total number of shares of the Stock Consideration.
However, in the event that the Adjusted Stock Consideration is more than fifty
(50%) of the Stock Consideration than in such event X-ceed, at its election, has
the right to rescind the transaction and cancel the issued and outstanding
shares.
(c) No Cash Adjustment. Nothing contained in this Section 9 is intended
or shall be deemed to (1) reduce or adjust the amount of the Cash Consideration
or the Per Share Cash Consideration payable at Closing, or (2) require any
payment or reimbursement by any of the Shareholders on account of any dividends
or other distributions received by them in respect of the X-ceed Common Shares
issued to them at Closing, regardless of any subsequent adjustment of the Stock
Consideration.
10. Termination and Abandonment. This Agreement may be terminated and the Merger
provided for by this Agreement may be abandoned without liability on the part of
any party to the other, on or before the Closing Date:
(a) by mutual consent of X-ceed and the Shareholders;
(b) by X-ceed if any of the conditions provided for in Section 6 of
this Agreement have not been met on or before September 30, 1998 and have not
been waived by X-ceed in writing; or
(c) by the Shareholders if any of the conditions provided for in
Section 7 of this Agreement have not been met on or before September 30, 1998
and have not been waived by the Shareholders in writing.
In the event of termination and abandonment by any party, as above
provided in this Section 10, prompt written notice shall be given to the other
party.
11. Closing Date. The closing with respect to the transactions contemplated
hereunder (the "Closing") shall take place at the offices of McLaughlin & Stern,
LLP, 260 Madison Avenue, New York, New York, at 10:00 a.m. local time on
September 8, 1998, or at such earlier date as may be set by X-ceed, on at least
two (2) days' prior written notice to the Shareholders. The date on which the
Closing takes place is sometimes referred to in this Agreement as the "Closing
Date." At the Closing, the following deliveries shall be made:
(a) The Shareholders shall deliver to X-ceed the following:
a certificate of fulfillment of conditions signed by the President and
Treasurer of Mercury, referred to in subsection (e) of Section 6 hereof;
the opinion of counsel for Mercury, described in subsection (f) of
Section 6 hereof;
certificates of good standing and telegram, referred to in subsection
(g) of Section 6 hereof;
certificates representing all of Mercury Stock as set forth in Section
1(a) hereof;
consents of any party to any lease or contract whose consent is
required by reason of the transactions contemplated by this Agreement;
estoppel certificates from the landlord which provide that Mercury is
not in default and no event has occurred, which, with notice or the passage of
time, would constitute a default by Mercury;
employment agreements in accordance with Section 7(d); and
such other and further documents, instruments and certificates not
inconsistent with the provisions of this Agreement, executed by Shareholders as
X-ceed shall reasonably require to carry out and effectuate the purposes and
terms of this Agreement.
(b) X-ceed shall deliver to the Shareholders the following:
(1) stock certificates (the "X-ceed Stock Certificates") representing the number
of X-ceed's Common Shares provided for in Section 1(f);
(2) the Cash Consideration, in the form specified in Section 1(h); and
(3) employment agreements in accordance with Section 7(d).
12. Post-Closing Covenants.
(a) Directors. X-ceed covenants and agrees with the Shareholders as
follows: (1) X-ceed shall cause two persons designated by the Shareholders from
time to time to serve on X-ceed's Management Board; and (2) X-ceed shall cause
the persons designated by Mercury's pre-Merger Board of Directors pursuant to
Section 1(d) to be elected to the Board of Directors of the Surviving
Corporation, and shall cause such persons and their successors to be replaced
from time to time by persons designated by the Shareholders. Notwithstanding
anything to the contrary contained in this Agreement, the foregoing covenants
and agreements shall survive indefinitely the Closing Date.
(b) Audited Statements. The Shareholders covenant and agree with X-ceed
as follows: As soon as practical after Closing, but in no event later than 50
days after Closing, the Shareholders or their agent shall deliver to X-ceed
audited financial statements of Mercury for the year ended December 31, 1997 and
unaudited financial statements for the six months ended June 30, 1998, prepared
in conformity with generally accepted accounting principles consistently
applied, provided that X-ceed shall pay directly or reimburse the Shareholders
for (in either case upon demand by the Shareholders) all fees, costs and
expenses incurred in connection with the preparation and delivery of such
financial statements.
(c) Minimum Capital Contributions. X-ceed covenants and agrees with the
Shareholders that X-ceed shall make minimum capital contributions to the
Surviving Corporation as follows, without regard to the results of operations or
the financial performance of the Surviving
Corporation during the applicable periods: (1) after the Closing Date during the
1998 calendar year, not less than $300,000; and (2) during the 1999 calendar
year, not less than $750,000 and, in connection with the minimum capital
contributions, the Promissory Note and Guarantee executed by Robert Risse on
September 1, 1998 shall be forgiven.
(d) Historic Business Operations. X-ceed covenants to cause the
Surviving Corporation to continue Mercury's historic business within the meaning
of Treasury Regulation Section 1.368- 1(d).
13. Brokerage. The Shareholders represent and warrant that they have not engaged
the services of any broker or finder hereunder, and agree to indemnify and hold
X-ceed harmless against any claim for brokers' or finders' fees or compensation
in connection with the transactions herein provided for by any person, firm or
corporation claiming a right to the same because engaged by the Shareholders.
X-ceed represents and warrants to the Shareholders that it has not engaged the
services of any broker or finder in connection with the transactions herein
provided for and agrees to indemnify and hold harmless Shareholders against any
claims for brokers' or finders' fees or compensation in connection with the
transactions herein provided for by any other person, firm or corporation
claiming a right to the same because engaged by X-ceed or its subsidiaries.
14. Investment Representation.
(a) Each Shareholder agrees not to sell, transfer, pledge, hypothecate
or otherwise dispose of, or offer to dispose of, the Common Stock, unless the
Common Stock has been registered under the Securities Act of 1933, as amended
(the "Act"), and applicable state securities laws or such registration is not
required in the opinion of counsel for the Shareholders reasonably acceptable to
X-ceed. Any routine sale of the Common Stock may require compliance with some
exemption under the Act prior to resale.
(b) Each of the Shareholders represents that (1) he is acquiring the
X-ceed Common Shares after having made adequate investigation of the business,
finances and prospects of X-ceed; (2) he has been furnished any information and
materials relating to the business, finances and operation of X-ceed and any
information and materials relating to the X-ceed Common Shares which he has
requested; and (3) he has been given an opportunity to make any further
inquiries desired of the management and any other personnel of X-ceed and has
received satisfactory responses to such inquiries. Each of the Shareholders has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment in X-ceed. Each of the
Shareholders acknowledges that each X-ceed Stock Certificate will bear the
following legend:
The Shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The Shares have been acquired for
investment and may not be offered, sold or otherwise transferred in the absence
of an effective Registration Statement for the Shares under the Securities Act
of 1933, as amended, or a prior opinion of counsel satisfactory to the issuer,
that registration is not required under that Act.
15. Restriction on Negotiation. The Shareholders agree that until the earlier of
(a) the Closing Date, (b) the termination of this Agreement in accordance with
its terms, or (c) September 30, 1998,
neither Mercury nor the Shareholders will (1) solicit, initiate, or encourage
the submission of any proposal or offer from any person, or enter into or
consummate any transactions, relating to the acquisition of any capital stock or
other voting securities, or any substantial portion of the assets, of Mercury
(other than sales of inventory in the ordinary course of business) (including
any acquisition structured as a merger, consolidation, or share exchange) or (2)
participate in any negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any persons to do or seek to do, any of the foregoing. Mercury and
the Shareholders will promptly notify X-ceed in writing if any person makes any
written proposal, offer, inquiry, or contact with respect to any of the
foregoing. Mercury shall immediately cease any existing negotiations with any
person (other than X-ceed) conducted heretofore with respect to any of the
foregoing.
16. Miscellaneous.
(a) Nature and Survival of Representations. All statements contained in
any certificate, instrument, schedule or document executed and delivered by any
of the parties pursuant to the terms of this Agreement shall be deemed
representations and warranties by the respective parties hereunder. All
representations and warranties made by the parties each to each other in this
Agreement or pursuant hereto shall survive, except to the extent waived in
writing by the parties hereto, the consummation of the transactions contemplated
by this Agreement to the extent provided in Section 5, notwithstanding any
investigation heretofore or hereafter made by any of them or on behalf of any of
them. Each Schedule delivered in accordance with this Agreement shall be deemed
to include and refer to every other Schedule hereto.
(b) Entire Agreement. This Agreement, together with the Schedules and
Exhibits delivered pursuant to this Agreement, sets forth the entire agreement
and understanding between the parties as to the subject matter hereof, and
merges and supersedes all prior discussions, agreements and understandings of
every and any nature between them, and no party shall be bound by any condition,
definition, warranty, or representation, other than as expressly set forth or
provided for in this Agreement, or as may be, on or subsequent to the date
hereof, set forth in writing and signed by the party to be bound thereby. This
Agreement may not be changed or modified, except by agreement in writing, signed
by all of the parties hereto.
(c) Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
successors in interest of the respective parties hereto.
(d) Laws Governing. This Agreement shall be construed and interpreted
according to the law of the State of New York as applied to contracts executed
and performed in the State of New York, without regard to principles of
conflicts of law.
(e) Assignment. This Agreement shall not be assigned by the
Shareholders or X-ceed except by operation of law; provided, however, that each
of the Shareholders shall have the right to have any or all of his or her X-ceed
Common Shares issued by X-ceed at Closing in the name of one or more third
parties designated by such Shareholder, subject to the terms and conditions of
Section 1(h).
(f) Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or overnight courier, if telecopied or if mailed, certified or
registered mail, with first-class postage paid, in each case addressed as
follows: (a) if to the Shareholders, or any of them, to such of the Shareholders
c/o Mercury Seven, Inc., 55 John Street, 8th Floor, New York, New York 10038,
Telecopy No.: (212) 962-7784, or to such other person and place as the
Shareholders shall furnish to X-ceed in writing, with a copy to Paul R.
McMenamin, Berkovich and McMenamin, 500 Fifth Avenue, 29th Floor, New York, New
York 10110, Telecopy No.:(212) 768-7215 ; and (b) if to X-ceed, to Mr. Werner
Haase, X-ceed, Inc., 444 Madison Avenue, New York, New York 10022, Telecopy No.:
(212) 308-0646, or to such other person and place as X-ceed shall furnish to the
Shareholders in writing, with a copy to Richard J. Blumberg, Esq., McLaughlin &
Stern, LLP, 260 Madison Avenue, New York, New York 10016, Telecopy No.: (212)
448-0066. All notices shall be deemed given upon receipt.
(g) Further Instruments. Each of the parties hereto will, on and after
the Closing Date, execute and deliver or cause to be executed and delivered such
other documents as the other parties hereto may reasonably request to more
effectively consummate the transactions contemplated by this Agreement.
(h) Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(i) Headings. The headings in the sections of this Agreement are
inserted for convenience only and shall not constitute a part hereof.
(j) Expenses. Except as otherwise provided in this Agreement, X-ceed,
on the one hand, and the Shareholders and Mercury on the other hand, shall bear
their own respective expenses, including professional fees, incurred in
connection with this Agreement, provided, however, that all fees, costs and
expenses incurred in connection with the preparation of Mercury's audited
financial statements for the calendar year ended December 31, 1997 and unaudited
financial statements for the six months ended June 30, 1998 shall be paid by
X-ceed, and provided however, that, in the event, the Merger Transaction is not
consummated for any reason, X-ceed will reimburse Mercury $25,000 of Mercury's
legal costs incurred in connection with the contemplated Merger Transaction.
(k) Confidentiality. Each party shall maintain the existence of this
Agreement and the terms and conditions described herein ("Confidential
Information") strictly confidential. No party may disclose any Confidential
Information to any third party (other than to its legal, accounting or financial
advisors) without the prior consent of the other party. Any press release will
be subject to the prior consent of the parties. However, the parties acknowledge
that X-ceed shall have the right to make any press release or other disclosure
required to be made by X-ceed, in its discretion, in order for it to comply with
any federal or state securities laws and that the contents of such disclosure
shall be at X-ceed's discretion; provided, however, that X-ceed shall deliver a
copy thereof to the Shareholders prior to its release or disclosure, and shall
consult with the Shareholders concerning the contents thereof.
(l) Severability. If any provision of this Agreement is held by any
court of competent jurisdiction to be illegal, invalid or unenforceable, such
provision shall be of no force and effect, but the illegality, invalidity or
unenforceability shall have no effect upon and shall not impair the
enforceability of any other provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
X-CEED, INC.
By: /s/ Werner Haase
Name: Werner Haase
Title: Chief Executive Officer
X-CEED MERGER, INC.
By: /s/ Werner Haase
Name: Werner Haase
Title: President
MERCURY SEVEN, INC.
By: /s/ Robert J. Risse
Name: Robert J. Risse
Title: Chief Executive Officer
SHAREHOLDERS:
/s/ Kevin Labick
KEVIN LABICK, Individually
/s/ Robert Risse
ROBERT RISSE, Individually
/s/ Alan Ginsberg
ALAN GINSBERG, Individually
/s/ Mara Lipacis
MARA LIPACIS, Individually
CERTIFICATE OF MERGER
of
MERCURY SEVEN, INC.
Into
X-CEED MERGER INC.
Pursuant to Section 251(c) of the
State of Delaware General Corporation Law
The undersigned, being the Surviving corporation, hereby sets
forth as follows:
FIRST: The name of the Surviving corporation is X-ceed Merger
Inc.; its state of incorporation is Delaware.
SECOND: The name of the Non-Surviving corporation is Mercury
Seven, Inc.; its state of incorporation is Delaware.
THIRD: An Agreement of Merger has been approved, adopted,
certified, executed and acknowledged by each constituent corporation in
accordance with Section 251 of the State of Delaware General Corporation Law.
FOURTH: (a) The Certificate of Incorporation of X-ceed Merger
Inc. shall be the Certificate of Incorporation of the Surviving corporation.
(b) The amendment in the Certificate of Incorporation
of the Surviving Corporation that is to be effected by this Merger is as
follows:
Paragraph FIRST of the Certificate of Incorporation
of X-ceed Merger Inc. setting forth the name is to be
changed to Mercury Seven, Inc.
FIFTH: The executed Agreement of Merger is on file at the
principal place of business of the Surviving corporation; the address of said
principal place of business is as follows:
488 Madison Avenue
New York, New York 10022
<PAGE>
SIXTH: A copy of the Agreement of Merger will be furnished by
the Surviving corporation, on request and without cost, to any stockholder of
any constituent corporation.
SEVENTH: The authorized capital stock of the Non-Surviving
corporation which is incorporated under the laws of the State of Delaware is
3,000,000 shares of Common Stock, $.01 par value per share.
IN WITNESS WHEREOF, this Certificate is hereby executed this
9th day of September, 1998.
X-CEED MERGER INC.
Surviving Corporation
By: /s/ Werner Haase
Werner Haase, President
2
AGREEMENT AND PLAN OF MERGER
Among
X-CEED, INC.
ZABIT & ASSOCIATES, INC.
and
THE SHAREHOLDERS NAMED HEREIN
September 2, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER...........................................1
1.1 The Merger...........................................1
1.2 Closing..............................................1
1.3 Effective Time.......................................1
1.4 Corporate Organization...............................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS.............................2
2.1 Conversion of Zabit Common Stock.....................2
2.2 Surrender and Payment................................3
2.3 Adjustments..........................................3
ARTICLE III THE SURVIVING CORPORATION............................3
3.1 Certificate of Incorporation.........................3
3.2 Bylaws...............................................3
3.3 Directors and Officers...............................3
3.4 Separate Division....................................4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ZABIT AND THE
ZABIT SHAREHOLDERS...................................4
4.1 Organization and Qualification.......................4
4.2 Capital Structure....................................4
4.3 Subsidiaries; Equity Investments.....................5
4.4 Authority............................................6
4.5 No Conflict with Other Instruments...................6
4.6 Governmental Consents................................6
4.7 Financial Statements.................................6
4.8 Absence of Changes...................................7
4.9 Properties...........................................8
4.10 Taxes................................................9
4.11 Employees...........................................10
4.12 Compliance with Law.................................11
4.13 Litigation..........................................11
4.14 Contracts...........................................11
4.15 No Default..........................................12
4.16 Proprietary Rights..................................12
4.17 Brokers or Finders..................................13
4.18 Related Parties.....................................13
4.19 Certain Advances....................................13
4.20 Underlying Documents................................13
4.21 No Misleading Statements............................13
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Page
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ZABIT
SHAREHOLDERS........................................13
5.1 Zabit Common Stock..................................13
5.2 Investment Representations..........................14
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF X-CEED............15
6.1 Organization and Qualification......................15
6.2 Capital Structure...................................16
6.3 Subsidiaries; Equity Investments....................17
6.4 Authority...........................................17
6.5 No Conflict with Other Instruments..................17
6.6 Governmental Consents...............................18
6.7 Reports and Financial Statements....................18
6.8 Absence of Changes..................................19
6.9 Properties..........................................20
6.10 Taxes...............................................21
6.11 Employees...........................................22
6.12 Compliance with Law.................................22
6.13 Litigation..........................................22
6.14 Contracts...........................................23
6.15 No Default..........................................23
6.16 Proprietary Rights..................................24
6.17 Brokers or Finders..................................24
6.18 Related Parties.....................................25
6.19 Certain Advances....................................25
6.20 Underlying Documents................................25
6.21 No Misleading Statements............................25
6.22 Shares of X-ceed Common Stock.......................25
ARTICLE VII CONDUCT PRIOR TO THE EFFECTIVE TIME.................25
7.1 Conduct of Business of Zabit and X-ceed.............25
7.2 No Solicitation.....................................27
ARTICLE VIII ADDITIONAL AGREEMENTS...............................28
8.1 Approval of Zabit Shareholders......................28
8.2 Access to Information; Interim Financial Information.28
8.3 Confidentiality.....................................28
8.4 Expenses............................................29
8.5 Public Disclosure...................................29
8.6 Efforts.............................................29
8.7 Conduct; Notification of Certain Matters............29
8.8 Tax-Free Reorganization.............................29
8.9 Blue Sky Laws.......................................30
8.10 Acquisition Plan....................................30
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Page
8.11 Key Employee Retention..............................30
8.12 Key Employee Options................................30
8.13 Additional Documents and Further Assurances.........30
8.14 Listing of Additional Shares........................30
8.15 Registration Rights Agreement.......................30
8.16 Required Consents...................................30
ARTICLE IX CONDITIONS TO THE MERGER............................30
9.1 Conditions to Obligations of Each Party to Effect the
Merger..............................................30
9.2 Additional Conditions to Obligations of Zabit.......31
9.3 Additional Conditions to the Obligations of X-ceed..32
ARTICLE X INDEMNIFICATION.....................................33
10.1 Survival of Representations and Warranties..........33
10.2 Indemnification by the Zabit Shareholders...........33
10.3 Indemnification by X-ceed...........................34
10.4 Defense of Claims...................................34
ARTICLE XI TERMINATION, AMENDMENT, WAIVER, CLOSING.............35
11.1 Termination.........................................35
11.2 Effect of Termination...............................36
11.3 Amendment or Supplement.............................36
11.4 Extension of Time, Waiver...........................36
ARTICLE XII GENERAL.............................................37
12.1 Notices.............................................37
12.2 Headings............................................38
12.3 Counterparts........................................38
12.4 Entire Agreement; Assignment........................38
12.5 Severability........................................38
12.6 Other Remedies......................................38
12.7 Governing Law.......................................38
12.8 Arbitration.........................................39
12.9 Absence of Third-Party Beneficiary Rights...........39
Exhibit A Certificate of Merger (DE)
Exhibit B Agreement of Merger (CA)
Exhibit C Form of First Promissory Note
Exhibit D Form of Second Promissory Note
Exhibit E Form of William N. Zabit Employment Agreement
Exhibit F Zabit Acquisition Plan
Exhibit G Form of Bradley K. Nelson Employment Agreement
Exhibit H Key Zabit Employees
Exhibit I Form of Registration Rights Agreement
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Page
Schedule 4.2 Addresses of Zabit Shareholders
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and entered
into as of the 2nd day of September, 1998, by and among X-CEED, INC., a Delaware
corporation ("X-ceed"), ZABIT & ASSOCIATES, INC., a California corporation
("Zabit"), and William N. Zabit, Joyce M. Wesolowski and Judith Cohen
(collectively, the "Zabit Shareholders"),
W I T N E S S E T H:
WHEREAS, the Boards of Directors of X-ceed and Zabit deem it advisable
and in the best interests of their respective companies and their respective
stockholders or shareholders, as the case may be, to effect the merger hereafter
provided for, in which Zabit would merge with and into X-ceed (the "Merger");
and
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
N O W, T H E R E F O R E, in consideration of the premises and of the
mutual agreements, provisions and covenants herein contained, X-ceed, Zabit and
the Zabit Shareholders hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3), upon
the terms and subject to the conditions of this Agreement, Zabit shall be merged
with and into X-ceed in accordance with the California General Corporation Law
(the "CGCL") and the Delaware General Corporation Law ("DGCL"), whereupon the
separate existence of Zabit shall cease, other than as provided for in Section
3.4, and X-ceed shall be the surviving corporation.
1.2 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Pillsbury Madison &
Sutro LLP, 235 Montgomery Street, San Francisco, as soon as practicable
following satisfaction or waiver of all of the conditions to the obligations of
the parties to consummate the transactions contemplated hereby in accordance
with this Agreement, or at such other time, place and date as is mutually agreed
to by the parties hereto. The date of the Closing is referred to in this
Agreement as the "Closing Date."
1.3 Effective Time. As soon as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger, Zabit and
X-ceed shall file a Certificate of Merger, in the form attached hereto as
Exhibit A, with the Secretary of State of the State of Delaware, and an
Agreement of Merger, in the form attached hereto as Exhibit B, with the
Secretary of State of the State of California, and make all other filings or
recordings required by the CGCL and the DGCL in connection with the Merger. The
Merger shall become effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of the State of Delaware and the
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<PAGE>
Agreement of Merger is duly filed with the Secretary of State of the State of
California (the "Effective Time").
1.4 Corporate Organization. At and after the Effective Time, X-ceed
shall possess all the rights, privileges, powers and franchises and be subject
to all of the restrictions, liabilities and duties of X-ceed and Zabit, all as
provided under the CGCL and the DGCL.
ARTICLE II
EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Conversion of Zabit Common Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of any holder of common stock
of Zabit ("Zabit Common Stock"), the following shall occur:
(a) Each share of Zabit Common Stock held by Zabit as treasury stock
shall be canceled, and no payment shall be made with respect thereto.
(b) Each share of Zabit Common Stock outstanding immediately prior to
the Effective Time (except as otherwise provided in Section 2.1(a)) shall be
entitled to receive as consideration for the Merger either cash and/or shares of
X-ceed Common Stock $.01 par value ("X-ceed Common Stock") in exchange for their
shares of Zabit Common Stock as set forth below. William N. Zabit and Joyce M.
Wesolowski have elected to receive promissory notes from X-ceed, substantially
in the forms of Exhibits C and D attached hereto (the "X-ceed Notes"), payable
to such holders in an aggregate principal amount equal to six million seven
hundred thirty thousand two hundred eight dollars ($6,730,208) in exchange for
four hundred eight thousand thirteen (408,013) shares of Zabit Common Stock held
by such holders (William N. Zabit will receive a promissory note in the form of
Exhibit C in the principal amount of three million eight hundred forty thousand
dollars ($3,840,000) and a promissory note in the form of Exhibit D in the
principal amount of one million five hundred forty four thousand one hundred
sixty six dollars ($1,544,166) and Joyce M. Wesolowski will receive a promissory
note in the form of Exhibit C in the principal amount of nine hundred sixty
thousand dollars ($960,000) and a promissory note in the form of Exhibit D in
the principal amount of three hundred eighty six thousand forty two dollars
($386,042)). The consideration to be received by the issuance and delivery of
the X-ceed Notes shall be referred to herein as the "Cash Consideration". The
remaining shares of Zabit Common Stock, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to receive
that number of shares of X-ceed Common Stock equal to the Exchange Ratio, which
is the quotient (rounded to the nearest four decimal places) of two million two
hundred fifty eight thousand seven hundred twenty four (2,258,724) divided by a
number equal to the total number of shares of Zabit Common Stock outstanding
immediately prior to the Effective Time (less the four hundred eight thousand
thirteen (408,013) shares of Zabit Common Stock that were converted into the
right to receive the Cash Consideration) or 3.6550 shares of X-ceed Common Stock
per share of Zabit Common Stock (the "Share Consideration" and together with the
Cash Consideration, the "Merger Consideration").
