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): August 13, 1998
ICC Technologies, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-13865 23-368845
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(Commission File Number) (IRS Employer Identification No.)
44 West 18th Street, New York, New York 10011
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(Address of principal executive offices, including zip code)
(215) 682-6600
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(Registrant's telephone number)
330 South Warminster Road, Hatboro, PA 19040
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(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets
Acquisition of I/O 360, Inc.
General
On August 13, 1998 (the "Effective Time"), pursuant to the terms of an
Agreement and Plan of Merger dated as of August 13, 1998 (the "Merger
Agreement"), ICC Technologies, Inc. ("ICC") acquired I/O 360, Inc., a privately
held New York corporation ("I/O 36O"), by merger into a newly formed
wholly-owned subsidiary of Rare Medium, Inc. ("NewCo"), ICC's wholly-owned
subsidiary (the "Merger"). I/O 360 is an Internet professional services company
engaged in the design, delivery and implementation of Internet web site
applications and strategies. The assets of I/O 360 are comprised generally of
cash, accounts receivable, prepaid expenses, work in process, equipment and
leasehold improvements. ICC intends to reflect the transaction as a purchase for
accounting purposes. At the Effective Time, I/O 360 was merged with NewCo. In
consideration for merging with NewCo the stockholders of I/O 360 (the "I/O 360
Stockholders") received at the Effective Time in exchange for all of the
outstanding shares of common stock of I/O 360 total consideration of 786,559
shares of Common Stock of ICC valued at $3.0 million.
The I/O 360 Stockholders constitute a group of 4 individuals. None of
the I/O 360 Stockholders was affiliated with ICC, Rare Medium, NewCo or their
respective officers or directors, prior to the Merger. The ICC Stock was issued
to the I/O 360 Stockholders in a private placement exempt from the registration
requirements under the Securities Act of 1933, as amended (the "Securities Act")
and constitute "restricted securities," as such term is defined in Rule
144(a)(3) of the Securities Act. ICC intends to continue the use of the assets
of I/O 360 in the same business conducted prior to the Merger.
Basic Terms of the Merger Agreement and Related Transactions
The Merger. On the Effective Time, Rare Medium exercised its right
pursuant to paragraph 9.10 of the Merger Agreement and effected the Merger with
NewCo wherein I/O 360 was merged with and into NewCo and I/O 360 was the
surviving corporation in the Merger. Each share of voting common stock of I/O
360 issued and outstanding immediately prior to the Effective Time was converted
into the right to receive a pro rata portion of 786,559 shares of Common Stock
of ICC (the "ICC Stock") ("Merger Consideration"). The one issued and
outstanding share of NewCo was converted into one share of I/O 360 resulting in
Rare Medium being the owner of all outstanding shares of I/O 360.
ICC Stock Price Guarantee. In the event that on the first anniversary
of the Closing Date, the shares received in payment of the Purchase Price, in
the aggregate, shall have a value of less than $3,000,000.00 (based on the
average last reported sale price per share of ICC Common Stock for the 15
trading days immediately prior to the first anniversary of the Closing Date),
the Stockholders shall be issued additional shares (the "Additional Shares") in
an amount calculated as the difference between $3,000,000.00 and the actual
value of the shares as of such first anniversary (the "Difference").
Compensation, Incentive and Benefits.
(a) Employment and Consulting Agreements. In connection with
the transactions consummated pursuant to the Merger Agreement, Rare Medium
entered into Employment Agreements effective August 13, 1998 with Gong Szeto
and Nam Szeto. Pursuant to the Employment Agreements, the Messrs. Szeto have
been engaged as employees of Rare Medium to serve for terms of 3 years. Each
also received a signing bonus. Rare Medium also entered into a six month
Consulting Agreement with Robert Clyatt in
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consideration for the options granted to Mr. Clyatt as set forth below. The
Employment Agreements and Consulting Agreement also contain covenants not to
compete with ICC or any of its affiliates for the term of the Employment
Agreement, plus one additional year.
(b) Grant of Stock Options. Concurrently with the execution of
the Employment and Consulting Agreements with each of the Messrs. Szeto and
Clyatt, ICC granted to each of the Messrs. Szeto stock options to acquire an
aggregate of 250,000 shares of common stock of ICC and to Mr. Clyatt options to
purchase 50,000 shares of common stock of ICC, at exercise prices equal to $5.00
per share, which options will become exercisable ratably on a monthly basis over
a period of 60 months from the date of grant.
Accounting Treatment. The acquisition of I/O 360 by ICC will be
accounted for under the purchase method of accounting.
Federal Income Tax Consequences. ICC and the I/O 360 Stockholders
intend that the Merger Agreement shall constitute a tax-free plan of
reorganization pursuant to Section 368(a)(2)(E) of the Internal Revenue Code of
1986, as amended.
Indemnification. The I/O 360 Stockholders have agreed to indemnify ICC
for any losses resulting from a breach of, among other things, their respective
representations, warranties and covenants contained in the Merger Agreement. To
secure the indemnification obligations of the I/O 360 Stockholders thereunder,
104,874 shares of ICC Stock delivered to the I/O 360 Stockholders as part of the
Merger Consideration have been placed in escrow, and the liability of the I/O
360 Stockholders under such indemnification obligations is expressly limited to
the value of such shares held in escrow.