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2.2 Surrender and Payment.
(a) Holders of shares of Zabit Common Stock that have been converted
into a right to receive any portion of the Merger Consideration, upon surrender
to X-ceed of a certificate or certificates representing such shares of Zabit
Common Stock, will be entitled to receive the Merger Consideration payable in
respect of such shares of Zabit Common Stock. Until so surrendered, each
certificate representing shares of Zabit Common Stock shall, after the Effective
Time, represent for all purposes only the right to receive such Merger
Consideration.
(b) Any amounts remaining unclaimed by holders of shares of Zabit Common
Stock three years after the Effective Time (or such earlier date prior to such
time as such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of X-ceed free and clear of any claims or interest of any person
previously entitled thereto.
(c) No dividends, interest or other distributions with respect to X-ceed
Common Stock constituting part of the Merger Consideration shall be paid to the
holder of any unsurrendered certificates representing shares of Zabit Common
Stock until such certificates are surrendered as provided in this Section 2.2.
Upon such surrender, there shall be paid, without interest, to the person in
whose name the certificates representing X-ceed Common Stock into which such
shares of Zabit Common Stock were converted are registered, all dividends,
interest and other distributions payable in respect of such shares of Zabit
Common Stock on a date subsequent to, and in respect of a record date after, the
Effective Time.
2.3 Adjustments. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of X-ceed shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the number of shares of X-ceed Common Stock constituting all or
part of the Merger Consideration shall be appropriately adjusted.
ARTICLE III
THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The certificate of incorporation of
X-ceed in effect at the Effective Time shall remain the certificate of
incorporation of X-ceed as the surviving corporation until amended in accordance
with applicable law.
3.2 Bylaws. The Bylaws of X-ceed in effect at the Effective Time shall
be the Bylaws of X-ceed as the surviving corporation until amended in accordance
with applicable law.
3.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of X-ceed at the Effective Time shall remain the
directors of X-ceed and the officers of X-ceed at the Effective Time shall be
the officers of X-ceed; provided, however, that at the Effective Time, William
N. Zabit shall
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<PAGE>
be named President of X-ceed and shall enter into an Employment Agreement with
X-ceed in substantially the form as attached hereto as Exhibit E; and provided,
further, William N. Zabit shall also be appointed to the Board of Directors of
X-ceed (the "X-ceed Board").
3.4 Separate Division. From and after the Effective Time, the business
of Zabit will be conducted as "Zabit & Associates," a separate division of
X-ceed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ZABIT AND THE ZABIT SHAREHOLDERS
Except as otherwise specifically set forth on the disclosure schedule
delivered by Zabit to X-ceed prior to the execution of this Agreement (the
"Zabit Disclosure Schedule"), Zabit and the Zabit Shareholders, severally and
jointly, represent and warrant to X-ceed as follows:
4.1 Organization and Qualification. Zabit is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has all requisite power and
authority to own, lease and operate its respective properties and to carry on
its business as now being conducted.
Zabit is qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which the
nature of its business requires such qualification, which states or
jurisdictions are listed on the Zabit Disclosure Schedule, except where the
failure to be so qualified or in good standing which, taken together with all
other such failures, would not have a material adverse effect on Zabit. As used
in this Agreement, any reference to any event, change or effect being "material"
or "materially adverse" or having a "material adverse effect" on or with respect
to an entity (or group of entities, taken as a whole) means such event, change
or effect is material or materially adverse, as the case may be, to the
business, condition (financial or otherwise), properties, assets, liabilities,
or results of operations of such entity (or, if with respect thereto, of such
group of entities taken as a whole).
Zabit has delivered or made available to X-ceed true, complete and
correct copies, with respect to Zabit, of its (i) Articles of Incorporation and
Bylaws (or other applicable charter documents), as amended to the date hereof,
(ii) minutes of all of directors' and shareholders' meetings (or other
applicable meetings), complete and accurate as of the date hereof, and (iii)
form of stock certificates, option agreements and rights to purchase shares of
its capital stock or other equity interests. Such Articles of Incorporation and
Bylaws and other applicable charter documents are in full force and effect.
4.2 Capital Structure.
(a) The authorized capital stock of Zabit consists of one hundred
million (100,000,000) shares of common stock, no par value ("Zabit Common
Stock"). As of the date of this Agreement, there were issued and outstanding one
million (1,000,000) shares of Zabit Common Stock.
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(b) As of the date of this Agreement, there were outstanding options
(the "Zabit Options") to acquire twenty six thousand (26,000) shares of Zabit
Common Stock. As of the date of this Agreement, there were an aggregate of
twenty six thousand (26,000) shares of Zabit Common Stock reserved for issuance
upon the exercise of outstanding Zabit Options.
(c) Other than as described paragraphs (a) and (b) above, there are no
other outstanding shares of capital stock or other equity securities of Zabit
and no other options, warrants, calls, conversion rights, commitments or
agreements of any character to which Zabit is a party or by which Zabit may be
bound that do or may obligate Zabit to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of Zabit's capital stock or
securities convertible into or exchangeable for Zabit's capital stock or that do
or may obligate Zabit to grant, extend or enter into any such option, warrant,
call, conversion right, commitment or agreement.
(d) Of the issued and outstanding Zabit Common Stock, no shares are
subject to repurchase or redemption. All outstanding shares of Zabit Common
Stock are, and any shares of Zabit Common Stock issued upon exercise of Zabit
Options (subject to receipt of the exercise prices as provided therein) will be,
validly issued, fully paid and nonassessable and not subject to preemptive
rights created by statute, Zabit's Articles of Incorporation or Bylaws or any
agreement to which Zabit is a party or by which Zabit may be bound. All
outstanding securities of Zabit have been issued in compliance with applicable
federal and state securities laws.
(e) Section 4.2 of the Zabit Disclosure Schedule ("Schedule 4.2")
contains complete and accurate lists of, and the number of shares owned of
record by, the holders of outstanding Zabit Common Stock, and the number of
shares subject to Zabit Options, and the holders of outstanding Zabit Options,
including in each case the addresses of such holders. Schedule 4.2 is complete
and accurate on the date hereof and, if required, an updated Schedule 4.2 to be
attached hereto will be complete and accurate as of the Closing Date. Such
Schedule 4.2 identifies the vesting schedule, applicable legends, and repurchase
rights or other risks of forfeiture of any outstanding security of Zabit.
(f) Schedule 4.2 contains a complete and accurate list of each stock
option plan, stock appreciation rights or other equity-related stock incentive
plan of Zabit.
(g) Except as set forth in the Zabit Disclosure Schedule and except for
any restrictions imposed by applicable federal and state securities laws, there
is no right of first refusal, co-sale right, right of participation, right of
first offer, option or other restriction on transfer applicable to any shares of
Zabit Common Stock.
(h) Zabit is not a party or subject to any agreement or understanding,
and there is no voting trust, proxy, or other agreement or understanding between
or among any persons that affects or relates to the voting or giving of written
consent with respect to any outstanding security of Zabit, the election of
directors, the appointment of officers or other actions of Zabit's Board of
Directors (the "Zabit Board") or the management of Zabit.
4.3 Subsidiaries; Equity Investments. Zabit does not have and has never
had any subsidiaries or companies controlled by Zabit and does not own and has
never owned any equity
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interest in, or controlled, directly or indirectly, any other corporation,
partnership, joint venture, trust, firm or other entity.
4.4 Authority. Zabit has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby. Subject to Article VIII, the
execution and delivery of this Agreement, the performance by Zabit of its
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Zabit, including approval of the Zabit Board and Zabit's
shareholders. This Agreement is a valid and binding obligation of Zabit.
4.5 No Conflict with Other Instruments. Subject to obtaining the
consents set forth in Section 4.5 of the Zabit Disclosure Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby (a) will not result in any violation of, conflict with,
constitute a breach, violation or default (with or without notice or lapse of
time, or both) under, give rise to a right of termination, cancellation,
forfeiture or acceleration of any obligation or loss of any benefit under, or
result in the creation or encumbrance on any of the properties or assets of
Zabit pursuant to (i) any provision of Zabit's Articles of Incorporation or
Bylaws or (ii) any agreement, contract, understanding, note, mortgage,
indenture, lease, franchise, license, permit or other instrument to which Zabit
is a party or by which the properties or assets of Zabit is bound, or (b) to the
knowledge of Zabit, conflict with or result in any breach or violation of any
statute, judgment, decree, order, rule or governmental regulation applicable to
Zabit or its properties or assets, except, in the case of clauses (a)(ii) and
(b) for any of the foregoing that would not, individually or in the aggregate,
have a material adverse effect on Zabit taken as a whole, or that could not
result in the creation of any material lien, charge or encumbrance upon any
assets of Zabit or that could not prevent, materially delay or materially burden
the transactions contemplated by this Agreement.
4.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign, is required
by or with respect to Zabit in connection with the execution, delivery and
performance of this Agreement by Zabit or the consummation by Zabit of the
transactions contemplated hereby, except for (a) the filing of the Certificate
of Merger with the Delaware Secretary of State and an Agreement of Merger with
the California Secretary of State and (b) such consents, approvals, orders,
authorizations, registrations, declarations, qualifications or filings as may be
required under federal or state securities laws in connection with the
transactions contemplated hereby.
4.7 Financial Statements. Zabit has previously furnished to X-ceed a
complete and accurate copy of the reviewed combined financial statements of
Zabit and Water Street Design Group, Inc. ("Water Street") for the fiscal years
ended December 31, 1996 and December 31, 1997 and the internal/unaudited
combined financial statements of Zabit and Water Street for the six month period
ended June 30, 1998 and the supplementary schedules thereto (the "Zabit
Financial Statements"). Zabit believes that the Zabit Financial Statements, as
they relate to Zabit, are complete and correct in all material respects (except
that the June 30, 1998 financial statements do not have footnotes thereto and
the Zabit Financial Statements have not been audited) and have been generally
prepared
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in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods indicated and are consistent with each
other. The Zabit Financial Statements accurately set out and describe the
financial condition and operating results of Zabit as of the dates, and for the
periods, indicated therein, subject to normal year-end adjustments. At the date
of the Zabit Financial Statements and as of the Closing Date, except as set
forth in the Zabit Disclosure Schedule, Zabit had and will have no liabilities
or obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise and whether or not required to be reflected on the balance sheet of
Zabit (the "Zabit Balance Sheet") under GAAP) not reflected in the Zabit
Financial Statements or the accompanying notes thereto except for liabilities
and obligations that have arisen in the ordinary course of business prior to the
date of the Zabit Financial Statements and which, under GAAP, would not have
been required to be reflected in the Zabit Financial Statements and except for
liabilities incurred in the ordinary course of business since the date of the
Zabit Financial Statements which are usual and normal in amount. Zabit maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
4.8 Absence of Changes. Since July 31, 1998, except as otherwise
contemplated by this Agreement or set forth in the Zabit Disclosure Schedule,
Zabit has conducted its respective business only in the ordinary and usual
course and, without limiting the generality of the foregoing:
(a) There have been no material changes in the condition (financial or
otherwise), business, assets, properties, employees, operations, obligations or
liabilities of Zabit, taken as a whole, which, in the aggregate, have had or may
be reasonably expected to have a material adverse effect on Zabit;
(b) Except as provided for in paragraph (e) below, Zabit has not issued,
or authorized for issuance, or entered into any commitment to issue, any equity
security, bond, note or other security;
(c) Zabit has not incurred additional debt for borrowed money, or
incurred any obligation or liability except in the ordinary course of business
consistent with past practice;
(d) Zabit has not paid any obligation or liability, or discharged,
settled or satisfied any claim, lien or encumbrance, except for current
liabilities in the ordinary course of business consistent with past practice;
(e) Zabit has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock, except that prior
to the Effective Time, Zabit will re-classify advances to shareholders as
distributions and will issue a promissory note, or notes, payable to the Zabit
Shareholders in the amount of one hundred fifty thousand dollars ($150,000) for
the payment of taxes resulting from 1998 corporate income with such promissory
note or notes due and payable no later than March 15, 1999;
(f) Zabit has not purchased, redeemed or otherwise acquired or committed
itself to acquire, directly or indirectly, any share or shares of its capital
stock;
(g) Zabit has not mortgaged, pledged, or otherwise encumbered any of its
assets or properties, except for liens for current taxes which are not yet
delinquent and purchase-money liens arising out of the purchase or sale of
services or products made in the ordinary course of business consistent with
past practice;
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(h) Zabit has not disposed of, or agreed to dispose of, by sale, lease,
license or otherwise, any asset or property, tangible or intangible, except in
the ordinary course of business consistent with past practice, and in each case
for a consideration believed to be at least equal to the fair value of such
asset or property;
(i) Zabit has not purchased or agreed to purchase or otherwise acquire
any securities of any corporation, partnership, joint venture, firm or other
entity;
(j) Zabit has not made any expenditure or commitment for the purchase,
acquisition, construction or improvement of a capital asset, except in the
ordinary course of business consistent with past practice;
(k) Zabit has not entered into any material transaction or contract, or
made any commitment to do the same;
(l) Except for the "Zabit & Associates" trademark, Zabit has not sold,
assigned, licensed, transferred or conveyed, or committed itself to sell,
assign, transfer or convey, any Zabit Proprietary Rights (as defined in Section
4.16);
(m) Zabit has not adopted or amended any bonus, incentive,
profit-sharing, stock option, stock purchase, pension, retirement,
deferred-compensation, severance, life insurance, medical or other benefit plan,
agreement, trust, fund or arrangement for the benefit of employees of any kind
whatsoever, nor entered into or amended any agreement relating to employment,
services as an independent contractor or consultant, or severance or termination
pay, nor agreed to do any of the foregoing;
(n) Zabit has not effected or agreed to effect any change in its
directors, officers or key employees; and
(o) Zabit has not effected or committed itself to effect any amendment
or modification in its Articles of Incorporation or Bylaws.
4.9 Properties.
(a) The Zabit Financial Statements reflect all of the real and personal
property owned or used by Zabit in its respective businesses or otherwise held
by Zabit, except for (i) property acquired or disposed of in the ordinary course
of business consistent with past practice of Zabit, since the date of the Zabit
Balance Sheet, and (ii) personal property not required under GAAP to be
reflected thereon. Zabit has good and marketable title to all assets and
properties listed in the Zabit Financial Statements or thereafter acquired, free
and clear of any imperfections of title, lien, claim, encumbrance, restriction,
charge or equity of any nature whatsoever, except for liens of current taxes not
yet delinquent. All of the fixed assets and properties reflected in the Zabit
Financial Statements or thereafter acquired are in good condition and repair for
the requirements of the business as presently conducted by Zabit.
(b) Section 4.9 of the Zabit Disclosure Schedule contains a complete and
accurate list of all real property leased by Zabit (the "Zabit Properties"), the
name of the lessor and the date of the
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lease. Zabit does not have any options to purchase any such Zabit Properties or
any other real property. The Zabit Properties are held under valid, existing and
enforceable leases. The Zabit Properties and the operations of Zabit thereon do
not violate any applicable material building code, zoning requirement or
classification, or pollution control ordinance or statute relating to the Zabit
Properties or to such operations.
4.10 Taxes.
(a) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes, including without limitation (i) any income, profits,
alternative or add-on minimum tax, gross receipts, sales, use, value-added, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, net worth, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or assessment or charge of any kind what soever, together with any interest
or any penalty, addition to tax or additional amount imposed by any governmental
entity responsible for the imposition of any such tax (domestic or foreign) (a
"Taxing Authority"), (ii) any liability for the payment of any amounts of the
type described in clause (i) above as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof, and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) above
as a result of any express or implied obligation to indemnify any other person.
(b) All Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any Taxable period ending on or
before the Effective Time, by or on behalf of Zabit (collectively, the "Zabit
Returns"), have been or will be filed when due (including any extensions of such
due date), and all amounts shown to be due thereon on or before the Effective
Time have been or will be paid on or before such date. All the Zabit Returns are
true and correct in all material respects. Zabit has no liability for Taxes,
other than as shown on the Zabit Returns, except for positions taken in good
faith and for which adequate reserves have been established. The Zabit Financial
Statements fully accrue all actual and contingent liabilities for Taxes with
respect to all periods through the dates thereof. The Zabit Financial Statements
(i) fully accrue consistent with GAAP all actual and contingent liabilities for
Taxes with respect to all periods through the date of the Zabit Financial
Statements and (ii) properly accrue consistent with GAAP all liabilities for
Taxes payable after the date of the Zabit Balance Sheet with respect to all
transactions and events occurring on or prior to such date. All information set
forth in the notes to the Zabit Financial Statements relating to Tax matters is
true, complete and accurate in all material respects.
(c) No Tax liability has been incurred since the date of the Zabit
Financial Statements other than in the ordinary course of business and adequate
provision has been made for all Taxes since that date on at least a quarterly
or, with respect to employment taxes, monthly basis. Zabit has withheld and paid
to the applicable financial institution or Taxing Authority all amounts required
to be withheld by it. Copies of all Zabit Returns filed with respect to federal
income tax returns for Taxable years of Zabit ending prior to the date hereof
have been provided to X-ceed. Zabit has not been granted any extension or waiver
of the limitation period applicable to any Zabit Return.
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(d) There is no claim, audit, action, suit, proceeding or investigation
now pending or threatened against or with respect to Zabit in respect of any Tax
or assessment. There are no liabili ties for Taxes with respect to any notice of
deficiency or similar document of any Tax Authority received by Zabit which have
not been satisfied in full (including liabilities for interest, additions to tax
and penalties thereon and related expenses). Neither Zabit, nor any person on
behalf of Zabit has entered into or will enter into any agreement or consent
pursuant to Section 341(f) of the Code. There are no liens for Taxes upon the
assets of Zabit except liens for current Taxes not yet due. Except as may be
required as a result of the Merger or as otherwise disclosed to Zabit, Zabit has
not been nor will it be required to include any adjustment in Taxable income for
any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Effective Time.
(e) There is no contract, agreement, plan or arrangement, including
without limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of Zabit
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the Code
(as determined without regard to Section 280G(b)(4)). Other than pursuant to
this Agreement, Zabit is not a party to or bound by (nor will it prior to the
Effective Time become a party to or bound by) any tax indemnity, tax sharing or
tax allocation agreement (whether written, unwritten or arising under operation
of federal law as a result of being a member of a group filing consolidated tax
returns, under operation of certain state laws as a result of being a member of
a unitary group, or under comparable laws of other states or foreign
jurisdictions) which includes a party other than Zabit. None of the assets of
Zabit (i) is property that Zabit is required to treat as owned by any other
person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code, (ii) directly or indirectly secures any debt the
interest on which is tax exempt under Section 103(a) of the Code, or (iii) is
"tax exempt use property" within the meaning of Section 168(h) of the Code.
Zabit has not participated in (and prior to the Effective Time Zabit will not
participate in) an international boycott within the meaning of Section 999 of
the Code. Zabit has previously provided or made available to X-ceed complete and
accurate copies of all Zabit Returns, and, as reasonably requested by X-ceed,
prior to or following the date hereof, presently existing information
statements, reports, work papers, Tax opinions and memoranda and other Tax data
and documents.
4.11 Employees. Zabit has provided X-ceed with a complete and accurate
list setting forth all employees and consultants of Zabit as of the date hereof,
together with their titles or positions, dates of hire, regular work location
and current compensation. Except as set forth in the Zabit Disclosure Schedule,
Zabit does not have any employment contract with any officer or employee or any
other consultant or person which is not terminable by it at will without
liability, except as the right of Zabit to terminate its employees at will may
be limited by applicable federal, state or foreign law. Except as set forth in
the Zabit Disclosure Schedule, Zabit does not have any deferred compensation,
pension, health, profit sharing, bonus, stock purchase, stock option,
hospitalization, insurance, severance, workers' compensation, supplemental
unemployment benefits, vacation benefits, disability benefits, or any other
employee pension benefit (as defined in the Employee Retirement Income Security
Act of 1974 ("ERISA") or otherwise) or welfare benefit plan or obligation
covering any of its officers or employees ("Employee Plans") or any informal
understanding with respect to the foregoing. Each of Zabit's Employee Plans has
been maintained
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in material compliance with its terms and all applicable ERISA and other
requirements as to the filing of reports, documents and notices with
governmental agencies and the finishing of documents to participants or
beneficiaries have been satisfied. Zabit does not maintain or has ever
maintained or contributed to any Employee Plan subject to Title IV of ERISA
(relating to defined benefit plans).
There are no controversies or labor disputes or union organization
activities pending or threatened between Zabit and any of its employees. None of
the employees of Zabit belongs to any union or collective bargaining unit. Zabit
has complied with all applicable foreign, state and federal equal employment
opportunity and other laws and regulations related to employment or working
conditions.
4.12 Compliance with Law. All material licenses, franchises, permits,
clearances, consents, certificates and other evidences of authority of Zabit
which are necessary to the conduct of Zabit's business ("Zabit Permits") are in
full force and effect and Zabit is not in violation of any Zabit Permit in any
material respect. Except for exceptions which would not have a material adverse
effect on Zabit, the business of Zabit has been conducted in accordance with all
applicable laws, regula tions, orders and other requirements of governmental
authorities.
4.13 Litigation. Except as set forth in the Zabit Disclosure Schedule,
to the best of the Zabit Shareholders' knowledge, there is no claim, dispute,
action, proceeding, notice, order, suit, appeal or investigation, at law or in
equity, pending or, to the knowledge of the Zabit Shareholders, threatened,
against Zabit or any of its directors, officers, employees or agents, or
involving any of their respective assets or properties used in or related to the
business of Zabit, before any court, agency, authority, arbitration panel or
other tribunal. Except as set forth in the Zabit Disclosure Schedule, the Zabit
Shareholders are not aware of any facts which, if known to the Zabit
Shareholders, would result in any such claim (other than customary and normal
returns of product in the ordinary course of business consistent with past
practice), dispute, action, proceeding, suit or appeal or investigation. Zabit
is not subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal, nor is Zabit in default with
respect to any notice, order, writ, injunction or decree, any of which would
have a material adverse effect on Zabit.
4.14 Contracts. Section 4.14 of the Zabit Disclosure Schedule contains a
complete and accurate list of each executory contract and agreement in the
following categories to which Zabit is a party, or by which Zabit is bound in
any respect: (a) agreements for the purchase, sale, lease or other disposition
of equipment, goods, materials, supplies, or capital assets, or for the
performance of services which are not terminable without penalty on thirty (30)
days' notice, in any case involving more than twenty-five thousand dollars
($25,000); (b) contracts or agreements for the joint per formance of work or
services, and all other joint venture, collaboration, research, or other
agreements, and grant requests or proposals for research and development
contracts in excess of fifty thousand dollars ($50,000) each; (c) management or
employment contracts, consulting contracts, collective bargaining contracts,
termination and severance agreements; (d) notes, mortgages, deeds of trust, loan
agreements, security agreement, guarantees, debentures, indentures, credit
agreements and other evidences of indebtedness; (e) each Employee Plan
(including, without limitation, any contracts or agreements with trustees,
insurance companies or others relating to any such employee benefit plan or
arrangement); (f) warrants, repurchase or other contracts or agreements relating
to the issuance of capital stock or other equity interests of Zabit; (g)
contracts or agreements with agents, brokers, consignees, sale representatives
or distributors; (h) contracts or agreements with any
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director, officer, employee, consultant or stockholder; (i) powers of attorney
or similar authorizations granted by Zabit to third parties; (j) patents,
licenses, sublicenses, royalty agreements and other contracts or agreements to
which Zabit is a party, or otherwise subject, relating to technical assistance
or to Zabit Proprietary Rights; (k) personal property or capital equipment
leases and other rental, use or service arrangements of Zabit involving payment
obligations in excess of fifty thousand dollars ($50,000) and which cannot be
terminated without penalty on thirty (30) days' notice; and (l) other material
contracts.
Zabit has not, nor, to the knowledge of the Zabit Shareholders, has any
of its employees entered into any contract or agreement containing covenants
limiting the right of Zabit to compete in any business or with any person. As
used in this Agreement, the terms "contract" and "agreement" include every
contract, agreement, commitment, understanding and promise, whether written or
oral.
4.15 No Default.
(a) Each of the contracts, agreements or other instruments referred to
in Section 4.14 is a legal, binding and enforceable obligation by or against
Zabit subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting the
rights of creditors and the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies. No party
with whom Zabit has an agreement or contract is in default thereunder or has
breached any term or provision thereof where such default or breach would have a
material adverse effect on the business of Zabit.
(b) Except as set forth in the Zabit Disclosure Schedule, Zabit has
performed, or is now performing, the obligations of, and Zabit is not in
material default (or would by the lapse of time and/or the giving of notice be
in material default) in respect of, any contract, agreement or commitment
binding upon it or its assets or properties and material to the conduct of its
business. Except as set forth in the Zabit Disclosure Schedule, no third party
has notified Zabit of any claim, dispute or controversy with respect to any of
the executory contracts of Zabit nor has Zabit received notice or warning of
alleged nonperformance, delay in delivery or other noncompliance by Zabit with
respect to its obligations under any of those contracts, where such alleged
nonperformance, delay in delivery or other noncompliance would have a material
adverse effect on Zabit, nor are there any facts which exist indicating that any
of those contracts may be totally or partially terminated or suspended by the
other parties thereto.
4.16 Proprietary Rights.
(a) Section 4.16 of the Zabit Disclosure Schedule sets forth a complete
and accurate list (Schedule 4.16) of all intangible and intellectual property
used in or related to the business conducted by Zabit (collectively, the "Zabit
Proprietary Rights"), including (a) all trademarks, service marks, trade names,
trade styles, copyrights and all registrations or applications therefor, (b) all
patents, inventions and all registrations or applications therefor, and (c) all
licenses, sublicenses and other agreements to which Zabit is a party, either as
licensee or licensor or otherwise, related to any of the Zabit Proprietary
Rights. Zabit has not engaged in any conduct or omitted to perform any necessary
act, the result of which would invalidate, abandon or otherwise render Zabit's
rights to any Zabit Proprietary Rights unenforceable. Except as set forth in
Schedule 4.16, Zabit is not required to pay
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any royalty, license, fee or other similar compensation with respect to the
Zabit Proprietary Rights in connection with the current or prior conduct of the
business conducted by Zabit. As used in the business of Zabit as currently
conducted, none of the Zabit Proprietary Rights infringes or misappropriates or
otherwise violates or has been alleged to infringe, misappropriate or otherwise
violate any proprietary rights of any other person or entity, nor is Zabit
otherwise in the conduct of its business infringing upon, or alleged to be
infringing upon, any proprietary rights of any other person or entity. To the
knowledge of the Zabit Shareholders, no person or entity is engaged in any
activity which would constitute infringement of Zabit's rights in the Zabit
Proprietary Rights. Zabit is not a party to any agreement to indemnify any other
person or entity against any charge of infringement of any proprietary right
except customary vendor provisions contained in software contracts.
4.17 Brokers or Finders. Zabit is being represented in connection with
transactions contemplated by this Agreement by Wit Capital Corporation, and
Zabit will be responsible for the payment of all fees and expenses in connection
with such representation.
4.18 Related Parties. Except as set forth in the Zabit Disclosure
Schedule, no officer or director of Zabit, or any affiliate of Zabit or any such
person, has, either directly or indirectly, (a) an interest in any corporation,
partnership, firm or other person or entity which furnishes or sells services or
products which are similar to those furnished or sold by Zabit, or (b) a
beneficial interest in any contract or agreement to which Zabit is a party or by
which Zabit may be bound.
4.19 Certain Advances. Except as set forth in the Zabit Disclosure
Schedule and Section 4.8(e), there are no receivables of Zabit owing from
directors, officers, employees, consultants or shareholders of Zabit or owing by
any affiliate of any director or officer of Zabit, other than advances in the
ordinary course of business consistent with past practice to officers and
employees for reimbursable business expenses which are not in excess of
twenty-five thousand dollars ($25,000) for any one individual.
4.20 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to X-ceed pursuant to this Agreement have
been furnished to X-ceed. All such documents furnished to X-ceed are true and
correct copies, and there are no amendments or modifi cations thereto that have
not been disclosed in writing to X-ceed.
4.21 No Misleading Statements. No representation or warranty made
herein, in the Zabit Disclosure Schedule or in the Appendices, Schedules and
Exhibits attached hereto or any written statement or certificate furnished or to
be furnished to X-ceed pursuant hereto or in connection with the transactions
contemplated hereby (when read together) contains any untrue statement of a
material fact or omits a material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
are made, not misleading. Zabit has disclosed to X-ceed all material information
of which it is aware relating specifically to the operations and business of
Zabit as of the date of this Agreement or relating to the transactions
contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE ZABIT SHAREHOLDERS
Each of the Zabit Shareholders represents, warrants and covenants to
X-ceed as follows:
5.1 Zabit Common Stock. Except as set forth on the Zabit Disclosure
Schedule, such Zabit Shareholder holds of record and owns beneficially the
shares of Zabit Common Stock set forth opposite his name on Schedule 4.2 free
and clear of any restrictions on transfer (other than any restrictions under the
Securities Act of 1933, as amended (the "Securities Act") and state securities
laws), claims, Taxes, liens, pledges, options, warrants, rights, contracts,
calls, commitments, equities and demands. Except as set forth on the Zabit
Disclosure Schedule, such Zabit Shareholder is not a party to any option,
warrant, right, contract, call, put, or other agreement providing for the
disposition of any capital stock of Zabit (other than pursuant to this
Agreement). Such Zabit Shareholder is not a party to any voting trust, proxy, or
other agreement or understanding with respect to any capital stock of Zabit.
5.2 Investment Representations.
(a) Such Zabit Shareholder understands that the shares of X-ceed Common
Stock issued as the Share Consideration are "restricted securities" under the
federal securities laws inasmuch as they are being acquired from X-ceed in a
transaction not involving a public offering and that under such laws and
applicable regulations the X-ceed Common Stock may be resold without
registration under the Securities Act only in certain limited circumstances.
Such Zabit Stockholder is familiar with Rule 144 as promulgated under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
(b) Except as set forth on the Zabit Disclosure Schedule, such Zabit
Stockholder is acquiring the X-ceed Common Stock solely for his or her own
account for investment and not with a view to the resale or distribution of any
part thereof within the meaning of the Securities Act or any applicable state or
foreign securities laws, and has no present intention of selling, granting any
participation in, or otherwise distributing the X-ceed Common Stock. Except as
set forth on the Zabit Disclosure Schedule, such Zabit Shareholder does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to the X-ceed Common Stock.
(c) By reason of his or her business or financial experience, such Zabit
Shareholder is capable of evaluating the merits and risks of an investment in
the X-ceed Common Stock pursuant to the terms of this Agreement and related
documents, and is able to protect his or her own interest in connection with the
transactions contemplated by this Agreement. Such Zabit Shareholder is
financially able to bear the economic risk of an investment in the X-ceed Common
Stock.
(d) Such Zabit Shareholder has received all information that he or she
deems necessary or advisable in order to make an informed decision on whether to
acquire the X-ceed Common Stock. Without limiting the foregoing, such Zabit
Shareholder has received and reviewed this Agreement, including all Schedules
and Exhibits hereto, and has had the opportunity to ask questions and receive
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answers with respect to X-ceed, its business, operations and financial
condition, and the terms and conditions of the offering of the X-ceed Common
Stock in connection with the transactions contemplated by this Agreement. With
respect to tax and other economic considerations involved in this investment,
such Zabit Shareholder has relied on his or its own counsel for advice and has
expressly not relied on X-ceed.
(e) Such Zabit Shareholder understands that the shares of X-ceed Common
Stock are not registered under the Securities Act and that the sale provided for
in this Agreement and X-ceed's issuance of the X-ceed Common Stock hereunder
will be made in reliance upon an exemption from registration under Section 4(2)
of the Securities Act or pursuant to Regulation D promulgated thereunder, and in
reliance upon exemptions from registration contained in the securities laws of
the various states and that, in such case, X-ceed's reliance on such exemptions
will be at least partially based on such Zabit Shareholder's representations as
set forth herein.
(f) Such Zabit Shareholder understands that, to the extent applicable,
each certificate or other document evidencing any of the shares of X-ceed Common
Stock may bear the following legend and covenants that, except to the extent
such restrictions are waived by X-ceed, such Zabit Shareholder will not transfer
the shares of X-ceed Common Stock represented by any such certificate without
complying with the restrictions on transfer described in the legend endorsed on
such certificate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH SECURITIES ACT OR IF X-CEED, INC. IS PROVIDED AN OPINION OF COUNSEL
SATISFACTORY TO X-CEED, INC. THAT SUCH REGISTRATION AND QUALIFICATION
UNDER FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO RULE 144 OF SUCH SECURITIES ACT."
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF X-CEED
Except as otherwise specifically set forth on the disclosure schedule
delivered by X-ceed to Zabit prior to the execution of this Agreement (the
"X-ceed Disclosure Schedule"), X-ceed represents and warrants to Zabit as
follows:
6.1 Organization and Qualification. X-ceed, and each of its
Subsidiaries, is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization and
has all requisite power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted. As used in this
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Agreement, "Subsidiary" means a corporation, partnership or other entity in
which X-ceed owns directly or indirectly fifty percent (50%) or more of the
voting stock, profits, equity or beneficial interest, is a partner of, or
otherwise controls the management of.
X-ceed and each of its Subsidiaries is qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which the nature of its business requires such
qualification, which states or jurisdictions are listed on the X-ceed Disclosure
Schedule, except where the failure to be so qualified or in good standing which,
taken together with all other such failures, would not have a material adverse
effect on X-ceed and its Subsidiaries, taken as a whole.
X-ceed has delivered or made available to Zabit true, complete and
correct copies, with respect to X-ceed and each of its Subsidiaries, of its (i)
Certificate of Incorporation and Bylaws (or other applicable charter documents),
as amended to the date hereof, (ii) minutes of all of directors' and
stockholders' meetings (or other applicable meetings) since July 2, 1996,
complete and accurate as of the date hereof, (iii) list of current shareholders,
and (iv) form of stock certificates, option agreements and rights to purchase
shares of its capital stock or other equity interests. Each such Certificate of
Incorporation and Bylaws and other applicable charter documents is in full force
and effect.
6.2 Capital Structure.
(a) The authorized capital stock of X-ceed consists of thirty million
(30,000,000) shares of X-ceed Common Stock, $0.01 par value and one million
(1,000,000) shares of blank check preferred stock $0.05 par value (X-ceed
Preferred Stock"). As of the date of this Agreement, there were issued and
outstanding eleven million three hundred fifty thousand three hundred
seventy-two (11,350,372) shares of X-ceed Common Stock and no shares of X-ceed
Preferred Stock. X-ceed Common Stock and X-ceed Preferred Stock are referred to
herein collectively as "X-ceed Stock." The rights, preferences and privileges of
X-ceed Common Stock and X-ceed Preferred Stock are as set forth in X-ceed's
Certificate of Incorporation.
(b) As of the date of this Agreement, there were outstanding options to
acquire three million thirty-six thousand six hundred eleven (3,036,011) shares
of X-ceed Common Stock (the "X-ceed Options") and warrants to acquire one
million nine hundred sixty five three hundred ninety eight (1,965,398) shares of
X-ceed Common Stock (the "X-ceed Warrants"). As of the date of this Agreement,
there were an aggregate of three million thirty-six thousand six hundred eleven
(3,036,011) shares of X-ceed Common Stock reserved for issuance upon the
exercise of outstanding X-ceed Options and one million nine hundred sixty five
three hundred ninety eight (1,965,398) shares of X-ceed Common Stock reserved
for issuance on exercise of the outstanding X-ceed Warrants.
(c) Of the issued and outstanding X-ceed Stock, no shares are subject to
repurchase or redemption. All outstanding shares of X-ceed Stock are, and any
shares of X-ceed Stock issued upon exercise of X-ceed Options and the X-ceed
Warrants (subject to receipt of the exercise prices as provided therein) will
be, validly issued, fully paid and nonassessable and not subject to preemptive
rights created by statute, X-ceed's Certificate of Incorporation or Bylaws or
any agreement to which
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X-ceed is a party or by which X-ceed may be bound. All outstanding securities of
X-ceed have been issued in compliance with applicable federal and state
securities laws.
(d) Section 6.2 of the X-ceed Disclosure Schedule ("Schedule 6.2")
contains complete and accurate lists of, and the number of shares owned of
record by, the holders of outstanding X-ceed Common Stock, and the number of
shares subject to X-ceed Options and X-ceed Warrants, and the holders of
outstanding X-ceed Options and the X-ceed Warrants, including in each case the
addresses of such holders. Schedule 6.2 is complete and accurate on the date
hereof and, if required, an updated Schedule 6.2 to be attached hereto will be
complete and accurate as of the Closing Date. Such Schedule 6.2 identifies the
vesting schedule, applicable legends, and repurchase rights or other risks of
forfeiture of any outstanding security of X-ceed.
(e) Schedule 6.2 contains a complete and accurate list of each stock
option plan, stock appreciation rights or other equity-related stock incentive
plan of X-ceed and each Subsidiary.
(f) Except as set forth in the X-ceed Disclosure Schedule and except for
any restrictions imposed by applicable federal and state securities laws, there
is no right of first refusal, co-sale right, right of participation, right of
first offer, option or other restriction on transfer applicable to any shares of
X-ceed Common Stock.
(g) Except for any agreements with Scott Mednick regarding his
employment with X-ceed, X-ceed is not a party or subject to any agreement or
understanding, and there is no voting trust, proxy, or other agreement or
understanding between or among any persons that affects or relates to the voting
or giving of written consent with respect to any outstanding security of X-ceed,
the election of directors, the appointment of officers or other actions of the
X-ceed Board or the management of X-ceed.
6.3 Subsidiaries; Equity Investments. Section 6.3 of the Disclosure
Schedule ("Schedule 6.3") contains a complete and accurate list of all of
X-ceed's Subsidiaries. Except as set forth in Schedule 6.3, X-ceed does not have
and has never had any other subsidiaries or companies controlled by X-ceed and
does not own and has never owned any equity interest in, or controlled, directly
or indirectly, any other corporation, partnership, joint venture, trust, firm or
other entity. Except as set forth in Schedule 6.3, X-ceed owns all of the
outstanding capital stock of the Subsidiaries listed on Schedule 6.3, free and
clear of any claims, liens or encumbrances, and no options, warrants or other
rights to acquire shares of capital stock of any Subsidiary are outstanding.
6.4 Authority. X-ceed has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby, including the issuance of the
Share Consideration (the "Share Issuance"). No vote of the holders of any class
or series of X-ceed capital stock is necessary to approve the transactions
contemplated by the Merger Agreement, including the Merger and the Share
Issuance. Subject to the receipt by the X-ceed Board of a fairness opinion from
X-ceed's financial adviser, the execution and delivery of this Agreement, the
performance by X-ceed of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of X-ceed, including approval of the
X-ceed Board. This Agreement is a valid and binding obligation of X-ceed.
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6.5 No Conflict with Other Instruments. Except for X-ceed's
noncompliance with the minimum net worth covenant of that certain loan agreement
between X-ceed and European American Bank ("EAB") dated November 18, 1997 and
the receipt by X-ceed of a waiver and consent from EAB with respect to such
noncompliance and the transactions contemplated by this Agreement, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby (a) will not result in any violation of, conflict with,
constitute a breach, violation or default (with or without notice or lapse of
time, or both) under, give rise to a right of termination, cancellation,
forfeiture or acceleration of any obligation or loss of any benefit under, or
result in the creation or encumbrance on any of the properties or assets of
X-ceed or any Subsidiary pursuant to (i) any provision of X-ceed's Certificate
of Incorporation or Bylaws, or the charter or organizational documents of any
Subsidiary, as the case may be, or (ii) any agreement, contract, understanding,
note, mortgage, indenture, lease, franchise, license, permit or other instrument
to which X-ceed or any Subsidiary is a party or by which the properties or
assets of X-ceed or any Subsidiary is bound, or (b) to the knowledge of X-ceed,
conflict with or result in any breach or violation of any statute, judgment,
decree, order, rule or governmental regulation applicable to X-ceed or any
Subsidiary or their respective properties or assets, except, in the case of
clauses (a)(ii) and (b) for any of the foregoing that would not, individually or
in the aggregate, have a material adverse effect on X-ceed and its Subsidiaries,
taken as a whole, or that could not result in the creation of any material lien,
charge or encumbrance upon any assets of X-ceed or any Subsidiary or that could
not prevent, materially delay or materially burden the transactions contemplated
by this Agreement.
6.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign, is required
by or with respect to X-ceed or any Subsidiary in connection with the execution,
delivery and performance of this Agreement by X-ceed or the consummation by
X-ceed of the transactions contemplated hereby, except for (a) the filing of the
Certificate of Merger with the Delaware Secretary of State and an Agreement of
Merger with the California Secretary of State and (b) such consents, approvals,
orders, authorizations, registrations, declarations, qualifications or filings
as may be required under federal or state securities laws in connection with the
transactions contemplated hereby.
6.7 Reports and Financial Statements. (a) X-ceed has filed all required
forms, reports, registration statements, prospectuses and other documents
required to be filed with the Securities and Exchange Commission (the "SEC")
since January 1, 1997. No Subsidiary of X-ceed is required to file any form,
report, registration statement, prospectus or other document with the SEC.
X-ceed has furnished to Zabit complete and accurate copies of X-ceed's Annual
Report on Form 10-K SB for the fiscal year ended August 31, 1997, Quarterly
Reports on Form 10-Q for the fiscal quarters ended February 28, 1998 and May 31,
1998, Proxy Statement for its Annual Meeting of Stockholders held on February
20, 1998 and Current Report on Form 8-K dated August 14, 1998 (the "X-ceed SEC
Filings"), all filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As of their respective filing dates, the X-ceed
SEC Filings complied in all material respects with the requirements of the
Exchange Act and, as of their respective filing dates, the X-ceed SEC Filings
did not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
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(b) Each of the financial statements (including the related notes) of
X-ceed included in or incorporated by reference into the X-ceed SEC Filings (the
"X-ceed Financial Statements") comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC. The X-ceed Financial Statements are complete and correct in all
material respects and have been prepared in accordance with GAAP (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis throughout the periods indicated and are consistent with each
other. The X-ceed Financial Statements accurately set out and describe the
financial condition and operating results of X-ceed as of the dates, and for the
periods, indicated therein, subject, in the case of unaudited financial
statements, to normal year-end audit adjustments. At the date of the X-ceed
Financial Statements and as of the Closing Date, except as set forth in the
X-ceed Disclosure Schedule, X-ceed had and will have no liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise and whether or not required to be reflected on the balance sheet of
X-ceed (the "X-ceed Balance Sheet") under GAAP) not reflected in the X-ceed
Financial Statements or the accompanying notes thereto except for liabilities
and obligations that have arisen in the ordinary course of business prior to the
date of the X-ceed Financial Statements and which, under GAAP, would not have
been required to be reflected in the X-ceed Financial Statements and except for
liabilities incurred in the ordinary course of business since the date of the
X-ceed Financial Statements which are usual and normal in amount. X-ceed
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP.
6.8 Absence of Changes. Except for liabilities incurred in connection
with this Agreement or the transactions contemplated hereby, except as disclosed
in the X-ceed SEC Filings or the X-ceed Disclosure Schedule, except for the
contemplated acquisition of Mercury 7 by X-ceed (the"Mercury 7 Transaction"),
and except as permitted by Section 7.1 since August 14, 1998, or as set forth in
the X-ceed Disclosure Schedule, X-ceed and each Subsidiary has conducted its
respective business only in the ordinary and usual course and, without limiting
the generality of the foregoing:
(a) There have been no changes in the condition (financial or
otherwise), business, assets, properties, employees, operations, obligations or
liabilities of X-ceed and its Subsidiaries, taken as a whole, which, in the
aggregate, have had or may be reasonably expected to have a material adverse
effect on X-ceed and its Subsidiaries;
(b) X-ceed has not, nor has any Subsidiary, issued, or authorized for
issuance, or entered into any commitment to issue, any equity security, bond,
note or other security;
(c) X-ceed has not, nor has any Subsidiary, incurred additional debt for
borrowed money, or incurred any obligation or liability except in the ordinary
course of business consistent with past practice;
(d) X-ceed has not, nor has any Subsidiary, paid any obligation or
liability, or discharged, settled or satisfied any claim, lien or encumbrance,
except for current liabilities in the ordinary course of business consistent
with past practice;
(e) X-ceed has not, nor has any Subsidiary, declared or made any
dividend, payment or other distribution on or with respect to any share of
capital stock other than, in the case of any Subsidiary, to X-ceed;
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(f) X-ceed has not, nor has any Subsidiary, purchased, redeemed or
otherwise acquired or committed itself to acquire, directly or indirectly, any
share or shares of its capital stock;
(g) X-ceed has not, nor has any Subsidiary, mortgaged, pledged, or
otherwise encumbered any of its assets or properties, except for liens for
current taxes which are not yet delinquent and purchase-money liens arising out
of the purchase or sale of services or products made in the ordinary course of
business consistent with past practice;
(h) X-ceed has not, nor has any Subsidiary, disposed of, or agreed to
dispose of, by sale, lease, license or otherwise, any asset or property,
tangible or intangible, except in the ordinary course of business consistent
with past practice, and in each case for a consideration believed to be at least
equal to the fair value of such asset or property;
(i) X-ceed has not, nor has any Subsidiary, purchased or agreed to
purchase or otherwise acquire any securities of any corporation, partnership,
joint venture, firm or other entity;
(j) X-ceed has not, nor has any Subsidiary, made any expenditure or
commitment for the purchase, acquisition, construction or improvement of a
capital asset, except in the ordinary course of business consistent with past
practice;
(k) X-ceed has not, nor has any Subsidiary, entered into any material
transaction or contract, or made any commitment to do the same;
(l) X-ceed has not, nor has any Subsidiary, sold, assigned, licensed,
transferred or conveyed, or committed itself to sell, assign, transfer or
convey, any X-ceed Proprietary Rights (as defined in Section 6.16);
(m) X-ceed has not, nor has any Subsidiary, adopted or amended any
bonus, incentive, profit-sharing, stock option, stock purchase, pension,
retirement, deferred-compensation, severance, life insurance, medical or other
benefit plan, agreement, trust, fund or arrangement for the benefit of employees
of any kind whatsoever, nor entered into or amended any agreement relating to
employment, services as an independent contractor or consultant, or severance or
termination pay, nor agreed to do any of the foregoing;
(n) X-ceed has not, nor has any Subsidiary, effected or agreed to effect
any change in its directors, officers or key employees; and
(o) X-ceed has not effected or committed itself to effect any amendment
or modification in its Certificate of Incorporation or Bylaws.
6.9 Properties.
(a) The X-ceed Financial Statements reflect all of the real and personal
property owned or used by X-ceed and its Subsidiaries in their respective
businesses or otherwise held by X-ceed and its Subsidiaries, except for (i)
property acquired or disposed of in the ordinary course of business consistent
with past practice of X-ceed and its Subsidiaries, taken as a whole, since the
date of the X-ceed Balance Sheet, and (ii) personal property not required under
GAAP to be reflected thereon.
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X-ceed and its Subsidiaries have good and marketable title to all assets and
properties listed in the X-ceed Financial Statements or thereafter acquired,
free and clear of any imperfections of title, lien, claim, encumbrance,
restriction, charge or equity of any nature whatsoever, except for liens of
current taxes not yet delinquent. All of the fixed assets and properties
reflected in the X-ceed Financial Statements or thereafter acquired are in good
condition and repair for the requirements of the business as presently conducted
by X-ceed and its Subsidiaries.
(b) Except as set forth in the X-ceed SEC Filings, X-ceed does not, nor
does any Subsidiary, have any options to purchase any real property leased by it
or its Subsidiaries (the "X-ceed Properties") or any other real property. The
X-ceed Properties are held under valid, existing and enforceable leases. The
X-ceed Properties and the operations thereon of X-ceed or its Subsidiaries, as
the case may be, do not violate any applicable material building code, zoning
requirement or classification, or pollution control ordinance or statute
relating to the X-ceed Properties or to such operations.
6.10 Taxes.
(a) Except for the failure of X-ceed to timely file its Form 5500 Annual
Report for the years ended 1994, 1995 and 1996, all Tax returns, statements,
reports and forms (including estimated Tax returns and reports and information
returns and reports) required to be filed with any Taxing Authority with respect
to any Taxable period ending on or before the Effective Time, by or on behalf of
X-ceed or any Subsidiary (collectively, the "X-ceed Returns"), have been or will
be filed when due (including any extensions of such due date), and all amounts
shown to be due thereon on or before the Effective Time have been or will be
paid on or before such date. All the X-ceed Returns are true and correct in all
material respects. X-ceed has no liability for Taxes, other than as shown on the
X-ceed Returns, except for positions taken in good faith and for which adequate
reserves have been established. The X-ceed Financial Statements fully accrue all
actual and contingent liabilities for Taxes with respect to all periods through
the dates thereof. The X-ceed Financial Statements (i) fully accrue consistent
with GAAP all actual and contingent liabilities for Taxes with respect to all
periods through the date of the X-ceed Financial Statements and (ii) properly
accrue consistent with GAAP all liabilities for Taxes payable after the Balance
Sheet Date with respect to all transactions and events occurring on or prior to
such date. All information set forth in the notes to the X-ceed Financial
Statements relating to Tax matters is true, complete and accurate in all
material respects.
(b) No Tax liability has been incurred since the date of the X-ceed
Financial Statements other than in the ordinary course of business and adequate
provision has been made for all Taxes since that date on at least a quarterly
or, with respect to employment taxes, monthly basis. X-ceed and each Subsidiary
have withheld and paid to the applicable financial institution or Taxing
Authority all amounts required to be withheld by it. Copies of all X-ceed
Returns filed with respect to federal income tax returns for Taxable years of
X-ceed and each Subsidiary ending prior to the date hereof have been provided to
Zabit. X-ceed has not, nor has any Subsidiary, been granted any extension or
waiver of the limitation period applicable to any X-ceed Return.
(c) Except for the receipt by X-ceed of a notification of audit from the
Internal Revenue Service with respect to the period beginning July 3, 1996 up to
and including August 31, 1996, there is no claim, audit, action, suit,
proceeding or investigation now pending or threatened against or with
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respect to X-ceed or any Subsidiary in respect of any Tax or assessment. There
are no liabilities for Taxes with respect to any notice of deficiency or similar
document of any Tax Authority received by X-ceed or any Subsidiary which have
not been satisfied in full (including liabilities for interest, additions to tax
and penalties thereon and related expenses). Neither X-ceed, any Subsidiary nor
any person on behalf of X-ceed has entered into or will enter into any agreement
or consent pursuant to Section 341(f) of the Code. There are no liens for Taxes
upon the assets of X-ceed except liens for current Taxes not yet due. Except as
may be required as a result of the Merger or as otherwise disclosed to Zabit,
X-ceed has not been nor will it be, nor has or will any Subsidiary, required to
include any adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Effective Time.
(d) There is no contract, agreement, plan or arrangement, including
without limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of X-ceed or
any Subsidiary that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to Section 280G or
Section 162 of the Code (as determined without regard to Section 280G(b)(4)).
Other than pursuant to this Agreement, X-ceed is not, nor is any Subsidiary, a
party to or bound by (nor will they prior to the Effective Time become a party
to or bound by) any tax indemnity, tax sharing or tax allocation agreement
(whether written, unwritten or arising under operation of federal law as a
result of being a member of a group filing consolidated tax returns, under
operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions) which
includes a party other than X-ceed or any Subsidiary. None of the assets of
X-ceed or any Subsidiary (i) is property that X-ceed or any Subsidiary is
required to treat as owned by any other person pursuant to the so-called "safe
harbor lease" provisions of former Section 168(f)(8) of the Code, (ii) directly
or indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code, or (iii) is "tax exempt use property" within the meaning of
Section 168(h) of the Code. X-ceed has not, nor has any Subsidiary, participated
in (and prior to the Effective Time X-ceed will not, nor will any Subsidiary
participate in) an international boycott within the meaning of Section 999 of
the Code. X-ceed has previously provided or made available to Zabit complete and
accurate copies of all X-ceed Returns, and, as reasonably requested by Zabit,
prior to or following the date hereof, presently existing information
statements, reports, work papers, Tax opinions and memoranda and other Tax data
and documents.
6.11 Employees. Except as set forth in the X-ceed SEC Filings, and
except for the employment agreements for Scott Mednick and the principal
shareholders of each of Reset, Inc. and Mercury 7, X-ceed does not, nor does any
Subsidiary have, any employment contracts with any officer or employee or any
other consultant or person which is not terminable by it at will without
liability, except as the right of X-ceed or such Subsidiary to terminate its
employees at will may be limited by applicable federal, state or foreign law.
Except as set forth in the X-ceed SEC Filings, X-ceed does not have, nor does
any Subsidiary have, any ERISA, Employee Plans or any informal understanding
with respect to the foregoing. X-ceed does not, nor does any Subsidiary,
maintain or have ever maintained or contributed to any Employee Plan subject to
Title IV of ERISA (relating to defined benefit plans).
There are no controversies or labor disputes or union organization
activities pending or threatened between X-ceed or a Subsidiary and any of its
employees. None of the employees of
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X-ceed or a Subsidiary belongs to any union or collective bargaining unit.
X-ceed and each Subsidiary have complied with all applicable foreign, state and
federal equal employment opportunity and other laws and regulations related to
employment or working conditions.
6.12 Compliance with Law. All material licenses, franchises, permits,
clearances, consents, certificates and other evidences of authority of X-ceed
and its Subsidiaries which are necessary to the conduct of X-ceed's and its
Subsidiaries' respective businesses (the "X-ceed Permits") are in full force and
effect and X-ceed is not, nor is any Subsidiary, in violation of any X-ceed
Permit in any material respect. Except for exceptions which would not have a
material adverse effect on X-ceed and its Subsidiaries, taken as a whole, the
businesses of X-ceed and its Subsidiaries have been conducted in accordance with
all applicable laws, regulations, orders and other requirements of governmental
authorities.
6.13 Litigation. To the best of X-ceed's knowledge, there is no claim,
dispute, action, proceeding, notice, order, suit, appeal or investigation, at
law or in equity, pending or, to the knowledge of X-ceed, threatened, against
X-ceed or its Subsidiaries or any of their respective directors, officers,
employees or agents, or involving any of their respective assets or properties
used in or related to the business of X-ceed, before any court, agency,
authority, arbitration panel or other tribunal. X-ceed is not aware of any facts
which, if known to stockholders, customers, suppliers, governmental authorities
or other persons, would result in any such claim (other than customary and
normal returns of product in the ordinary course of business consistent with
past practice), dispute, action, proceeding, suit or appeal or investigation.
X-ceed is not, nor is any Subsidiary, subject to any order, writ, injunction or
decree of any court, agency, authority, arbitration panel or other tribunal, nor
is X-ceed or any Subsidiary in default with respect to any notice, order, writ,
injunction or decree, any of which would have a material adverse effect on
X-ceed or its Subsidiaries taken as a whole.
6.14 Contracts. Except as set forth in the X-ceed SEC Filings and except
for the agreements in connection with the Mercury 7 transaction, neither X-ceed
nor any Subsidiary has any material contracts in the following categories to
which X-ceed or a Subsidiary is a party, or by which X-ceed or a Subsidiary is
bound in any respect: (a) agreements for the purchase, sale, lease or other
disposition of equipment, goods, materials, supplies, or capital assets, or for
the performance of services which are not terminable without penalty on thirty
(30) days' notice, in any case involving more than fifty thousand dollars
($50,000); (b) contracts or agreements for the joint performance of work or
services, and all other joint venture, collaboration, research, or other
agreements, and grant requests or proposals for research and development
contracts in excess of one hundred thousand dollars ($100,000) each; (c)
management or employment contracts, consulting contracts, collective bargaining
contracts, termination and severance agreements; (d) notes, mortgages, deeds of
trust, loan agreements, security agreement, guarantees, debentures, indentures,
credit agreements and other evidences of indebtedness; (e) each Employee Plan
(including, without limitation, any contracts or agreements with trustees,
insurance companies or others relating to any such employee benefit plan or
arrangement); (f) warrants, repurchase or other contracts or agreements relating
to the issuance of capital stock or other equity interests of X-ceed or a
Subsidiary; (g) contracts or agreements with agents, brokers, consignees, sale
representatives or distributors; (h) contracts or agreements with any director,
officer, employee, consultant or stockholder; (i) powers of attorney or similar
authorizations granted by X-ceed or a Subsidiary to third parties; (j) patents,
licenses, sublicenses, royalty agreements and other contracts or agreements to
which X-ceed or a Subsidiary is a party, or
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otherwise subject, relating to technical assistance or to X-ceed Proprietary
Rights; (k) personal property or capital equipment leases and other rental, use
or service arrangements of X-ceed and its Subsidiaries involving payment
obligations in excess of fifty thousand dollars ($50,000) and which cannot be
terminated without penalty on thirty (30) days' notice; and (l) other material
contracts.
X-ceed has not, nor has any Subsidiary, nor, to the knowledge of X-ceed,
has any of their respective employees entered into any contract or agreement
containing covenants limiting the right of X-ceed or any Subsidiary to compete
in any business or with any person. As used in this Agreement, the terms
"contract" and "agreement" include every contract, agreement, commitment,
understanding and promise, whether written or oral.
6.15 No Default.
(a) Each of the contracts, agreements or other instruments referred to
in Section 6.14 is a legal, binding and enforceable obligation by or against
X-ceed or a Subsidiary, as the case may be, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar federal or
state laws affecting the rights of creditors and the effect or availability of
rules of law governing specific performance, injunctive relief or other
equitable remedies. No party with whom X-ceed or a Subsidiary has an agreement
or contract is in default thereunder or has breached any term or provision
thereof where such default or breach would have a material adverse effect on the
business of X-ceed and its Subsidiaries, taken as a whole.
(b) Except as set forth in the X-ceed Disclosure Schedule, X-ceed and
each Subsidiary has performed, or is now performing, the obligations of, and
X-ceed is not, nor is any Subsidiary, in material default (or would by the lapse
of time and/or the giving of notice be in material default) in respect of, any
contract, agreement or commitment binding upon it or its assets or properties
and material to the conduct of its business. No third party has notified X-ceed
or any Subsidiary of any claim, dispute or controversy with respect to any of
the executory contracts of X-ceed or such Subsidiary, as the case may be, nor
has X-ceed or any Subsidiary received notice or warning of alleged
nonperformance, delay in delivery or other noncompliance by X-ceed or such
Subsidiary, as the case may be, with respect to their respective obligations
under any of those contracts, where such alleged nonperformance, delay in
delivery or other noncompliance would have a material adverse effect on X-ceed,
nor are there any facts which exist indicating that any of those contracts may
be totally or partially terminated or suspended by the other parties thereto.
6.16 Proprietary Rights.
(a) Except as set forth in the X-ceed SEC Filings, X-ceed and each of
its Subsidiaries owns, or is licensed to use (in each case free and clear of any
liens) all intangible and intellectual property used in or related to the
business conducted by X-ceed and its Subsidiaries (collectively, the "X-ceed
Proprietary Rights"), including (a) all trademarks, service marks, trade names,
trade styles, copyrights and all registrations or applications therefor and (b)
all patents, inventions and all registrations or applications therefor. X-ceed
and its Subsidiaries have not engaged in any conduct or omitted to perform any
necessary act, the result of which would invalidate, abandon or otherwise render
X-ceed's or any Subsidiary's rights to any X-ceed Proprietary Rights
unenforceable. Except as set forth in the X-ceed SEC Filings, X-ceed is not, nor
is any Subsidiary, required to pay any royalty, license, fee or other similar
compensation with respect to the X-ceed Proprietary Rights in
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connection with the current or prior conduct of the business conducted by X-ceed
and its Subsidiaries. As used in the business of X-ceed and its Subsidiaries as
currently conducted, none of the X-ceed Proprietary Rights infringes or
misappropriates or otherwise violates or has been alleged to infringe,
misappropriate or otherwise violate any proprietary rights of any other person
or entity, nor is X-ceed or any Subsidiary otherwise in the conduct of its
business infringing upon, or alleged to be infringing upon, any proprietary
rights of any other person or entity. To the knowledge of X-ceed, no person or
entity is engaged in any activity which would constitute infringement of
X-ceed's or any Subsidiary's rights in the X-ceed Proprietary Rights. X-ceed is
not, nor is any Subsidiary, a party to any agreement to indemnify any other
person or entity against any charge of infringement of any proprietary right
except customary vendor provisions contained in software contracts.
6.17 Brokers or Finders. Neither X-ceed nor its Subsidiaries, nor any of
their officers, directors or employees, have employed any broker or finder or
incurred any liability for any brokerage, finder's or similar fees or
commissions in connection with this Agreement or the transactions contemplated
hereby.
6.18 Related Parties. No officer or director of X-ceed, or any affiliate
of X-ceed or any such person, has, either directly or indirectly, (a) an
interest in any corporation, partnership, firm or other person or entity which
furnishes or sells services or products which are similar to those furnished or
sold by X-ceed or a Subsidiary, or (b) a beneficial interest in any contract or
agreement to which X-ceed or a Subsidiary is a party or by which X-ceed or a
Subsidiary may be bound.
6.19 Certain Advances. Except as set forth in the X-Ceed SEC Filings,
there are no receivables of X-ceed or a Subsidiary owing from directors,
officers, employees, consultants or shareholders of X-ceed or such Subsidiary or
owing by any affiliate of any director or officer of X-ceed or such Subsidiary,
as the case may be, other than a personal loan in the principal amount of
approximately one million two hundred thousand dollars ($1,200,000) to Werner
Haase, and other than advances in the ordinary course of business consistent
with past practice to officers and employees for reimbursable business expenses
which are not in excess of twenty-five thousand dollars ($25,000) for any one
individual.
6.20 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to Zabit pursuant to this Agreement have been
furnished to Zabit. All such documents furnished to Zabit are true and correct
copies, and there are no amendments or modifi cations thereto that have not been
disclosed in writing to Zabit.
6.21 No Misleading Statements. No representation or warranty made
herein, in the X-ceed Disclosure Schedule or in the Appendices, Schedules and
Exhibits attached hereto or any written statement or certificate furnished or to
be furnished to Zabit pursuant hereto or in connection with the transactions
contemplated hereby (when read together) contains any untrue statement of a
material fact or omits a material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
are made, not misleading. X-ceed has disclosed to Zabit all material information
of which it is aware relating specifically to the operations and business of
X-ceed as of the date of this Agreement or relating to the transactions
contemplated by this Agreement.
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6.22 Shares of X-ceed Common Stock. The shares of X-ceed Common Stock to
be issued pursuant to the Merger will, when issued and delivered to the holders
of Zabit Common Stock, be duly authorized, validly issued, fully paid and
nonassessable.
ARTICLE VII
CONDUCT PRIOR TO THE EFFECTIVE TIME
7.1 Conduct of Business of Zabit and X-ceed. During the period from the
execution date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Zabit and X-ceed agree
(except as contemplated by this Agreement or to the extent that Zabit or X-ceed
shall otherwise consent in writing) to carry on their business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay their debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, to use
all commercially reasonable efforts consistent with past practice and policies
to preserve intact their present business organization, keep available the
services of their present officers and key employees and preserve their
relationships with customers, suppliers, licensors, licensees, and others having
business dealings with them, all with the goal of preserving unimpaired their
goodwill and ongoing businesses at the Effective Time and, in the case of
X-ceed, to cause any Subsidiaries to do the same. Notwithstanding the foregoing,
nothing in this Section 7.1 shall be considered to prohibit X-ceed from
consummating transactions announced or previously disclosed to Zabit, including
the Mercury 7 Transaction, prior to the date of this Agreement or disclosed in
the X-ceed SEC Filings or in the X-ceed Disclosure Schedule.
Following the date of this Agreement, Zabit and X-ceed shall promptly
notify the other party of any materially adverse event related to such party
and, in the case of X-ceed, its Subsidiaries or the business of such party and,
in the case of X-ceed, its Subsidiaries. Without limiting the foregoing, except
as expressly contemplated by this Agreement, neither Zabit nor X-ceed shall,
nor, in the case of X-ceed, permit any Subsidiary to, without the prior written
consent of the other party:
(a) Enter into any material commitment or transaction not in the
ordinary course of business consistent with past practice;
(b) Transfer to any person or entity any rights to the Zabit Proprietary
Rights or X-ceed Proprietary Rights, respectively;
(c) Amend or otherwise modify, except in the ordinary course of business
consistent with past practice, or violate the material terms of, any of the
agreements set forth or described in the Zabit Disclosure Schedule, in the
X-ceed SEC Filings or the X-ceed Disclosure Schedule;
(d) Commence a lawsuit other than (i) for the routine collection of
bills or (ii) in such cases where Zabit or X-ceed, as the case may be, in good
faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business provided that it consult with
the other party prior to the filing of such suit;
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(e) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or other equity interests, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
its capital stock (or options, warrants or other rights exercisable therefor),
other than amounts authorized by Section 4.8(e);
(f) Issue, grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any shares
of its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities;
(g) Cause or permit any amendments to its respective Articles or
Certificate of Incorporation or Bylaws, as the case may be (or other charter
documents);
(h) Acquire by merging or consolidating with, or by purchasing any
assets or equity securities of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets;
(i) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business consistent with past
practice;
(j) Except as may be necessary for X-ceed to fulfill its obligations
under this Agreement, incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any of its debt securities or guarantee any
debt securities of others;
(k) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee other than pursuant to the existing
agreements of Zabit or X-ceed and its Subsidiaries;
(l) Adopt or amend any employee benefit plan, or enter into any
employment contract (other than, in the case of X-ceed, an employment contract
with Scott Mednick and the three (3) principal shareholders of Mercury 7),
extend employment offers to any person whose aggregate annual base salary would
exceed twenty-five thousand dollars ($25,000), pay or agree to pay any special
bonus or special remuneration to any director or employee other than in
connection with normal annual bonus and salary adjustments for all non-officers
and directors upon consultation with the other party, or increase the salaries
or wage rates of its other employees, except as consistent with the ordinary
course of business consistent with past practice;
(m) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable, other than
in the ordinary course of business consistent with past practice;
(n) Pay, discharge or satisfy, in an amount in excess of ten thousand
dollars ($10,000) (in any one case) or twenty-five thousand dollars ($25,000)
(in the aggregate), any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the Zabit Balance Sheet or the X-ceed Balance
Sheet, as the case may be, or that
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arose in the ordinary course of business subsequent to July 31, 1998 or unless
payment of such claim, liability or obligation is due in accordance with its
terms or expenses consistent with the provisions of this Agreement incurred in
connection with the transactions contemplated hereby and is not in excess of
twenty-five thousand dollars ($25,000);
(o) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(p) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 7.1(a) through 7.1(o) above, or any other action that
would prevent Zabit or X-ceed from performing or cause Zabit or X-ceed not to
perform its covenants hereunder.
7.2 No Solicitation. Except as set forth in the X-ceed SEC Filings or
with respect to the possible acquisition of Mercury 7 by X-ceed, until the
earlier of September 3, 1998, or the date of termination of this Agreement,
Zabit and X-ceed agree that neither shall, nor authorize or permit any
Subsidiary or any of its Subsidiaries' officers, directors, agents,
representatives or affiliates to, directly or indirectly, take any of the
following actions with any party other than the other party to this Agreement
and its designees: solicit, initiate, facilitate or encourage (including by way
of furnishing or disclosing non-public information) any inquiries or the making
of any proposal with respect to any merger, consolidation or other business
combination involving Zabit or X-ceed or any of its Subsidiaries or acquisition
of any kind of material portion of the capital stock or assets of Zabit or
X-ceed or any of its Subsidiaries. Zabit and X-ceed further agree that neither
they nor any of its directors, officers, employees, agents and representatives
(including, without limitation, any financial advisor, attorney or accountant)
will, nor authorize or permit any Subsidiary or any of its Subsidiaries'
officers, directors, agents, representatives or affiliates to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer with respect to (i) a merger,
acquisition, consolidation, recapitalization, liquidation, asset sale or similar
acquisition involving the purchase, sale or other disposition of all or any
significant portion of the assets of Zabit or X-ceed or any of its Subsidiaries,
(ii) the issuance, sale or other transfer of any of the shares of the capital
stock of Zabit or X-ceed or any of its Subsidiaries (or any securities
convertible into or exchangeable or exercisable for such capital stock), or
(iii) any agreement, arrangement, contract, license or understanding that could
reasonably be expected to obstruct or delay the transactions contemplated herein
(an "Acquisition Transaction") or negotiate, explore or otherwise communicate in
any way with any third party with respect to any Acquisition Transaction or
enter into any agreement, arrangement or understanding with respect to an
Acquisition Transaction or requiring it to abandon, terminate, or fail to
consummate the Merger or any other transactions contemplated by this Agreement,
or make or authorize any statement, recommendation or solicitation in support of
any Acquisition Transaction with any third party other than X-ceed and its
Subsidiaries or Zabit. Zabit and X-ceed agree to notify each other immediately
if any such inquiries or proposals regarding any such alternative proposal are
received. If the parties cannot in good faith negotiate mutually agreeable
definitive documentation before September 3, 1998, then Zabit and X-ceed shall
be permitted to commence negotiations with other potential purchasers.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Approval of Zabit Shareholders. Zabit has received written consents
from its shareholders approving this Agreement. The signatures of the Zabit
Shareholders on this Agreement shall constitute their approval to the Merger
under California law.
8.2 Access to Information; Interim Financial Information. Subject to any
applicable contractual confidentiality obligations (which Zabit and X-ceed shall
use all commercially reasonable efforts to cause to be waived) each of Zabit and
X-ceed shall afford the other party and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of the other party financial
information, properties, books, contracts, agreements and records, and (ii) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of Zabit or X-ceed as the other party
may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 8.2 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
8.3 Confidentiality. Each party shall, and shall cause all of its
employees, representatives and professional advisors to, keep confidential and
not disclose to any other person or entity any information relating to the other
party which it obtains in the course of its due diligence investigation in
connection with the Merger, and to destroy or return to the other party all
copies of such confidential information and extracts therefrom so requested by
the other party hereto.
8.4 Expenses. All fees and expenses incurred in connection with the
Merger including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses.
8.5 Public Disclosure. Unless otherwise required by law (including,
without limitation, securities laws) and, as to X-ceed, by the rules and
regulations of Nasdaq, prior to the Effective Time, no disclosure (whether or
not in response to an inquiry) of the discussions or subject matter of this
Agreement shall be made by any party hereto unless approved by X-ceed and Zabit
in writing prior to release, provided that such approval shall not be
unreasonably withheld.
8.6 Efforts. Subject to the terms and conditions of this Agreement, each
of the parties hereto shall use its commercially reasonable efforts to take
promptly, or cause to be taken promptly, all actions, and to do promptly, or
cause to be done promptly all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that neither Zabit nor X-ceed shall be required to
agree to any divestiture by
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X-ceed or Zabit, as may be applicable, or any of X-ceed's or Zabit's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or properties of X-ceed or its affiliates or Zabit, its subsidiaries or its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct its businesses or to own or exercise control of such assets,
properties and stock.
8.7 Conduct; Notification of Certain Matters. Each of X-ceed and Zabit
shall use all commercially reasonable efforts to not take, or fail to take, any
action that from the date hereof through the Closing would cause or constitute a
breach of any of its respective representations, warranties, agreements and
covenants set forth in this Agreement. Zabit shall give prompt written notice to
X-ceed, and X-ceed shall give prompt written notice to Zabit, of (a) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which causes or is likely to cause any representation or warranty of Zabit or
X-ceed or Zabit, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (b) any
failure of Zabit or X-ceed or Zabit, as the case may be, to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 8.7 shall not limit or otherwise affect
the other party's right to rely on the representations and warranties herein or
any the other remedies available to the party receiving such notice.
8.8 Tax-Free Reorganization. X-ceed and Zabit shall each use its
commercially reasonable efforts to cause the Merger to be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
8.9 Blue Sky Laws. X-ceed shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the shares of X-ceed Common Stock pursuant hereto.
Zabit shall use all commercially reasonable efforts to assist X-ceed as may be
reasonably necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of the shares
of X-ceed Common Stock pursuant hereto.
8.10 Acquisition Plan. X-ceed shall make a good faith effort to approve
and fund Zabit's acquisition plan as described on Exhibit F attached hereto, so
long as such plan is consistent with the then current financial condition and
the strategic operating plan of X-ceed.
8.11 Key Employee Retention. Bradley K. Nelson will enter into a three
(3) year employment agreement with X-ceed, plus benefit and option plans, in
substantially the form of Exhibit G attached hereto.
8.12 Key Employee Options. As soon as practicable, X-ceed will adopt a
new stock option plan and the employees of Zabit set forth on Exhibit H shall be
entitled to participate in such stock option plan, on the same terms and
conditions as X-ceed's key employees.
8.13 Additional Documents and Further Assurances. Each party hereto, at
the reasonable request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
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8.14 Listing of Additional Shares. No later than fifteen (15) calendar
days prior to the issuance of the shares of Common Stock issued as Merger
Consideration, or as otherwise required by Nasdaq, X-ceed shall file with the
Nasdaq Small Cap Market, or, if the X-ceed Common Stock is then listed on the
Nasdaq National Market, the Nasdaq National Market, any required Notification
Form for Listing of Additional Shares.
8.15 Registration Rights Agreement. X-ceed and the Zabit Shareholders
shall enter into the Registration Rights Agreement attached hereto as Exhibit I.
8.16 Required Consents. Zabit shall use its commercially reasonable
efforts to obtain all required third party consents to the Merger.
ARTICLE IX
CONDITIONS TO THE MERGER
9.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the Zabit Shareholders.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(c) Fairness Opinion. Prior to the Closing Date, the X-ceed Board shall
have received an opinion from an independent investment banking firm or
financial advisor, in a form reasonably satisfactory to the X-ceed Board, to the
effect that the Merger and the transactions contemplated by this Agreement are
fair to X-ceed and its stockholders from a financial point of view, and a copy
of such fairness opinion shall have been made available to Zabit.
9.2 Additional Conditions to Obligations of Zabit. The obligations of
Zabit to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived in writing
exclusively by Zabit:
(a) Representations and Warranties. The representations and warranties
of X-ceed contained in this Agreement shall be true and correct on the date
hereof and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date), except for
changes contemplated by this Agreement and except for such inaccuracies that,
considered collectively, have not had and would not reasonably be expected to
have a material adverse effect on X-ceed (it being understood that, for purposes
of determining the accuracy of such representations and warranties,
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all "material adverse effect" and other materiality qualifications contained in
such representations and warranties shall be disregarded).
(b) Agreements and Covenants. X-ceed shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time.
(c) Officer's Certificate. X-ceed shall have furnished Zabit with a
certificate dated the Closing Date signed on behalf of it by an executive
officer to the effect that the conditions set forth in Sections 9.2(a) and (b)
have been satisfied.
(d) Due Diligence. Zabit shall have completed, to its reasonable
satisfaction, its due diligence investigation of the assets, business, financial
affairs and operational strategies of X-ceed and its Subsidiaries.
(e) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any material adverse change in the business, financial
condition or results of operations of X-ceed or its Subsidiaries, taken as a
whole.
(f) Registration Rights Agreement. X-ceed and the Zabit Shareholders
shall have entered into the Registration Rights Agreement substantially into
from attached hereto as Exhibit I.
(g) Private Placement Exemption. The issuance of shares of X-ceed Common
Stock is intended to be exempt from registration requirements of Section 5 of
the Securities Act pursuant to an appropriate exemption available under Section
4(2) or Regulation D promulgated thereunder.
(h) Employment Agreement. William N. Zabit and X-ceed shall have entered
into an employment agreement in substantially the form as attached hereto as
Exhibit E.
(i) Third Party Consents. Zabit shall have been furnished with evidence
reasonably satisfactory to it that X-ceed has obtained,or is in the process of
obtaining, the consents, approvals, assignments and waivers set forth in the
X-ceed Disclosure Schedule subject to no term, condition or restriction
unacceptable to Zabit in its sole discretion.
9.3 Additional Conditions to the Obligations of X-ceed. The obligations
of X-ceed to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived in writing
exclusively by X-ceed:
(a) Representations and Warranties. The representations and warranties
of Zabit contained in this Agreement shall be true and correct on the date
hereof and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date), except for
changes contemplated by this Agreement, including the dividends paid pursuant to
Section 4.8(e), and except for such inaccuracies that, considered collectively,
have not had and would not reasonably be expected to have a material adverse
effect on Zabit (it being understood that, for purposes of
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determining the accuracy of such representations and warranties, all "material
adverse effect" and other materiality qualifications contained in such
representations and warranties shall be disregarded).
(b) Agreements and Covenants. Zabit shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time.
(c) Officer's Certificate. Zabit shall have furnished X-ceed with a
certificate dated the Closing Date signed on behalf of it by an executive
officer to the effect that the conditions set forth in Sections 9.3(a) and (b)
have been satisfied.
(d) Due Diligence. X-ceed shall have completed, to its reasonable
satisfaction, its due diligence investigation of the assets, business, financial
affairs and operational strategies of Zabit.
(e) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any material adverse change in the business, financial
condition or results of operations of Zabit.
(f) Third Party Consents. X-ceed shall have been furnished with evidence
reasonably satisfactory to it that Zabit has obtained,or is in the process of
obtaining, the consents, approvals, assignments and waivers set forth in the
Zabit Disclosure Schedule subject to no term, condition or restriction
unacceptable to X-ceed in its sole discretion.
(g) Private Placement Exemption. The issuance of shares of X-ceed Common
Stock is intended to be exempt from registration requirements of Section 5 of
Securities Act pursuant to an appropriate exemption available under Section 4(2)
or Regulation D promulgated thereunder.
ARTICLE X
INDEMNIFICATION
10.1 Survival of Representations and Warranties.
(a) All of the representations and warranties made by Zabit in this
Agreement or in any instrument by Zabit delivered pursuant to this Agreement
shall survive the Merger and continue until 5:00 p.m., California time on the
date which is sixteen (16) months after the Closing Date and shall not be
affected by any investigation conducted for or on behalf of X-ceed with respect
thereto or any knowledge acquired by X-ceed or its officers, directors,
employees, shareholders or agents as to the accuracy or inaccuracy of any such
representation or warranty.
(b) All of the representations and warranties made by X-ceed in this
Agreement or in any instrument by X-ceed delivered pursuant to this Agreement
shall survive the Merger and continue until 5:00 p.m. California time on the
date which is sixteen (16) months after the Closing Date and shall not be
affected by any investigation conducted for or on behalf of Zabit with respect
thereto or any knowledge acquired by Zabit or its officers, directors,
employees, shareholders or agents as to the accuracy or inaccuracy of any such
representation or warranty.
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(c) The waiver of any condition based on the accuracy of any
representation or warranty, or the performance or compliance of any covenant or
obligation, will not affect the right to indemnification set forth in this
Article X.
10.2 Indemnification by the Zabit Shareholders. Subject to the
limitations set forth herein, by approval and adoption of this Agreement, the
Zabit Shareholders agree to indemnify X-ceed severally for such Zabit
Shareholder's pro rata portion (based upon the number of shares of Zabit Common
Stock held by such Zabit Shareholder immediately prior to the Effective Time
relative to the total number of shares of Zabit Common Stock outstanding
immediately prior to the Effective Time) of claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses, and expenses of investigation and defense (calculated after
deduction for insurance proceeds recovered or recoverable) incurred by X-ceed
directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of Zabit or its shareholders contained herein
(hereinafter individually a "X-ceed Loss" and collectively "X-ceed Losses"). The
right of X-ceed after the Effective Time to assert indemnification claims and
receive indemnification payments from the Zabit Shareholders pursuant to this
Article X shall be the sole and exclusive right and remedy exercisable by such
parties with respect to any unintentional inaccuracy or breach in any
representation, warranty, or covenant contained in this Agreement or in any
instrument delivered pursuant to this Agreement or in connection with the
transactions contemplated hereby; provided, however, this section shall not
apply to any misrepresentation or breach or warranty of which the Zabit
Shareholders had actual knowledge or any intentional failure to perform or
comply with any agreement to which intentional acts and knowing
misrepresentations the Zabit Shareholders shall be liable for all X-ceed Losses
with respect thereto. X-ceed may not receive any indemnification from Zabit or
its shareholders unless and until a Claim Notice (as defined in Section 10.4
below) identifying X-ceed Losses, the aggregate cumulative amount of which
exceed five hundred thousand dollars ($500,000), have been delivered to the
Zabit Shareholders as provided in Section 10.4; in such case, X-ceed may recover
from the Zabit Shareholders the entire amount of the cumulative X-ceed Losses.
Any payment for indemnification from any Zabit Shareholder shall be paid by the
forfeiture and return of shares of X-ceed Common Stock received as such Zabit
Shareholder's pro rata portion of the Merger Consideration. The obligations of
the Zabit Shareholders to indemnify and hold harmless X-ceed shall also apply to
any action, claim or suit which arises from the operations of Zabit prior to the
Closing Date, to the extent that the aggregate cumulative amount of Zabit's
liability thereunder is in excess of five hundred thousand dollars ($500,000)
and is not covered by insurance and to the extent that such action, claim, suit
or matter is not disclosed in this Agreement or the Schedules attached hereto.
The Zabit Shareholders shall not be obligated to indemnify X-ceed for any claim
asserted more than sixteen (16) months after the Closing Date. In the event of
any such third party claim, the procedure set forth in Section 10.4 below shall
apply, except that no settlement shall be effective without the Zabit
Shareholders' consent and approval.
10.3 Indemnification by X-ceed. Subject to the limitations set forth
herein, by approval and adoption of this Agreement, X-ceed agrees to indemnify
the Zabit Shareholders for such Zabit Shareholder's pro rata portion (based upon
the number of shares of Zabit Common Stock held by such Zabit Shareholder
immediately prior to the Effective Time relative to the total number of shares
of Zabit Common Stock outstanding immediately prior to the Effective Time) of
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of investigation
and defense (calculated after deduction for insurance proceeds recovered or
recoverable) incurred by Zabit or the Zabit Shareholders directly or indirectly
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as a result of (a) any inaccuracy or breach of a representation or warranty of
X-ceed contained herein or in any instrument delivered pursuant to this
Agreement or any failure by X-ceed to perform or comply with any covenant
contained herein or (b) as a result of any claim or action made by THINK New
Ideas, Inc. ("THINK") against X-ceed, Zabit, the Zabit Shareholders or Scott
Mednick in connection with any discussions regarding a proposed acquisition of
Zabit by THINK (hereinafter individually a "Zabit Loss" and collectively "Zabit
Losses"). The right of Zabit or the Zabit Shareholders after the Effective Time
to assert indemnification claims and receive indemnification payments from
X-ceed pursuant to this Article X shall be the sole and exclusive right and
remedy exercisable by Zabit or the Zabit Shareholders with respect to any
unintentional inaccuracy or breach in any representation, warranty, or covenant
contained in this Agreement or in any instrument delivered pursuant to this
Agreement or in connection with the transactions contemplated hereby; provided,
however, this section shall not apply to any misrepresentation or breach or
warranty of which X-ceed had actual knowledge or any intentional failure to
perform or comply with any agreement to which intentional acts and knowing
misrepresentations X-ceed shall be liable for all Zabit Losses with respect
thereto. The Zabit Shareholders may not receive any indemnification from X-ceed
unless and until a Claim Notice (as defined in Section 10.4 below) identifying
Zabit Losses, the aggregate cumulative amount of which exceed five hundred
thousand dollars ($500,000), have been delivered to X-ceed as provided in
Section 10.4; in such case, the Zabit Shareholders may recover from X-ceed the
entire amount of the cumulative Zabit Losses.
10.4 Defense of Claims. No right to indemnification under this Article X
shall be available to any party otherwise entitled to indemnification (the
"Indemnified Party"), unless such Indemnified Party gives to the party obligated
to provide indemnification to such Indemnified Party (the "Indemnitor") a notice
(a "Claim Notice") describing in reasonable detail the facts giving rise to any
claim for indemnification hereunder promptly after the receipt of knowledge of
the facts upon which such claim is based (but in no event later than ten (10)
days prior to the time any response to the asserted claim is required); except
that the failure of any Indemnified Party to so notify the Indemnitor will not
relieve the Indemnitor from any liability it may have if and to the extent the
Indemnitor is not prejudiced by such omission. Upon receipt by the Indemnitor of
a Claim Notice from an Indemnified Party with respect to any claim of a third
party, such Indemnitor may control negotiations towards the resolution of any
such claim without the necessity for litigation, and, if litigation ensues,
assume the defense thereof at such Indemnitor's cost and with counsel reasonably
satisfactory to the Indemnified Party, and the Indemnified Party will extend
reasonable cooperation in the defense or prosecution thereof and will furnish
such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested in connection therewith. The Indemnified Party will have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel will be at the expense of the Indemnified Party unless (i) the
Indemnitor does not promptly employ counsel reasonably satisfactory to such
Indemnified Party to take charge of the defense of such action or (ii) such
Indemnified Party reasonably concludes, based upon the opinion of its outside
legal counsel, that there may be one or more legal defenses available to it, or
to any other Indemnified Party who has submitted a Claim Notice to the
Indemnitor, which are different from or additional to those available to the
Indemnitor, in either of which events such reasonable fees and expenses will be
borne by the Indemnitor (but in no event will the Indemnitor be required to pay
the fees and expenses of more than one counsel employed by more than one
Indemnified Party with respect to any claim) and the Indemnitor will not have
the right to direct the defense of any such action on behalf of the Indemnified
Party. The Indemnitor will have the right, in its sole discretion, to settle any
claim for monetary damages for
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which indemnification has been sought and is available hereunder, except that
neither Indemnitor nor the Indemnified Party will settle, compromise or make any
disposition of any claim under this Article X which would or may result in
liability to the Indemnified Party or Indemnitor, respectively, without the
written consent of Indemnitee or Indemnitor, respectively.
ARTICLE XI
TERMINATION, AMENDMENT, WAIVER, CLOSING
11.1 Termination. Except as provided in Section 11.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) By mutual consent of Zabit and X-ceed;
(b) By X-ceed or Zabit if: (i) the Effective Time has not occurred by
September 3, 1998 (provided that the right to terminate this Agreement under
this clause (i) shall not be available to any party whose willful failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date); (ii) there shall
be a final non-appealable order, decree or ruling of a court of competent
jurisdiction in effect preventing consummation of the Merger; or (iii) there
shall be any statute, rule, regulation or non-appealable order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
entity that would make consummation of the Merger illegal;
(c) By X-ceed if it is not in material breach of its representations,
warranties or obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Zabit or if any representation or warranty of Zabit
shall have become materially untrue, in either case such that the conditions set
forth in Section 9.3 would not be satisfied; provided, however, if such breach
or breaches are capable of being cured prior to the Effective Time, such
breaches shall not have been cured within thirty (30) days of delivery to Zabit
of written notice of such breach or breaches (but no such cure period shall be
required if such breach by its nature cannot be cured);
(d) By Zabit if it is not in material breach of its representations,
warranties or obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of X-ceed or if any representation or warranty of X-ceed
shall have become materially untrue, in either case such that the conditions set
forth in Section 9.2 would not be satisfied; provided, however, if such breach
or breaches are capable of being cured prior to the Effective Time, such
breaches shall not have been cured within thirty (30) days of delivery to X-ceed
of written notice of such breach or breaches (but no such cure period shall be
required if such breach by its nature cannot be cured);
(e) By Zabit if the trailing five (5) day weighted average price of
shares of X-ceed Common Stock on the Nasdaq Small Cap Market or the Nasdaq
National Market, as the case may be, is less than six dollars ($6) at the close
of the business day preceding the Closing Date.
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Where action is taken to terminate this Agreement pursuant to this
Section 11.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
11.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 11.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of X-ceed or
Zabit, or its respective subsidiaries, officers, directors or shareholders,
provided that, the provisions of Sections 8.3, 8.4, 8.5 and 8.13 of this
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
11.3 Amendment or Supplement. This Agreement, the X-ceed Notes, the
Second Note, the Registration Rights Agreement and all other agreements,
documents, instruments and certificates contemplated by, and executed and
delivered pursuant to, this Agreement (the "Transaction Documents") may be
amended or supplemented at any time before or after approval of this Agreement
and any action contemplated by this Agreement or any of the Transaction
Documents may be taken by a majority in interest of the Zabit Shareholders to
the extent permitted under the CGCL and the DGCL. No amendment or supplement to
this Agreement shall be effective unless in writing and signed by each of X-ceed
and Zabit.
11.4 Extension of Time, Waiver. At any time prior to the Effective Time,
X-ceed and Zabit may, to the extent legally allowed:
(a) Extend the time for the performance of any of the obligations
or other acts of the other party hereto,
(b) Waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered
pursuant hereto, or
(c) Waive compliance with any of the agreements or conditions for
the benefit of such party contained herein; provided, that no failure or
delay by any party hereto in exercising any right hereunder shall
operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise
of any other right hereunder.
Any agreement on the part of any party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE XII
GENERAL
12.1 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy (with receipt
confirmed and promptly confirmed by personal delivery, U.S. first class mail, or
courier), or by courier service, as follows:
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(a) If to X-ceed to:
X-ceed, Inc.
488 Madison Avenue
New York, New York 10022
Attn: Werner Haase
Facsimile: (212) 308-0646
with a copy to:
McLaughlin & Stern LLP
260 Madison Avenue
New York, New York 10016
Attn: Richard Blumberg
Facsimile: (212) 448-0066
(b) If to Zabit to:
Zabit and Associates
565 Bridgeway
Sausalito, CA 94965
Attention: William N. Zabit
Facsimile: (415) 331-4610
with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Attn: Gregg Vignos
Facsimile: (415) 983-1200
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
12.2 Headings. The headings of the several sections of this Agreement
are inserted for convenience of reference only and are not intended to affect
the meaning or interpretation of this Agreement.
12.3 Counterparts. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
12.4 Entire Agreement; Assignment. This Agreement, the Schedules and
Exhibits hereto (including the Disclosure Schedule), and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings,
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both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder (except as provided in Section 12.9 below); and (c), except
as contemplated by Section 11.3, shall not be assigned by operation of law or
otherwise except as mutually agreed in writing between the parties
12.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
12.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
12.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served them in any manner
authorized by the laws of the State of Delaware for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
12.8 Arbitration. All disputes arising in connection with or relating to
this Agreement, or the breach thereof, shall be finally settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association by one or more arbitrators appointed in accordance with said Rules.
The site of such arbitration shall be San Francisco, California. The award of
the arbitrator shall be final and binding and may be enforced in any and all
courts having jurisdiction over the party against which the award is rendered.
The prevailing party in any legal or arbitration action brought by one party
against the other shall be entitled, in addition to any other rights and
remedies it may have, to reimbursement for its expenses incurred thereby,
including the costs of investigation, consultant fees, court costs and
reasonable attorney's fees.
12.9 Absence of Third-Party Beneficiary Rights. No provision of this
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner or
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any party hereto or any other person or entity, and all provisions hereof will
be personal solely between the parties to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, all as of the date first above written.
X-CEED, INC.
By /s/ Werner Haase
Title Chief Executive Officer
ZABIT & ASSOCIATES, INC.
By /s/ William N. Zabit
Title Chairman/C.E.O.
ZABIT SHAREHOLDERS:
/s/ William N. Zabit
William N. Zabit
/s/ Joyce M. Wesolowski
Joyce M. Wesolowski
/s/ Judith Cohen
Judith Cohen
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CERTIFICATE OF MERGER
of
ZABIT AND ASSOCIATES, INC.
Into
X-CEED, INC.
Pursuant to Section 252(c) of the
State of Delaware General Corporation Law
The undersigned, being the Surviving Corporation, hereby sets
forth as follows:
FIRST: The name of the Surviving Corporation is X-ceed, Inc.;
its state of incorporation is Delaware.
SECOND: The name of the Non-Surviving Corporation is Zabit and
Associates, Inc.; its state of incorporation is California.
THIRD: An Agreement of Merger has been approved, adopted,
certified, executed and acknowledged by each constituent corporation in
accordance with Section 252(c) of the State of Delaware General Corporation Law.
FOURTH: The Certificate of Incorporation of X-ceed, Inc. shall
be the Certificate of Incorporation of the Surviving Corporation.
FIFTH: The executed Agreement of Merger is on file at the
principal place of business of the Surviving Corporation; the address of said
principal place of business is as follows: 488 Madison Avenue New York, New York
10022
SIXTH: A copy of the Agreement of Merger will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
SEVENTH: The authorized capital stock of the Non-Surviving
Corporation which is incorporated under the laws of the State of California is
100,000,000 shares of Common Stock, no par value.
<PAGE>
IN WITNESS WHEREOF, this Certificate is hereby executed this
15th day of September, 1998.
X-CEED, INC.
Surviving Corporation
By: /s/ Werner Haase
Werner Haase, President
2
STOCK PURCHASE AGREEMENT
Among
X-CEED, INC.
WILLIAM N. ZABIT
and
JOYCE M. WESOLOWSKI
September 2, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE.......................................1
1.1 Agreement to Sell and Purchase..........................1
1.2 Purchase Price..........................................1
1.3 The Closing.............................................1
1.4 Deliveries at the Closing...............................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS...........2
2.1 Authority...............................................2
2.2 Organization and Qualification..........................2
2.3 Capital Structure.......................................3
2.4 Title...................................................3
2.5 Subsidiaries; Equity Investments........................3
2.6 No Conflict with Other Instruments......................3
2.7 Governmental Consents...................................4
2.8 Financial Statements....................................4
2.9 Absence of Changes......................................5
2.10 Properties..............................................6
2.11 Taxes...................................................6
2.12 Employees...............................................8
2.13 Compliance with Law.....................................8
2.14 Litigation..............................................8
2.15 Contracts...............................................9
2.16 No Default..............................................9
2.17 Proprietary Rights.....................................10
2.18 Brokers or Finders.....................................10
2.19 Related Parties........................................10
2.20 Certain Advances.......................................10
2.21 Underlying Documents...................................11
2.22 No Misleading Statements...............................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF X-CEED...............11
3.1 Organization and Qualification.........................11
3.2 Authority..............................................11
3.3 No Conflict with Other Instruments.....................11
3.4 Governmental Consents..................................12
3.5 Brokers or Finders.....................................12
3.6 No Misleading Statements...............................12
3.7 Investment Intent......................................12
ARTICLE IV ADDITIONAL AGREEMENTS..................................13
4.1 Pre-Closing Covenants..................................13
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Page
4.2 Post-Closing Covenants.................................15
ARTICLE V CONDITIONS PRECEDENT TO CLOSING........................17
5.1 Conditions to the Obligations of X-ceed................17
5.2 Conditions to Obligations of Sellers...................18
ARTICLE VI INDEMNIFICATION........................................19
6.1 Survival of Representations and Warranties.............19
6.2 Indemnification by the Sellers.........................19
6.3 Indemnification by X-ceed..............................20
6.4 Defense of Claims......................................20
ARTICLE VII TERMINATION, AMENDMENT, WAIVER, CLOSING................21
7.1 Termination............................................21
7.2 Effect of Termination..................................22
7.3 Amendment or Supplement................................22
7.4 Extension of Time, Waiver..............................22
ARTICLE VIII GENERAL................................................23
8.1 Notices................................................23
8.2 Headings...............................................24
8.3 Counterparts...........................................24
8.4 Entire Agreement; Assignment...........................24
8.5 Severability...........................................24
8.6 Other Remedies.........................................24
8.7 Governing Law..........................................24
8.8 Arbitration............................................24
8.9 Absence of Third-Party Beneficiary Rights..............25
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
September 2, 1998, by and among X-CEED, INC., a Delaware corporation ("X-ceed"),
and WILLIAM N. ZABIT ("Zabit") and JOYCE M. WESOLOWSKI ("Wesolowski" and
together with Zabit, individually a "Seller" and collectively the "Sellers").
X-ceed and each of the Sellers are sometimes referred to herein individually as
a "Party" and collectively as the "Parties."
RECITALS
The Sellers own all of the outstanding capital stock of Water Street
Design Group Incorporated, a Nevada corporation ("Water Street").
This Agreement contemplates a transaction in which X-ceed will purchase
from the Sellers, and the Sellers will sell to X-ceed, all of the outstanding
capital stock of and the assets of Water Street in return for the Purchase Price
(as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Sell and Purchase. On and subject to the terms and
conditions of this Agreement, X-ceed agrees to purchase from each Seller, and
each Seller agrees to sell to X-ceed the shares of capital stock of Water Street
(the "Shares") set forth opposite such Seller's name on Exhibit A attached
hereto, representing all of the issued and outstanding capital stock of Water
Street free and clear of claims, nominee or trust arrangements, pledges,
security interests, liens, rights of first refusal or similar rights, options,
contractual commitments, restrictions, charges and encumbrances of any nature
whatsoever, for the consideration specified in this Article 1.
1.2 Purchase Price. X-ceed agrees to pay at the Closing the Purchase
Price by a certified or bank check in New York Clearing House (same day) funds
or a wire transfer to (i) Zabit, in the principal amount of one million six
hundred thousand dollars ($1,600,000), and (ii) Wesolowski, in the principal
amount of four hundred thousand dollars ($400,000). The delivery of the Purchase
Price to each Seller represents payment in full for the Shares to be sold by
each Seller hereunder.
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1.3 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Pillsbury Madison &
Sutro LLP in San Francisco, California, commencing at 9:00 a.m. local time on
the second business day following the satisfaction or waiver of all conditions
to the obligations of the Parties to consummate the transactions contemplated
hereby or such other date as X-ceed and the Sellers may mutually determine (the
"Closing Date"). It is presently anticipated that the Closing Date will be on or
about September 3, 1998.
1.4 Deliveries at the Closing. At the Closing, (i) the Sellers shall
deliver to X-ceed the various certificates, instruments, and documents referred
to in Section 5.1 below, (ii) X-ceed shall deliver to the Sellers the various
certificates, instruments, and documents referred to in Section 5.2 below, (iii)
the Sellers shall deliver to X-ceed stock certificates representing all of the
Shares, duly endorsed in blank or accompanied by stock powers duly executed in
blank by the applicable Seller and customary instruments of transfer sufficient
to convey good and marketable title to the Shares, and (iv) X-ceed shall deliver
to the Sellers the consideration specified in Section 1.2 above.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, severally and jointly, represent and warrant to X-ceed as
follows:
2.1 Authority. Such Seller has all full power and authority to enter
into this Agreement and to perform his or her obligations hereunder and
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement, the performance by such Seller of its obligations hereunder and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of such Seller. This
Agreement is a valid and binding obligation of such Seller.
2.2 Organization and Qualification. Water Street is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has all requisite power and
authority to own, lease and operate its respective properties and to carry on
its business as now being conducted.
Water Street is qualified to do business as a foreign corporation and is
in good standing under the laws of each state or other jurisdiction in which the
nature of its business requires such qualification, except where the failure to
be so qualified or in good standing which, taken together with all other such
failures, would not have a material adverse effect on Water Street. As used in
this Agreement, any reference to any event, change or effect being "material" or
"materially adverse" or having a "material adverse effect" on or with respect to
an entity (or group of entities, taken as a whole) means such event, change or
effect is material or materially adverse, as the case may be, to the business,
condition (financial or otherwise), properties, assets, liabilities, or results
of operations of such entity (or, if with respect thereto, of such group of
entities taken as a whole).
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The Sellers have delivered or made available to X-ceed true, complete
and correct copies, with respect to Water Street, of its (i) Articles of
Incorporation and Bylaws (or other applicable charter documents), as amended to
the date hereof, (ii) minutes of all of directors' and shareholders' meetings
(or other applicable meetings), complete and accurate as of the date hereof, and
(iii) form of stock certificates, option agreements and rights to purchase
shares of its capital stock or other equity interests. Such Articles of
Incorporation and Bylaws and other applicable charter documents are in full
force and effect.
2.3 Capital Structure.
(a) The authorized capital stock of Water Street consists of one million
(1,000,000) shares of common stock, par value (cent).0001. As of the date of
this Agreement, there were issued and outstanding ten thousand (10,000) Shares.
(b) As of the date of this Agreement, there were no outstanding options
to the Shares.
(c) Other than as described paragraphs (a) and (b) above, there are no
other outstanding shares of capital stock or other equity securities of Water
Street and no other options, warrants, calls, conversion rights, commitments or
agreements of any character to which Water Street is a party or by which Water
Street may be bound that do or may obligate Water Street to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of Water
Street's capital stock or securities convertible into or exchangeable for Water
Street's capital stock or that do or may obligate Water Street to grant, extend
or enter into any such option, warrant, call, conversion right, commitment or
agreement.
(d) Of the issued and outstanding Shares, no shares are subject to
repurchase or redemption. All outstanding Shares are validly issued, fully paid
and nonassessable and not subject to preemptive rights created by statute, Water
Street's Articles of Incorporation or Bylaws or any agreement to which Water
Street is a party or by which Water Street may be bound. All outstanding
securities of Water Street have been issued in compliance with applicable
federal and state securities laws.
2.4 Title. Each Seller holds of record and owns beneficially the Shares
set forth opposite his or her name on Exhibit A free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
of 1933, as amended (the "Securities Act") and state securities laws), claims,
Taxes, liens, pledges, options, warrants, rights, contracts, calls, commitments,
equities and demands. Such Seller is not a party to any option, warrant, right,
contract, call, put, or other agreement providing for the disposition of any
capital stock of Water Street (other than pursuant to this Agreement). Such
Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to any capital stock of Water Street.
2.5 Subsidiaries; Equity Investments. Water Street does not have and has
never had any subsidiaries or companies controlled by Water Street and does not
own and has never
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owned any equity interest in, or controlled, directly or indirectly, any other
corporation, partner ship, joint venture, trust, firm or other entity.
2.6 No Conflict with Other Instruments. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby (a) will
not result in any violation of, conflict with, constitute a breach, violation or
default (with or without notice or lapse of time, or both) under, give rise to a
right of termination, cancellation, forfeiture or acceleration of any obligation
or loss of any benefit under, or result in the creation or encumbrance on any of
the properties or assets of Water Street pursuant to (i) any provision of Water
Street's Articles of Incorporation or Bylaws or (ii) any agreement, contract,
understanding, note, mortgage, indenture, lease, franchise, license, permit or
other instrument to which Water Street is a party or by which the properties or
assets of Water Street is bound, or (b) to the knowledge of Water Street,
conflict with or result in any breach or violation of any statute, judgment,
decree, order, rule or governmental regulation applicable to Water Street or its
properties or assets, except, in the case of clauses (a)(ii) and (b) for any of
the foregoing that would not, individually or in the aggregate, have a material
adverse effect on Water Street taken as a whole, or that could not result in the
creation of any material lien, charge or encumbrance upon any assets of Water
Street or that could not prevent, materially delay or materially burden the
transactions contemplated by this Agreement.
2.7 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign, is required
by or with respect to Water Street in connection with the execution, delivery
and performance of this Agreement by Water Street or the consummation by Water
Street of the transactions contemplated hereby, except such consents, approvals,
orders, authorizations, registrations, declarations, qualifications or filings
as may be required under federal or state securities laws in connection with the
transactions contemplated hereby.
2.8 Financial Statements. The Sellers have previously furnished to
X-ceed a complete and accurate copy of the reviewed combined financial
statements of Water Street and Zabit & Associates, Inc. ("Zabit & Associates")
for the fiscal years ended December 31, 1996 and December 31, 1997 and the
internal/unaudited financial statements of Water Street for the six month period
ended June 30, 1998 and the supplementary schedules thereto (the "Water Street
Financial Statements"). The Sellers believe that the Water Street Financial
Statements, as they relate to Water Street, are complete and correct in all
material respects (except that the June 30, 1998 financial statements do not
have footnotes thereto and the Water Street Financial Statements have not been
audited) and have been generally prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods indicated and are consistent with each other. The Water Street Financial
Statements accurately set out and describe the financial condition and operating
results of Water Street as of the dates, and for the periods, indicated therein,
subject to normal year-end adjustments. At the date of the Water Street
Financial Statements and as of the Closing Date, except as set forth in the
Water Street Disclosure Schedule, Water Street had and will have no liabilities
or
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obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise and whether or not required to be reflected on the balance sheet of
Water Street (the "Water Street Balance Sheet") under GAAP) not reflected in the
Water Street Financial Statements or the accompanying notes thereto except for
liabilities and obligations that have arisen in the ordinary course of business
prior to the date of the Water Street Financial Statements and which, under
GAAP, would not have been required to be reflected in the Water Street Financial
Statements and except for liabilities incurred in the ordinary course of
business since the date of the Water Street Financial Statements which are usual
and normal in amount. Water Street maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
GAAP.
2.9 Absence of Changes. Since July 31, 1998, except as otherwise
contemplated by this Agreement, Water Street has conducted its respective
business only in the ordinary and usual course and, without limiting the
generality of the foregoing:
(a) There have been no material changes in the condition (financial or
otherwise), business, assets, properties, employees, operations, obligations or
liabilities of Water Street, taken as a whole, which, in the aggregate, have had
or may be reasonably expected to have a material adverse effect on Water Street;
(b) Water Street has not issued, or authorized for issuance, or entered
into any commitment to issue, any equity security, bond, note or other security;
(c) Water Street has not incurred additional debt for borrowed money, or
incurred any obligation or liability except in the ordinary course of business
consistent with past practice;
(d) Water Street has not paid any obligation or liability, or
discharged, settled or satisfied any claim, lien or encumbrance, except for
current liabilities in the ordinary course of business consistent with past
practice;
(e) Water Street has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock;
(f) Water Street has not purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any share or shares of its
capital stock;
(g) Water Street has not mortgaged, pledged, or otherwise encumbered any
of its assets or properties, except for liens for current taxes which are not
yet delinquent and purchase-money liens arising out of the purchase or sale of
services or products made in the ordinary course of business consistent with
past practice;
(h) Water Street has not disposed of, or agreed to dispose of, by sale,
lease, license or otherwise, any asset or property, tangible or intangible,
except in the ordinary course of business consistent with past practice, and in
each case for a consideration believed to be at least equal to the fair value of
such asset or property;
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(i) Water Street has not purchased or agreed to purchase or otherwise
acquire any securities of any corporation, partnership, joint venture, firm or
other entity;
(j) Water Street has not made any expenditure or commitment for the
purchase, acquisition, construction or improvement of a capital asset, except in
the ordinary course of business consistent with past practice;
(k) Water Street has not entered into any material transaction or
contract, or made any commitment to do the same;
(l) Water Street has not sold, assigned, licensed, transferred or
conveyed, or committed itself to sell, assign, transfer or convey, any Water
Street Proprietary Rights (as defined in Section 2.17);
(m) Water Street has not adopted or amended any bonus, incentive,
profit-sharing, stock option, stock purchase, pension, retirement,
deferred-compensation, severance, life insurance, medical or other benefit plan,
agreement, trust, fund or arrangement for the benefit of employees of any kind
whatsoever, nor entered into or amended any agreement relating to employment,
services as an independent contractor or consultant, or severance or termination
pay, nor agreed to do any of the foregoing;
(n) Water Street has not effected or agreed to effect any change in its
directors, officers or key employees; and
(o) Water Street has not effected or committed itself to effect any
amendment or modification in its Articles of Incorporation or Bylaws.
2.10 Properties.
Water Street does not own any real property, nor has it ever owned any
real property. The Water Street Financial Statements reflect all of the real and
personal property owned or used by Water Street in its business or otherwise
held by Water Street, except for (i) property acquired or disposed of in the
ordinary course of business consistent with past practice of Water Street, since
the date of the Water Street Balance Sheet, and (ii) personal property not
required under GAAP to be reflected thereon. Water Street has good and
marketable title to all assets and properties listed in the Water Street
Financial Statements or thereafter acquired, free and clear of any imperfections
of title, lien, claim, encumbrance, restriction, charge or equity of any nature
whatsoever, except for liens of current taxes not yet delinquent. All of the
fixed assets and properties reflected in the Water Street Financial Statements
or thereafter acquired are in good condition and repair for the requirements of
the business as presently conducted by Water Street.
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2.11 Taxes.
(a) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes, including without limitation (i) any income, profits,
alternative or add-on minimum tax, gross receipts, sales, use, value-added, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, net worth, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or assessment or charge of any kind whatsoever, together with any interest
or any penalty, addition to tax or additional amount imposed by any governmental
entity responsible for the imposition of any such tax (domestic or foreign) (a
"Taxing Authority"), (ii) any liability for the payment of any amounts of the
type described in clause (i) above as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof, and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) above
as a result of any express or implied obligation to indemnify any other person.
(b) All Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any Taxable period ending on or
before the Closing Date, by or on behalf of Water Street (collectively, the
"Water Street Returns"), have been or will be filed when due (including any
extensions of such due date), and all amounts shown to be due thereon on or
before the Closing Date have been or will be paid on or before such date. All
the Water Street Returns are true and correct in all material respects. Water
Street has no liability for Taxes, other than as shown on the Water Street
Returns, except for positions taken in good faith and for which adequate
reserves have been established. The Water Street Financial Statements fully
accrue all actual and contingent liabilities for Taxes with respect to all
periods through the dates thereof. The Water Street Financial Statements (i)
fully accrue consistent with GAAP all actual and contingent liabilities for
Taxes with respect to all periods through the date of the Water Street Financial
Statements and (ii) properly accrue consistent with GAAP all liabilities for
Taxes payable after the date of the Water Street Balance Sheet with respect to
all transactions and events occurring on or prior to such date. All information
set forth in the notes to the Water Street Financial Statements relating to Tax
matters is true, complete and accurate in all material respects.
(c) No Tax liability has been incurred since December 31, 1997 other
than in the ordinary course of business and adequate provision has been made for
all Taxes since that date on at least a quarterly or, with respect to employment
taxes, monthly basis. Water Street has withheld and paid to the applicable
financial institution or Taxing Authority all amounts required to be withheld by
it. Copies of all Water Street Returns filed with respect to federal income tax
returns for Taxable years of Water Street ending prior to the date hereof have
been provided to X-ceed. Water Street has not been granted any extension or
waiver of the limitation period applicable to any Water Street Return.
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(d) There is no claim, audit, action, suit, proceeding or investigation
now pending or threatened against or with respect to Water Street in respect of
any Tax or assessment. There are no liabilities for Taxes with respect to any
notice of deficiency or similar document of any Tax Authority received by Water
Street which have not been satisfied in full (including liabilities for
interest, additions to tax and penalties thereon and related expenses). Neither
Water Street, nor any person on behalf of Water Street has entered into or will
enter into any agreement or consent pursuant to Section 341(f) of the Internal
Revenue Code of 1986, as amended (the "Code"). There are no liens for Taxes upon
the assets of Water Street except liens for current Taxes not yet due. Except as
may be required as a result of the transactions contemplated by this Agreement
or as otherwise disclosed to Water Street, Water Street has not been nor will it
be required to include any adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Closing Date.
(e) There is no contract, agreement, plan or arrangement, including
without limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of Water
Street that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or Section 162 of
the Code (as determined without regard to Section 280G(b)(4)). Other than
pursuant to this Agreement, Water Street is not a party to or bound by (nor will
it prior to the Closing Date become a party to or bound by) any tax indemnity,
tax sharing or tax allocation agreement (whether written, unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Water Street. None of
the assets of Water Street (i) is property that Water Street is required to
treat as owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (ii) directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code, or (iii) is "tax exempt use property" within the meaning of Section 168(h)
of the Code. Water Street has not participated in (and prior to the Closing Date
Water Street will not participate in) an international boycott within the
meaning of Section 999 of the Code. Water Street has previously provided or made
available to X-ceed complete and accurate copies of all Water Street Returns,
and, as reasonably requested by X-ceed, prior to or following the date hereof,
presently existing information statements, reports, work papers, Tax opinions
and memoranda and other Tax data and documents.
2.12 Employees. Water Street does not have any employment contract with
any officer or employee or any other consultant or person which is not
terminable by it at will without liability, except as the right of Water Street
to terminate its employees at will may be limited by applicable federal, state
or foreign law. Water Street does not have any deferred compensation, pension,
health, profit sharing, bonus, stock purchase, stock option, hospitalization,
insurance, severance, workers' compensation, supplemental unemployment benefits,
vacation benefits, disability benefits, or any other employee pension benefit
(as defined in the Employee Retirement Income Security Act of 1974 ("ERISA") or
otherwise) or welfare benefit plan or
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obligation covering any of its officers or employees ("Employee Plans") or any
informal understanding with respect to the foregoing. The employees of Water
Street are covered by the Employee Plans maintained by Zabit & Associates. Water
Street does not maintain or has ever maintained or contributed to any Employee
Plan subject to Title IV of ERISA (relating to defined benefit plans).
There are no controversies or labor disputes or union organization
activities pending or threatened between Water Street and any of its employees.
None of the employees of Water Street belongs to any union or collective
bargaining unit. Water Street has complied with all applicable foreign, state
and federal equal employment opportunity and other laws and regulations related
to employment or working conditions.
2.13 Compliance with Law. All material licenses, franchises, permits,
clearances, consents, certificates and other evidences of authority of Water
Street which are necessary to the conduct of Water Street's business ("Water
Street Permits") are in full force and effect and Water Street is not in
violation of any Water Street Permit in any material respect. Except for
exceptions which would not have a material adverse effect on Water Street, the
business of Water Street has been conducted in accordance with all applicable
laws, regulations, orders and other requirements of governmental authorities.
2.14 Litigation. To the best of the Sellers' knowledge, there is no
claim, dispute, action, proceeding, notice, order, suit, appeal or
investigation, at law or in equity, pending or, to the knowledge of the Sellers,
threatened, against Water Street or any of its directors, officers, employees or
agents, or involving any of their respective assets or properties used in or
related to the business of Water Street, before any court, agency, authority,
arbitration panel or other tribunal. The Sellers are not aware of any facts
which, if known to the Sellers, would result in any such claim (other than
customary and normal returns of product in the ordinary course of business
consistent with past practice), dispute, action, proceeding, suit or appeal or
investi gation. Water Street is not subject to any order, writ, injunction or
decree of any court, agency, authority, arbitration panel or other tribunal, nor
is Water Street in default with respect to any notice, order, writ, injunction
or decree, any of which would have a material adverse effect on Water Street.
2.15 Contracts. Schedule 2.15 contains a complete and accurate list of
each executory contract and agreement in the following categories to which Water
Street is a party, or by which Water Street is bound in any respect: (a)
agreements for the purchase, sale, lease or other disposition of equipment,
goods, materials, supplies, or capital assets, or for the performance of
services which are not terminable without penalty on thirty (30) days' notice,
in any case involving more than ten thousand dollars ($10,000); (b) contracts or
agreements for the joint performance of work or services, and all other joint
venture, collaboration, research, or other agreements, and grant requests or
proposals for research and development contracts in excess of twenty-five
thousand dollars ($25,000) each; (c) management or employment contracts, con
sulting contracts, collective bargaining contracts, termination and severance
agreements; (d) notes, mortgages, deeds of trust, loan agreements, security
agreement, guarantees, debentures, indentures, credit agreements and other
evidences of indebtedness; (e) warrants,
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repurchase or other contracts or agreements relating to the issuance of capital
stock or other equity interests of Water Street; (f) contracts or agreements
with agents, brokers, consignees, sale representatives or distributors; (g)
contracts or agreements with any director, officer, employee, consultant or
stockholder; (h) powers of attorney or similar authorizations granted by Water
Street to third parties; (i) patents, licenses, sublicenses, royalty agreements
and other contracts or agreements to which Water Street is a party, or otherwise
subject, relating to technical assistance or to Water Street Proprietary Rights;
(j) personal property or capital equipment leases and other rental, use or
service arrangements of Water Street involving payment obligations in excess of
twenty-five thousand dollars ($25,000) and which cannot be terminated without
penalty on thirty (30) days' notice; and (k) other material contracts.
Water Street has not, nor, to the knowledge of the Sellers, has any of
its employees entered into any contract or agreement containing covenants
limiting the right of Water Street to compete in any business or with any
person. As used in this Agreement, the terms "contract" and "agreement" include
every contract, agreement, commitment, understanding and promise, whether
written or oral.
2.16 No Default.
(a) Each of the contracts, agreements or other instruments referred to
in Section 2.15 is a legal, binding and enforceable obligation by or against
Water Street subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting the
rights of creditors and the effect or availability of rules of law governing spe
cific performance, injunctive relief or other equitable remedies. No party with
whom Water Street has an agreement or contract is in default thereunder or has
breached any term or provision thereof where such default or breach would have a
material adverse effect on the business of Water Street.
(b) Water Street has performed, or is now performing, the obligations
of, and Water Street is not in material default (or would by the lapse of time
and/or the giving of notice be in material default) in respect of, any contract,
agreement or commitment binding upon it or its assets or properties and material
to the conduct of its business. No third party has notified Water Street of any
claim, dispute or controversy with respect to any of the executory contracts of
Water Street nor has Water Street received notice or warning of alleged
nonperformance, delay in delivery or other noncompliance by Water Street with
respect to its obligations under any of those contracts, where such alleged
nonperformance, delay in delivery or other noncompliance would have a material
adverse effect on Water Street, nor are there any facts which exist indicating
that any of those contracts may be totally or partially terminated or suspended
by the other parties thereto.
2.17 Proprietary Rights.
(a) Except as would not reasonably be expected to have a material
adverse effect on Water Street, Water Street owns, or is licensed to use, all
intangible and intellectual property used in or related to the business
conducted by Water Street (collectively, the "Water Street
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Proprietary Rights"), including (a) all trademarks, service marks, trade names,
trade styles, copyrights and all registrations or applications therefor, (b) all
patents, inventions and all registrations or applications therefor, and (c) all
licenses, sublicenses and other agreements to which Water Street is a party,
either as licensee or licensor or otherwise, related to any of the Water Street
Proprietary Rights. Water Street has not engaged in any conduct or omitted to
perform any necessary act, the result of which would invalidate, abandon or
otherwise render Water Street's rights to any Water Street Proprietary Rights
unenforceable. Water Street is not required to pay any royalty, license, fee or
other similar compensation with respect to the Water Street Proprietary Rights
in connection with the current or prior conduct of the business conducted by
Water Street. As used in the business of Water Street as currently conducted,
none of the Water Street Proprietary Rights infringes or misappropriates or
otherwise violates or has been alleged to infringe, misappropriate or otherwise
violate any proprietary rights of any other person or entity, nor is Water
Street otherwise in the conduct of its business infringing upon, or alleged to
be infringing upon, any proprietary rights of any other person or entity. To the
knowledge of the Sellers, no person or entity is engaged in any activity which
would constitute infringement of Water Street's rights in the Water Street
Proprietary Rights. Water Street is not a party to any agreement to indemnify
any other person or entity against any charge of infringement of any proprietary
right except customary vendor provisions contained in software contracts.
2.18 Brokers or Finders. The Sellers are being represented in connection
with the transactions contemplated by this Agreement by Wit Capital Corporation,
and the Sellers will be responsible for the payment of all fees and expenses in
connection with such representation.
2.19 Related Parties. Water Street provides design services for and
receives administrative services and office space from Zabit & Associates, which
is majority owned by the Sellers.
2.20 Certain Advances. There are no receivables of Water Street owing
from directors, officers, employees, consultants or shareholders of Water Street
or owing by any affiliate of any director or officer of Water Street, other than
advances in the ordinary course of business consistent with past practice to
officers and employees for reimbursable business expenses which are not in
excess of twenty-five thousand dollars ($25,000) for any one individual.
2.21 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to X-ceed pursuant to this Agreement have
been furnished to X-ceed. All such documents furnished to X-ceed are true and
correct copies, and there are no amendments or modifications thereto that have
not been disclosed in writing to X-ceed.
2.22 No Misleading Statements. No representation or warranty made
herein, in the Appendices, Schedules and Exhibits attached hereto or any written
statement or certificate furnished or to be furnished to X-ceed pursuant hereto
or in connection with the transactions contemplated hereby (when read together)
contains any untrue statement of a material fact or omits a material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they are made, not misleading. Water
Street has
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disclosed to X-ceed all material information of which it is aware relating
specifically to the operations and business of Water Street as of the date of
this Agreement or relating to the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF X-CEED
X-ceed represents and warrants to Water Street as follows:
3.1 Organization and Qualification. X-ceed, and each of its
Subsidiaries, is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization and
has all requisite power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted. As used in this
Agreement, "Subsidiary" means a corporation, partnership or other entity in
which X-ceed owns directly or indirectly fifty percent (50%) or more of the
voting stock, profits, equity or beneficial interest, is a partner of, or
otherwise controls the management of.
X-ceed and each of its Subsidiaries is qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which the nature of its business requires such
qualification, except where the failure to be so qualified or in good standing
which, taken together with all other such failures, would not have a material
adverse effect on X-ceed and its Subsidiaries, taken as a whole.
3.2 Authority. X-ceed has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement, the performance by X-ceed of its obligations hereunder and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of X-ceed, including
approval of the X-ceed Board. This Agreement is a valid and binding obligation
of X-ceed.
3.3 No Conflict with Other Instruments. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby (a) will
not result in any violation of, conflict with, constitute a breach, violation or
default (with or without notice or lapse of time, or both) under, give rise to a
right of termination, cancellation, forfeiture or acceleration of any obligation
or loss of any benefit under, or result in the creation or encumbrance on any of
the properties or assets of X-ceed or any Subsidiary pursuant to (i) any
provision of X-ceed's Certificate of Incorporation or Bylaws, or the charter or
organizational documents of any Subsidiary, as the case may be, or (ii) any
agreement, contract, understanding, note, mortgage, indenture, lease, franchise,
license, permit or other instrument to which X-ceed or any Subsidiary is a party
or by which the properties or assets of X-ceed or any Subsidiary is bound, or
(b) to the knowledge of X-ceed, conflict with or result in any breach or
violation of any statute, judgment, decree, order, rule or governmental
regulation applicable to X-ceed or any
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Subsidiary or their respective properties or assets, except, in the case of
clauses (a)(ii) and (b) for any of the foregoing that would not, individually or
in the aggregate, have a material adverse effect on X-ceed and its Subsidiaries,
taken as a whole, or that could not result in the creation of any material lien,
charge or encumbrance upon any assets of X-ceed or any Subsidiary or that could
not prevent, materially delay or materially burden the transactions contemplated
by this Agreement.
3.4 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign, is required
by or with respect to X-ceed or any Subsidiary in connection with the execution,
delivery and performance of this Agreement by X-ceed or the consummation by
X-ceed of the transactions contemplated hereby, except for such consents,
approvals, orders, authorizations, registrations, declarations, qualifications
or filings as may be required under federal or state securities laws in
connection with the transactions contemplated hereby.
3.5 Brokers or Finders. Neither X-ceed nor its Subsidiaries, nor any of
their officers, directors or employees, have employed any broker or finder or
incurred any liability for any brokerage, finder's or similar fees or
commissions in connection with this Agreement or the transactions contemplated
hereby.
3.6 No Misleading Statements. No representation or warranty made herein,
in the X-ceed Disclosure Schedule or in the Appendices, Schedules and Exhibits
attached hereto or any written statement or certificate furnished or to be
furnished to Water Street pursuant hereto or in connection with the transactions
contemplated hereby (when read together) contains any untrue statement of a
material fact or omits a material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
are made, not misleading. X-ceed has disclosed to Water Street all material
information of which it is aware relating specifically to the operations and
business of X-ceed as of the date of this Agreement or relating to the
transactions contemplated by this Agreement.
3.7 Investment Intent. X-ceed is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties shall use his, her or its commercially
reasonable efforts to take all action and to do all things necessary, proper, or
advisable to consummate and
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make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Article 5 below).
(b) Notices and Consents. The Sellers shall cause Water Street to give
any notices to third parties, and shall cause Water Street to use its best
efforts to obtain any third-party consents, that X-ceed may reasonably request
in connection with the matters pertaining to Water Street disclosed or required
to be disclosed in this Agreement. Each of the Parties shall take any additional
action (and the Sellers will cause Water Street to take any additional action)
that may be necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents, and approvals of governments,
governmental agencies, and third parties that he, she or it may be required to
give, make, or obtain.
(c) Operation of Business. The Sellers shall not cause or permit Water
Street to engage in any practice, take any action, embark on any course of
inaction, or enter into any transaction outside the ordinary course of business.
Without limiting the generality of the foregoing, the Sellers shall not cause or
permit Water Street to engage in any practice, take any action, embark on any
course of inaction, or enter into any transaction of the sort described in
Section 2.9 above.
(d) Preservation of Business. The Sellers shall cause Water Street to
keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
customers, licensers, suppliers, and employees.
(e) Full Access. The Sellers shall permit, and the Sellers will cause
Water Street to permit, representatives of X-ceed to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of Water Street, to all premises, personnel properties,
books, records, contracts, Tax records, and documents of or pertaining to Water
Street; provided, however, that no investigation or receipt of information
pursuant to this Section 4.1(e) shall affect any representation or warranty of
the Sellers or the conditions to the obligations of X-ceed.
(f) Notice of Developments. The Sellers shall give prompt written notice
to X-ceed of any material development affecting the assets, liabilities,
business, financial conditions, operations, results of operations, or future
prospects of Water Street. Each Party shall give prompt written notice to the
other of any material development affecting the ability of the Parties to
consummate the transactions contemplated by this Agreement. No disclosure by any
Party pursuant to this Section 4.1(f), however, shall be deemed to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
(g) No Solicitation. Except as set forth in X-ceed's filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or with respect to the possible acquisition of Mercury 7 by X-ceed,
until the earlier of September 3, 1998, or the date of termination of this
Agreement, the Sellers and X-ceed agree that neither shall, nor authorize or
permit any Subsidiary or any of its Subsidiaries' officers, directors, agents,
representatives or affiliates to, directly or indirectly, take any of the
following actions with any
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party other than the other party to this Agreement and its designees: solicit,
initiate, facilitate or encourage (including by way of furnishing or disclosing
non-public information) any inquiries or the making of any proposal with respect
to any merger, consolidation or other business combination involving Water
Street or X-ceed or any of its Subsidiaries or acquisition of any kind of
material portion of the capital stock or assets of Water Street or X-ceed or any
of its Subsidiaries. The Sellers and X-ceed further agree that neither they nor
any of its directors, officers, employees, agents and representatives
(including, without limitation, any financial advisor, attorney or accountant)
will, nor authorize or permit any Subsidiary or any of its Subsidiaries'
officers, directors, agents, representatives or affiliates to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer with respect to (i) a merger,
acquisition, consolidation, recapitalization, liquidation, asset sale or similar
acquisition involving the purchase, sale or other disposition of all or any
significant portion of the assets of Water Street or X-ceed or any of its
Subsidiaries, (ii) the issuance, sale or other transfer of any of the shares of
the capital stock of Water Street or X-ceed or any of its Subsidiaries (or any
securities convertible into or exchangeable or exercisable for such capital
stock), or (iii) any agreement, arrangement, contract, license or understanding
that could reasonably be expected to obstruct or delay the transactions
contemplated herein (an "Acquisition Transaction") or negotiate, explore or
otherwise communicate in any way with any third party with respect to any
Acquisition Transaction or enter into any agreement, arrangement or
understanding with respect to an Acquisition Transaction or requiring it to
abandon, terminate, or fail to consummate the transactions contemplated by this
Agreement, or make or authorize any statement, recommendation or solicitation in
support of any Acquisition Transaction with any third party other than X-ceed
and its Subsidiaries or the Sellers. The Sellers and X-ceed agree to notify each
other immediately if any such inquiries or proposals regarding any such
alternative proposal are received. If the Parties cannot in good faith negotiate
mutually agreeable definitive documentation before September 3, 1998, then the
Sellers and X-ceed shall be permitted to commence negotiations with other
potential purchasers.
(h) Confidentiality. Each Party shall, and shall cause all of its
employees, representatives and professional advisors to, keep confidential and
not disclose to any other person or entity any information relating to the other
Party which it obtains in the course of its due diligence investigation in
connection with this Agreement, and to destroy or return to the other party all
copies of such confidential information and extracts therefrom so requested by
the other party hereto.
(i) Expenses. All fees and expenses incurred in connection with the
transactions contemplated by this Agreement including, without limitation, all
legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses.
(j) Public Disclosure. Unless otherwise required by law (including,
without limitation, securities laws) and, as to X-ceed, by the rules and
regulations of Nasdaq, prior to the Closing
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Date, no disclosure (whether or not in response to an inquiry) of the
discussions or subject matter of this Agreement shall be made by any party
hereto unless approved by X-ceed and Water Street in writing prior to release,
provided that such approval shall not be unreasonably withheld.
4.2 Post-Closing Covenants. The Parties agree as follows with respect to
the period from the execution of this Agreement and following the Closing:
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties shall take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article 6 below
and except as otherwise provided in this Agreement). The Sellers acknowledge and
agree that from and after the Closing, X-ceed shall be entitled to possession of
all documents, books, records, agreements, files, and financial data of any sort
in the possession of the Sellers relating to the business and operations of
Water Street to the extent not then in the possession of Water Street.
(b) Tax Matters. (i) The Sellers and X-ceed shall jointly make the
elections provided for by Sections 338(g) and 338(h)(10) of the Code and any
corresponding elections under state, local, or foreign tax law (collectively,
"Section 338 Elections") with respect to the purchase and sale of the Shares
pursuant to this Agreement. X-ceed and the Sellers shall cooperate with each
other to take all actions necessary and appropriate (including executing and
filing such forms, returns, elections, schedules and other documents as may be
required) to effect and preserve timely Section 338 Elections. The Sellers and
X-ceed shall report the purchase by X-ceed of the Shares pursuant to this
Agreement consistent with the Section 338 Elections and shall take no income tax
position inconsistent therewith in any Tax Return, any proceeding before any
taxing authority or otherwise.
(ii) The Purchase Price shall be allocated among the Shares by the
Sellers (the "Share Allocation") and the Seller's Share Allocation shall be
subject to the consent of X-ceed, which consent shall not be unreasonably
withheld. Within one hundred eighty (180) days of the Closing Date but in all
events no later than sixty (60) days prior to the last date (determined without
regard to extensions) on which a Section 338 Election may be filed with any
applicable federal, state or local governmental authority, the Sellers shall
prepare and deliver to X-ceed a schedule (the "Share Price Allocation Schedule")
allocating with the consent of X-ceed, which consent shall not be unreasonably
withheld the Modified Aggregate Deemed Sale Price (as defined in Treasury
Regulation section 1.338(h)(10)-1(e)(5)) among the assets of Water Street in
accordance with the applicable U.S. Treasury Regulations promulgated under
Section 338 of the Code. The Share Allocation and the Share Price Allocation
Schedule shall be binding on X-ceed and the Sellers and their affiliates and all
Parties agree to act in accordance with such Share Allocation and Share Price
Allocation Schedule in the preparation, filing and audit of any income Tax
Return.
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(iii) Whenever it is necessary for purposes of this Agreement to
determine the Tax liability (or assessments and similar charges and expenses)
with respect to the assets of Water Street or allocate the Tax attributes of an
entity (including Water Street) for a taxable year or period that begins before
and ends on or after the Closing Date, the determination shall be made by means
of an interim closing of the books and records as of the close of business on
the Closing Date, as if a taxable period ended as of the close of business on
the Closing Date; provided, however, that periodic Taxes that are not based on
income or gross receipts (e.g. real property taxes) shall be allocated by
apportioning such Taxes on a per diem basis.
(iv) In connection with Tax Returns and information reports:
(A) The Sellers shall be responsible for the timely filing
(taking into account any extensions received from the relevant Taxing
Authority) of all Tax Returns and information reports required by law to
be filed in any jurisdiction in respect of Water Street on or prior to
the Closing Date, and shall promptly deliver copies of all such returns
and reports to X-ceed, and X-ceed shall be responsible for the timely
filing (taking into account any extensions received from the relevant
Taxing Authority) of all Tax Returns and information reports required by
law to be filed in such jurisdiction in respect of Water Street after
the Closing Date;
(B) Control of any legal or administrative proceedings concerning
any such Taxes, and entitlement to any refunds or awards with respect to
any such Taxes, shall rest with the Party responsible for payment
therefor under this Agreement.
(C) In the event that any refund, rebate or similar payment is
received by the Sellers or X-ceed in respect of Water Street, and which
payment pertains to the assessment period in which the Closing Date
falls, the Parties agree that such payment will be apportioned between
the Sellers and X-ceed in accordance with the provisions of Section
4.2(b)(iii) above; the Sellers shall notify X-ceed in writing within
thirty (30) days as to any examination by or disputes with any Taxing
Authority that relate to periods of operation through and including the
Closing Date and that relate to Water Street which would affect the
liability for Taxes of X-ceed or Water Street for any period after the
Closing Date or that could result in X-ceed owing money to the Sellers
under any provision in this Agreement. X-ceed shall notify the Sellers
in writing within thirty (30) days as to any examination by or disputes
with any Taxing Authority that relate to Water Street which would affect
the liability for Taxes of the Sellers or Water Street for any period on
or prior to the Closing Date or that could result in the Sellers owing
money to X-ceed or Water Street under any provisions in this Agreement;
and
(D) The Parties shall cooperate, including, without limitation,
in connection with any audits by any Taxing Authority and in the
preparation of Tax Returns, to avoid payment of duplicate or
inappropriate Taxes in respect of Water Street, and each party shall
furnish, at the request of the other, proof of payment of such Taxes
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and any other documentation that may be a prerequisite to avoiding
payment of a duplicate or inappropriate Tax.
(v) After the Closing, upon reasonable written notice, X-ceed and the
Sellers agree to furnish or cause to be furnished to each other and their
representatives, employees, counsel and accountants access, during normal
business hours, to such information (including records pertinent to Water
Street) and assistance relating to Water Street as is reasonably necessary for
financial reporting and accounting matters, the preparation and filing of any
Tax returns, reports or forms or the defense of any Tax claim or assessment;
provided, however, that such access does not unreasonably disrupt the normal
operations of the Sellers, X-ceed or Water Street.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions to the Obligations of X-ceed. The obligations of X-ceed
to consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived in writing exclusively by X-ceed:
(a) Representations and Warranties. The representations and warranties
of Sellers contained in this Agreement shall be true and correct on the date
hereof and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date), except for
changes contemplated by this Agreement, and except for such inaccuracies that,
considered collectively, have not had and would not reasonably be expected to
have a material adverse effect on Water Street (it being understood that, for
purposes of determining the accuracy of such representations and warranties, all
"material adverse effect" and other materiality qualifications contained in such
representations and warranties shall be disregarded).
(b) Agreements and Covenants. The Sellers shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other regulatory restraint or prohibition preventing
the consummation of the transactions contemplated by this Agreement shall be in
effect.
(d) Seller's Certificate. The Sellers shall have furnished X-ceed with a
certificate dated the Closing Date and signed by each Seller to the effect that
the conditions set forth in Sections 5.1(a) and (b) have been satisfied.
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(e) Due Diligence. X-ceed shall have completed, to its reasonable
satisfaction, its due diligence investigation of the assets, business, financial
affairs and operational strategies of Water Street.
(f) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any material adverse change in the business, financial
condition or results of operations of Water Street.
(g) Third Party Consents. X-ceed shall have been furnished with evidence
reasonably satisfactory to it that the Sellers have obtained, or are in the
process of obtaining, the consents, approvals, assignments and waivers required
to be obtained by the Sellers subject to no term, condition or restriction
unacceptable to X-ceed in its sole discretion.
5.2 Conditions to Obligations of Sellers. The obligations of Sellers to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived in writing exclusively by Sellers:
(a) Representations and Warranties. The representations and warranties
of X-ceed contained in this Agreement shall be true and correct on the date
hereof and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date), except for
changes contemplated by this Agreement and except for such inaccuracies that,
considered collectively, have not had and would not reasonably be expected to
have a material adverse effect on X-ceed (it being understood that, for purposes
of determining the accuracy of such representations and warranties, all
"material adverse effect" and other materiality qualifications contained in such
representations and warranties shall be disregarded).
(b) Agreements and Covenants. X-ceed shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect.
(d) Officer's Certificate. X-ceed shall have furnished the Sellers with
a certificate dated the Closing Date signed on behalf of it by an executive
officer to the effect that the conditions set forth in Sections 5.2(a) and (b)
have been satisfied.
(e) Due Diligence. The Sellers shall have completed, to their reasonable
satisfaction, their due diligence investigation of the assets, business,
financial affairs and operational strategies of X-ceed and its Subsidiaries.
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(f) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any material adverse change in the business, financial
condition or results of operations of X-ceed or its Subsidiaries, taken as a
whole.
(g) Third Party Consents. The Sellers shall have been furnished with
evidence reasonably satisfactory to it that X-ceed has obtained,or is in the
process of obtaining, the consents, approvals, assignments and waivers required
by X-ceed subject to no term, condition or restriction unacceptable to the
Sellers in their sole discretion.
ARTICLE VI
INDEMNIFICATION
6.1 Survival of Representations and Warranties.
(a) All of the representations and warranties made by the Sellers in
this Agreement or in any instrument by the Sellers delivered pursuant to this
Agreement shall survive and continue until 5:00 p.m., California time on the
date which is sixteen (16) months after the Closing Date and shall not be
affected by any investigation conducted for or on behalf of X-ceed with respect
thereto or any knowledge acquired by X-ceed or its officers, directors,
employees, shareholders or agents as to the accuracy or inaccuracy of any such
representation or warranty.
(b) All of the representations and warranties made by X-ceed in this
Agreement or in any instrument by X-ceed delivered pursuant to this Agreement
shall survive and continue until 5:00 p.m. California time on the date which is
sixteen (16) months after the Closing Date and shall not be affected by any
investigation conducted for or on behalf of the Sellers with respect thereto or
any knowledge acquired by the Sellers or their employees, shareholders or agents
as to the accuracy or inaccuracy of any such representation or warranty.
(c) The waiver of any condition based on the accuracy of any
representation or warranty, or the performance or compliance of any covenant or
obligation, will not affect the right to indemnification set forth in this
Article VI.
6.2 Indemnification by the Sellers. Subject to the limitations set forth
herein, by approval and adoption of this Agreement, the Sellers agree to
indemnify X-ceed severally for such Seller's pro rata portion (based upon the
number of Shares held by such Seller immediately prior to the Closing Date
relative to the total number of shares of Shares outstanding immediately prior
to the Closing Date) of claims, losses, liabilities, damages, deficiencies,
costs and expenses, including reasonable attorneys' fees and expenses, and
expenses of investigation and defense (calculated after deduction for insurance
proceeds recovered or recoverable) incurred by X-ceed directly or indirectly as
a result of any inaccuracy or breach of a representation or warranty of the
Sellers contained herein (hereinafter individually a "X-ceed Loss" and
collectively "X-ceed Losses"). The right of X-ceed after the
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Closing Date to assert indemnification claims and receive indemnification
payments from the Sellers pursuant to this Article VI shall be the sole and
exclusive right and remedy exercisable by such parties with respect to any
unintentional inaccuracy or breach in any representation, warranty, or covenant
contained in this Agreement or in any instrument delivered pursuant to this
Agreement or in connection with the transactions contemplated hereby; provided,
however, this section shall not apply to any misrepresentation or breach or
warranty of which the Sellers had actual knowledge or any intentional failure to
perform or comply with any agreement to which intentional acts and knowing
misrepresentations the Sellers shall be liable for all X-ceed Losses with
respect thereto. X-ceed may not receive any indemnification from the Sellers
unless and until a Claim Notice (as defined in Section 6.4 below) identifying
X-ceed Losses, the aggregate cumulative amount of which exceed five hundred
thousand dollars ($500,000), have been delivered to the Sellers as provided in
Section 6.4; in such case, X-ceed may recover from the Sellers the entire amount
of the cumulative X-ceed Losses. The obligations of the Sellers to indemnify and
hold harmless X-ceed shall also apply to any action, claim or suit which arises
from the operations of Water Street prior to the Closing Date, to the extent
that the aggregate cumulative amount of Water Street's liability thereunder is
in excess of five hundred thousand dollars ($500,000) and is not covered by
insurance and to the extent that such action, claim, suit or matter is not
disclosed in this Agreement or the Schedules attached hereto. The Sellers shall
not be obligated to indemnify X-ceed for any claim asserted more than sixteen
(16) months after the Closing Date. In the event of any such third party claim,
the procedure set forth in Section 6.4 below shall apply, except that no
settlement shall be effective without the Sellers' consent and approval.
6.3 Indemnification by X-ceed. Subject to the limitations set forth
herein, by approval and adoption of this Agreement, X-ceed agrees to indemnify
the Sellers for such Seller's pro rata portion (based upon the number of shares
of Shares held by such Seller immediately prior to the Closing Date relative to
the total number of shares of Shares outstanding immediately prior to the
Closing Date) of claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (calculated after deduction for insurance proceeds
recovered or recoverable) incurred by the Sellers directly or indirectly as a
result of (a) any inaccuracy or breach of a representation or warranty of X-ceed
contained herein or in any instrument delivered pursuant to this Agreement or
any failure by X-ceed to perform or comply with any covenant contained herein
(hereinafter individually a "Water Street Loss" and collectively "Water Street
Losses"). The right of the Sellers after the Closing Date to assert
indemnification claims and receive indemnification payments from X-ceed pursuant
to this Article VI shall be the sole and exclusive right and remedy exercisable
by the Sellers with respect to any unintentional inaccuracy or breach in any
representation, warranty, or covenant contained in this Agreement or in any
instrument delivered pursuant to this Agreement or in connection with the
transactions contemplated hereby; provided, however, this section shall not
apply to any misrepresentation or breach or warranty of which X-ceed had actual
knowledge or any intentional failure to perform or comply with any agreement to
which intentional acts and knowing misrepresentations X-ceed shall be liable for
all Water Street Losses with respect thereto. The Sellers may not receive any
indemnification from X-ceed unless and until a Claim Notice (as defined in
Section 6.4 below) identifying Water Street Losses, the aggregate cumulative
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amount of which exceed five hundred thousand dollars ($500,000), have been
delivered to X-ceed as provided in Section 6.4; in such case, the Sellers may
recover from X-ceed the entire amount of the cumulative Water Street Losses.
6.4 Defense of Claims. No right to indemnification under this Article X
shall be available to any party otherwise entitled to indemnification (the
"Indemnified Party"), unless such Indemnified Party gives to the party obligated
to provide indemnification to such Indemnified Party (the "Indemnitor") a notice
(a "Claim Notice") describing in reasonable detail the facts giving rise to any
claim for indemnification hereunder promptly after the receipt of knowledge of
the facts upon which such claim is based (but in no event later than ten (10)
days prior to the time any response to the asserted claim is required); except
that the failure of any Indemnified Party to so notify the Indemnitor will not
relieve the Indemnitor from any liability it may have if and to the extent the
Indemnitor is not prejudiced by such omission. Upon receipt by the Indemnitor of
a Claim Notice from an Indemnified Party with respect to any claim of a third
party, such Indemnitor may control negotiations towards the resolution of any
such claim without the necessity for litigation, and, if litigation ensues,
assume the defense thereof at such Indemnitor's cost and with counsel reasonably
satisfactory to the Indemnified Party, and the Indemnified Party will extend
reasonable cooperation in the defense or prosecution thereof and will furnish
such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested in connection therewith. The Indemnified Party will have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel will be at the expense of the Indemnified Party unless (i) the
Indemnitor does not promptly employ counsel reasonably satisfactory to such
Indemnified Party to take charge of the defense of such action or (ii) such
Indemnified Party reasonably concludes, based upon the opinion of its outside
legal counsel, that there may be one or more legal defenses available to it, or
to any other Indemnified Party who has submitted a Claim Notice to the
Indemnitor, which are different from or additional to those available to the
Indemnitor, in either of which events such reasonable fees and expenses will be
borne by the Indemnitor (but in no event will the Indemnitor be required to pay
the fees and expenses of more than one counsel employed by more than one
Indemnified Party with respect to any claim) and the Indemnitor will not have
the right to direct the defense of any such action on behalf of the Indemnified
Party. The Indemnitor will have the right, in its sole discretion, to settle any
claim for monetary damages for which indemnification has been sought and is
available hereunder, except that neither Indemnitor nor the Indemnified Party
will settle, compromise or make any disposition of any claim under this Article
X which would or may result in liability to the Indemnified Party or Indemnitor,
respectively, without the written consent of Indemnitee or Indemnitor,
respectively.
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ARTICLE VII
TERMINATION, AMENDMENT, WAIVER, CLOSING
7.1 Termination. Except as provided in Section 7.2 below, this Agreement
may be terminated and the transactions contemplated by this Agreement abandoned
at any time prior to the Closing Date:
(a) By mutual consent of the Sellers and X-ceed;
(b) By X-ceed or Water Street if: (i) the Closing has not occurred by
September 3, 1998 (provided that the right to terminate this Agreement under
this clause (i) shall not be available to any party whose willful failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Closing Date to occur on or before such date); (ii) there shall
be a final non-appealable order, decree or ruling of a court of competent
jurisdiction in effect preventing consummation of the transactions contemplated
by this Agreement; or (iii) there shall be any statute, rule, regulation or
non-appealable order enacted, promulgated or issued or deemed applicable to the
transactions contemplated by this Agreement by any governmental entity that
would make consummation of the transactions contemplated by this Agreement
illegal;
(c) By X-ceed if it is not in material breach of its representations,
warranties or obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of the Sellers or if any representation or warranty of the
Sellers shall have become materially untrue, in either case such that the
conditions set forth in Section 5.1 would not be satisfied; provided, however,
if such breach or breaches are capable of being cured prior to the Closing Date,
such breaches shall not have been cured within thirty (30) days of delivery to
the Sellers of written notice of such breach or breaches (but no such cure
period shall be required if such breach by its nature cannot be cured);
(d) By the Sellers if they are not in material breach of their
representations, warranties or obligations under this Agreement and there has
been a material breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of X-ceed or if any representation or
warranty of X-ceed shall have become materially untrue, in either case such that
the conditions set forth in Section 5.2 would not be satisfied; provided,
however, if such breach or breaches are capable of being cured prior to the
Closing Date, such breaches shall not have been cured within thirty (30) days of
delivery to X-ceed of written notice of such breach or breaches (but no such
cure period shall be required if such breach by its nature cannot be cured); or
(e) By the Sellers if the trailing five (5) day weighted average price
of shares of X-ceed Common Stock on the Nasdaq Small Cap Market or the Nasdaq
National Market, as the case may be, is less than six dollars ($6) at the close
of the business day preceding the Closing Date.
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Where action is taken to terminate this Agreement pursuant to this
Section 7.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
7.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of X-ceed or Water Street, or
its respective subsidiaries, officers, directors or shareholders, provided that,
the provisions of Sections 4.1(h), 4.1(i) and 4.1(j) of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
7.3 Amendment or Supplement. This Agreement and all other agreements,
documents, instruments and certificates contemplated by, and executed and
delivered pursuant to, this Agreement (the "Transaction Documents") may be
amended or supplemented at any time before or after approval of this Agreement
and any action contemplated by this Agreement or any of the Transaction
Documents may be taken by the Sellers to the extent permitted under Nevada law.
No amendment or supplement to this Agreement shall be effective unless in
writing and signed by each of X-ceed and the Sellers.
7.4 Extension of Time, Waiver. At any time prior to the Closing Date,
X-ceed and the Sellers may, to the extent legally allowed:
(a) Extend the time for the performance of any of the obligations
or other acts of the other party hereto,
(b) Waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered
pursuant hereto, or
(c) Waive compliance with any of the agreements or conditions for
the benefit of such party contained herein; provided, that no failure or
delay by any party hereto in exercising any right hereunder shall
operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise
of any other right hereunder.
Any agreement on the part of any party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII
GENERAL
8.1 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail,
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postage prepaid, by telecopy (with receipt confirmed and promptly confirmed by
personal delivery, U.S. first class mail, or courier), or by courier service, as
follows:
(a) If to X-ceed to:
X-ceed, Inc.
488 Madison Avenue
New York, New York 10022
Attn: Werner Haase
Facsimile: (212) 308-0646
with a copy to:
McLaughlin & Stern LLP
260 Madison Avenue
New York, New York 10016
Attn: Richard Blumberg
Facsimile: (212) 448-0066
(b) If to the Sellers to:
To the address set forth for
such Seller on Exhibit A hereto
with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Attn: Gregg Vignos
Facsimile: (415) 983-1200
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
8.2 Headings. The headings of the several sections of this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
8.3 Counterparts. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
8.4 Entire Agreement; Assignment. This Agreement, the Schedules and
Exhibits hereto (including the Disclosure Schedule), and the documents and
instruments and other
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agreements among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder (except as
provided in Section 8.9 below); and (c), except as contemplated by Section 7.3,
shall not be assigned by operation of law or otherwise except as mutually agreed
in writing between the parties
8.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served them in any manner
authorized by the laws of the State of Delaware for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
8.8 Arbitration. All disputes arising in connection with or relating to
this Agreement, or the breach thereof, shall be finally settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association by one or more arbitrators appointed in accordance with said Rules.
The site of such arbitration shall be San Francisco, California. The award of
the arbitrator shall be final and binding and may be enforced in any and all
courts having jurisdiction over the party against which the award is rendered.
The prevailing party in any legal or arbitration action brought by one party
against the other shall be entitled, in addition to any other rights and
remedies it may have, to reimbursement for its expenses incurred thereby,
including the costs of investigation, consultant fees, court costs and
reasonable attorney's fees.
8.9 Absence of Third-Party Beneficiary Rights. No provision of this
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or
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any other rights of any kind in any client, customer, affiliate, shareholder,
employee, partner or any party hereto or any other person or entity, and all
provisions hereof will be personal solely between the parties to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, all as of the date first above written.
X-CEED, INC.
By /s/ Werner Haase
Title Chief Executive Officer
SELLERS:
/s/ William N. Zabit
William N. Zabit
/s/ Joyce M. Wesolowski
Joyce M. Wesolowski
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EXHIBIT A
Seller Shares Purchase Price
William N. Zabit 8,000 $1,600,000
21 Newhall
San Rafael, CA 94901
Joyce M. Wesolowski 2,000 $ 400,000
506 Sausalito Avenue
Sausalito, CA 94965
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), made this 2nd day of
September, 1998, by and among X-CEED, INC., a Delaware corporation ("Buyer") and
WILLIAM N. ZABIT and JOYCE M. WESOLOWSKI (collectively, the "Sellers," and each
individually a "Seller"):
W I T N E S S E T H:
WHEREAS, the Sellers currently own all right, title and interest in the
marks set forth on Schedule 1 attached hereto, including but not limited to the
marks "Zabit," "Zabit & Associates, Inc." and "Z and device," together with the
United States Patent and Trademark Service Mark application thereto and the
goodwill represented thereby (the "Trademark"); and
WHEREAS, Buyer desires to purchase and each Seller desires to sell the
Trademark upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants and provisions
set forth in this Agreement, each Seller severally agrees with Buyer as follows:
ARTICLE I.
Purchase and Sale
A. Purchase and Sale. Upon the terms and conditions set forth in this
Agreement, each Seller shall sell, transfer and deliver all right, title and
interest in the Trademark to Buyer, and Buyer shall purchase the Trademark from
Sellers.
1.2 Transfer of Trademark. The transfer of the Trademark will be
effected on the terms set forth herein and by such bills of sale, endorsements,
assignments and other instruments of transfer in such form as shall be
sufficient to transfer the Trademark to Buyer, free and clear of all liens of
parties claiming an interest through each Seller, leases, security interests,
claims, charges and encumbrances and as shall be reasonably required by Buyer
and its counsel to vest good and marketable title to the Trademark in Buyer.
ARTICLE II.
Purchase Price and Payment
A. Purchase Price. The purchase price for the Trademark (the "Purchase
Price") shall be an aggregate amount of three million two hundred thousand
dollars ($3,200,000) to be paid to each Seller in the amounts set forth next to
each Seller's name on Exhibit A hereto.
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B. Payment. Buyer shall pay the Purchase Price on the Closing Date (as
defined in Section 6.1) by certified or bank check in New York Clearing House
(same day) funds or wire transfer to the Sellers' respective bank accounts in
accordance with the wire transfer instructions provided by Sellers.
ARTICLE III.
Representations, Warranties and Covenants of Sellers
Each Seller hereby represents and warrants to Buyer, with respect to
itself alone and not on behalf of any other Seller, that as of the date hereof
and as of the Closing Date:
A. Authority. Seller has the right, power, legal capacity and authority
to execute, deliver and perform his or her obligations under this Agreement and
the documents, instruments and certificates to be executed and delivered by such
Seller pursuant to this Agreement. The execution, delivery of, and performance
of the obligations contained in, this Agreement by such Seller and all
documents, instruments and certificates made or delivered by such Seller
pursuant to this Agreement, and the transactions contemplated hereby, have been
duly authorized by all necessary action on the part of Sellers.
B. Enforceability. The terms and provisions of this Agreement and all
documents, instruments and certificates made or delivered from time to time by
Seller hereunder and there under constitute valid and legally binding
obligations of Seller, enforceable against Seller in accor dance with the terms
hereof and thereof, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws and by general principles of
equity.
C. Approvals. The execution, delivery and performance of this Agreement
by Seller do not require any consent of, notice to or action by any person or
governmental authority which consent, notice or action has not been made, given
or otherwise accomplished and satisfactory evidence thereof has been delivered
to Buyer.
D. TITLE. Seller hereby represents and warrants that Seller has good
and marketable title to the Trademark, free and clear of any lien of parties
claiming an interest through each Seller, claim, encumbrance, mortgage or cloud
on clear and marketable title.
E. Proprietary Rights. To the knowledge of Sellers, the Trademark does
not infringe or misappropriate or otherwise violate or has not been alleged to
infringe, misappropriate or otherwise violate any proprietary rights of any
other person or entity, nor are Sellers alleged to be infringing upon, any
proprietary rights of any other person or entity. To the knowledge of Sellers,
no person or entity is engaged in any activity which would constitute
infringement of Sellers' rights in the Trademark. Sellers are not party to any
agreement to indemnify any other person or entity against any charge of
infringement of any proprietary right except customary vendor provisions
contained in software contracts.
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ARTICLE IV.
Representations and Warranties of Buyer
A. Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is authorized to transact business and is in good standing in each
state in which its ownership of assets or conduct of business requires such
qualification.
B. Authority. Buyer has the right, power, legal capacity and authority
to execute, deliver and perform its obligations under this Agreement and the
documents, instruments and certificates to be executed and delivered by Buyer
pursuant to this Agreement. The execution of, delivery of, and performance of
the obligations contained in, this Agreement by Buyer and all documents,
instruments and certificates made or delivered by Buyer pursuant to this
Agreement, and the trans actions contemplated hereby, have been duly authorized
by all necessary action on the part of Buyer and Buyer's shareholders.
C. Enforceability. The terms and provisions of this Agreement and all
documents, instruments and certificates made or delivered from time to time by
Buyer hereunder and thereunder constitute valid and legally binding obligations
of Buyer enforceable against Buyer in accordance with the terms hereof and
thereof, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws and by general principles of
equity.
D. Approvals. The execution, delivery and performance of this Agreement
by Buyer do not and will not require any consent of, notice to or any action by
any person or governmental authority which consent, notice or action has not
been made, given or otherwise accomplished and satisfactory evidence thereof has
been delivered to Sellers.
ARTICLE V.
Conditions of Sale
A. Conditions to Buyer's Obligations. Buyer's obligation to purchase
the Trademark shall be subject to the satisfaction of the following conditions,
any of which may be waived in writing by Buyer in whole or in part:
1. Upon payment by Buyer as contemplated hereunder, the Trademark shall
be free and clear of any and all liens, leases, security interests, claims,
mortgages and encumbrances of parties claiming an interest through each Seller.
2. Each Seller shall have delivered to Buyer a Bill of Sale,
substantially in the form of Exhibit B hereto, and each Seller shall have
performed whatever acts are reasonably required or appropriate to transfer to
Buyer the Trademark.
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3. The representations and warranties of Sellers contained in this
Agreement shall be true and correct and Sellers shall have performed or complied
with all covenants, agreements and conditions in this Agreement to be performed
or complied with by Sellers on or before the Closing.
B. Conditions to Seller's Obligations. Seller's obligation to sell the
Trademark shall be subject to the satisfaction of the following conditions, any
of which may be waived in writing by Sellers in whole or in part:
1. The representations and warranties of Buyer contained in this
Agreement shall be true and correct and Buyer shall have performed or complied
with all covenants, agreements and con ditions in this Agreement to be performed
or complied with by Buyer on or before the Closing.
2. Buyer shall have paid the Purchase Price.
ARTICLE VI.
Completion of Sale
The closing of the purchase and sale of the Trademark (the "Closing")
shall take place at the offices of Pillsbury Madison & Sutro LLP, 235 Montgomery
Street, San Francisco, California 94104, or at such other place as shall be
mutually agreeable to the parties hereto, but in no event later than the close
of business on September 3, 1998, promptly following the satisfaction or waiver
of the conditions specified in Article 5. The date of the Closing is herein the
"Closing
Date."
ARTICLE VII.
Termination
A. Termination Events. This Agreement may, by notice given prior to or
at the Closing, be terminated:
1. by either Buyer or Sellers if a material breach of any provision of
this Agreement has been committed by the other party and such breach has not
been waived;
2. (i) by Buyer if any of the conditions in Section 5.1 have not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
5.2 have not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date;
3. by mutual consent of Buyer and Sellers;
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4. by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before September
3, 1998, or such later date as the parties may agree upon; or
5. by Sellers if the trailing five (5) day weighted average price of
shares of Buyer's Common Stock on the Nasdaq Small Cap Market or the Nasdaq
National Market, as the case may be, is less than six dollars ($6) at the close
of the business day preceding the Closing Date.
B. Effect of Termination. Each party's right of termination under
Section 7.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 7.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Section 9.4 will survive; provided, however, that if
this Agreement is terminated by a party because of the breach of this Agreement
by the other party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
ARTICLE VIII.
Indemnification; Remedies
A. Survival; Right to Indemnification not Affected by Knowledge. All
representations, warranties, covenants, and obligations in this Agreement, and
any other certificate or document delivered pursuant to this Agreement will
survive the Closing and shall terminate at the close of business sixteen (16)
months following the Closing Date. The right to indemnification, payment of
Damages (as defined below) or other remedy based on such representations,
warranties, covenants, and obligations will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of
this Agreement or the Closing Date, with respect to the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant, or
obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
B. Indemnification and Payment of Damages by Sellers. Sellers,
severally, will indemnify and hold harmless Buyer for, and will pay to the Buyer
the amount of, any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of investigation and defense
and reasonable attorneys' fees) or diminution of value, whether or not involving
a third-party claim (collectively, "Damages"), arising from or in connection
with any breach of any representation or warranty made by Sellers in this
Agreement or any other certificate or document delivered by Sellers pursuant to
this Agreement.
The remedies provided in this Section 8.2 will be the exclusive remedy available
to Buyer.
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C. Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of, any
Damages arising from or in connection with any breach of any representation or
warranty made by Buyer in this Agreement or in any certificate delivered by
Buyer pursuant to this Agreement.
D. Procedure for Indemnification -- Third Party Claims.
1. Promptly after receipt by an indemnified party under Section 8.2 or
8.3 of notice of the commencement of any proceeding against it, such indemnified
party will, if a claim is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
2. If any proceeding referred to in Section 8.4(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such proceeding, the indemnifying party will be entitled to
participate in such proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such proceeding and
provide indemnification with respect to such proceeding), to assume the defense
of such proceeding with counsel satisfactory to the indemnified party and, after
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such proceeding, the indemnifying party will not, as long
as it diligently conducts such defense, be liable to the indemnified party under
this Section 8 for any fees of other counsel or any other expenses with respect
to the defense of such proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's consent;
and (iii) the indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its consent. If notice
is given to an indemnifying party of the commencement of any proceeding and the
indemnifying party does not, within ten (10) days after the indemnified party's
notice is given, give notice to the indemnified party of its election to assume
the defense of such proceeding, the indemnifying party will be bound by any
determination made in such proceeding or any compromise or settlement effected
by the indemnified party.
E. Procedure for Indemnification -- Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
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ARTICLE IX.
Miscellaneous
A. Further Assistance. Each Seller shall at its own expense, upon the
request of Buyer, do, execute, acknowledge and deliver, and cause to be done,
executed, acknowledged and delivered, all such further acts or instruments as
may be required to effect or better transfer, convey and assign to Buyer the
Trademark or to vest in Buyer good, valid and marketable title to the Trademark
and carry out the purposes of this Agreement, including the filing of all
necessary notices, forms and applications with the United States Patent and
Trademark Office.
B. Notices. Any notice or demand desired or required to be given
hereunder shall be in writing and deemed given when personally delivered, sent
by telecopier, overnight courier or deposited in the mail, postage prepaid, sent
certified or registered, return receipt requested, and addressed as set forth
below or to such other address as any party shall have previously designated by
such a notice. Any notice so delivered personally or by telecopy shall be deemed
to be received on the date of delivery or transmission by telecopier; any notice
so sent by overnight courier shall be deemed to be received one (1) business day
after the date sent; and any notice so mailed shall be deemed to be received on
the date shown on the receipt. Rejection or other refusal to accept or inability
to deliver because of a change of address of which no notice was given shall be
deemed to be receipt of the notice.
If to Buyer:
X-ceed, Inc.
488 Madison Avenue
New York, New York 10022
Attn: Werner Haase
Facsimile: (212) 308-0640
with a copy to:
McLaughlin & Stern LLP
260 Madison Avenue
New York, New York 10016
Attn: Richard Blumberg, Esq.
Facsimile: (212) 448-0066
If to Sellers:
To the address set forth for such Seller on Exhibit A hereto.
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with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Attn: Gregg Vignos, Esq.
Facsimile: (415) 983-1200
C. Assignment. Buyer may not assign or transfer in any manner its
rights under this Agreement without the prior written consent of Sellers.
Subject to such assignment, this Agreement benefits and binds Sellers and Buyer
and their respective heirs, personal representatives, successors and assigns.
D. Costs. Each party shall bear its own costs associated with this
transaction (including but not limited to attorneys' and brokers' fees and
expenses) and any closing costs.
E. Entire Agreement. This Agreement and the Exhibits attached hereto
constitute the entire agreement among Sellers and Buyer with respect to the
Trademark and supersedes all prior agreements, oral or written, relating
thereto.
F. Governing Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Delaware, without regard to principals
of conflicts of law.
G. Waivers; Amendment. No waiver by any party of any provision hereof
shall be deemed a waiver of any other provision hereof or of any subsequent
breach by any party of the same or any other provision. This Agreement may be
amended only by a writing executed by both parties hereto.
H. Survival. Anything to the contrary in this Agreement
notwithstanding, all representations and warranties of the parties made in this
Agreement and the provisions of Section 9.4 hereof, shall survive and continue
after any termination of this Agreement and the Closing hereunder.
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I. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. For purposes of executing
this Agreement, the parties agree that facsimile signatures are acceptable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER:
X-CEED, INC., a Delaware corporation
By /s/ Werner G. Haase
Name Werner G. Haase
Title Chief Executive Officer
SELLERS:
/s/ William N. Zabit
William N. Zabit
/s/ Joyce M. Wesolowski
Joyce M. Wesolowski
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EXHIBIT A
Seller Purchase Price
William N. Zabit $2,560,000
21 Newhall
San Rafael, CA 94901
Purchase Price
Joyce M. Wesolowski $ 640,000
506 Sausalito Avenue
Sausalito, CA 94965
<PAGE>
EXHIBIT B
BILL OF SALE AND GENERAL ASSIGNMENT
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, ____________________ ("Seller"), does hereby sell, assign,
transfer and deliver to X-CEED, INC., a Delaware corporation ("Buyer"), its
successors and assigns, all of Seller's right, title and interest in and to the
Trademark as that term is defined in that certain Purchase Agreement dated as of
September __, 1998 (the "Purchase Agreement"), by and between Seller, and
certain other parties.
TO HAVE AND TO HOLD, the same unto Buyer, its successors and assigns,
forever.
The sales and assignments made hereunder are made in accordance with and
subject to the representations, warranties, covenants and provisions contained
in the Purchase Agreement.
Seller shall at its own expense, upon the request of Buyer, do, execute,
acknowledge and deliver, and cause to be done, executed, acknowledged and
delivered, all such further acts or instruments as may be required to effect or
better transfer, convey and assign to Buyer the Trademark or to vest in Buyer
good, valid and marketable title to the Trademark and carry out the purposes of
the Purchase Agreement.
Seller hereby represents and warrants that Seller has good and
marketable title to the Trademark, free and clear of any lien, claim,
encumbrance, mortgage or cloud on clear and marketable title of parties claiming
an interest through Seller (other than Buyer or any party claiming an interest
through Buyer or for any taxes agreed to be paid by Buyer under the Trademark
Leases).
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IN WITNESS WHEREOF, Seller has caused this Bill of Sale and General
Assignment to be executed and delivered by a duly authorized officer as of this
____ day of September, 1998.
SELLER:
[Signature]
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