Acquisition of DigitalFacades Corporation
General
On August 13, 1998 (the "Effective Time"), pursuant to the terms of an
Agreement and Plan of Merger dated as of August 13, 1998 (the "DigitalFacades
Merger Agreement"), ICC Technologies, Inc. ("ICC") acquired by merger into a
newly formed wholly-owned subsidiary of Rare Medium, Inc. ("New Acquisition
Co.") DigitalFacades, Inc., a privately held California corporation
("DigitalFacades") (the "Merger"). DigitalFacades is an Internet professional
services company engaged in the design, delivery and implementation of Internet
web site applications and strategies. The assets of DigitalFacades are comprised
generally of cash, accounts receivable, prepaid expenses, work in process,
equipment and leasehold improvements. ICC intends to reflect the transaction as
a purchase for accounting purposes. At the Effective Time, DigitalFacades was
merged with New Acquisition Co. In consideration for merging with New
Acquisition Co. the stockholders of DigitalFacades (the "DigitalFacades
Stockholders") received at the Effective Time in exchange for all of the
outstanding shares of common stock of DigitalFacades total consideration of
719,144 shares of Common Stock of ICC valued at $3.0 million and the right to
earn additional shares of ICC up to $1.5 million in value if certain revenues
and profit margins are achieved.
The DigitalFacades Stockholders constitute a group of 13 individuals.
None of the DigitalFacades Stockholders was affiliated with ICC, Rare Medium,
New Acquisition Co. or their respective officers or directors, prior to the
Merger. The ICC Stock was issued to the DigitalFacades Stockholders in a private
placement exempt from the registration requirements under the Securities Act of
1933, as amended (the "Securities Act") and constitute "restricted securities,"
as such term is defined in Rule 144(a)(3) of the Securities Act. ICC intends to
continue the use of the assets of DigitalFacades in the same business conducted
prior to the Merger.
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Basic Terms of the Merger Agreement and Related Transactions
The Merger. On the Effective Time, Rare Medium exercised its right
pursuant to paragraph 9.12 of the DigitalFacades Merger Agreement and effected
the Merger with New Acquisition Co. wherein DigitalFacades was merged with and
into New Acquisition Co. and DigitalFacades was the surviving corporation in the
Merger. Each share of voting common stock of DigitalFacades issued and
outstanding immediately prior to the Effective Time was converted into the right
to receive a pro rata portion of 719,144 shares of Common Stock of ICC (the "ICC
Stock") (the "Merger Consideration"). The one issued and outstanding share of
eNew Acquisition Co. was converted into one share of DigitalFacades resulting in
Rare Medium being the sole owner of all outstanding shares of DigitalFacades. In
addition, the DigitalFacades Stockholders are entitled to receive additional
shares of ICC Stock (the "Additional Shares") in an amount not to exceed $1.5
million in value, which shall be contingent upon the amount of net revenue
received by DigitalFacades (and after the closing pursuant to the DigitalFacades
Merger Agreement (the "Closing"), by Rare Medium) from clients of DigitalFacades
during the calendar year 1998 (the "DigitalFacades Revenue"). If the
DigitalFacades Revenue shall equal or exceed $2.5 million and the net profit
margin for providing the services which produced the DigitalFacades Revenue (the
"Profit Margin") equals or exceeds 15%, the DigitalFacades Stockholders shall
receive Additional Shares in an amount of $1.5 million. In the event that the
DigitalFacades Revenue shall be less than $2.5 million, the Additional Shares to
be received by the DigitalFacades Stockholders shall be proportionately reduced;
provided, however, that no Additional Shares shall be received by the
DigitalFacades Stockholders in the event that the DigitalFacades Revenue shall
be less than $1.75 million or if the Profit Margin is less and 15% (regardless
of the amount of the DigitalFacades Revenue). The value of the Additional Shares
shall be based upn the average closing price per share of ICC Common Stock for
the 20 trading day period prior to and including December 31, 1998. For the
purposes of the paragraph, the DigitalFacades Revenue shall include all revenue
received by DigitalFacades prior to the Closing during the calendar year 1998
and all revenue received by Rare Medium after the Closing (during the calendar
year 1998) for services provided to those entities which were clients of
DigitalFacades prior to the Closing.
Compensation, Incentive and Benefits.
(a) Employment Agreement. In connection with the transactions
consummated pursuant to the DigitalFacades Merger Agreement, Rare Medium entered
into an Employment Agreement effective August 13, 1998 with John Lin. Pursuant
to the Employment Agreement, Mr. Lin has been engaged as an employee of Rare
Medium to serve for a term of 3 years. The Employment Agreement also contains a
covenant not to compete with ICC or any of its affiliates for the term of the
Employment Agreement, plus one additional year.
(b) Option Grants. ICC will grant to certain employees of
DigitalFacades stock options which are approximately equivalent to options held
by such employees of DigitalFacades prior to the Effective Time.
Accounting Treatment. The acquisition of DigitalFacades by ICC will be
accounted for under the purchase method of accounting.
Federal Income Tax Consequences. ICC and the DigitalFacades
Stockholders intend that the DigitalFacades Merger Agreement shall constitute a
tax-free plan of reorganization pursuant to Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended.
Indemnification. The DigitalFacades Stockholders have agreed to
indemnify ICC for any losses resulting from a breach of, among other things,
their respective representations, warranties and covenants contained in the
DigitalFacades Merger Agreement. To secure the indemnification
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obligations of the DigitalFacades Stockholders thereunder, 119,857 shares of ICC
Stock delivered to the DigitalFacades Stockholders as part of the Merger
Consideration have been pledged to ICC, and the liability of the DigitalFacades
Stockholders under such indemnification obligations is expressly limited to the
value of such shares pledged.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
As of the time that this Report on Form 8-K is being filed with the
Securities and Exchange Commission ("Commission"), it is impractical for ICC to
provide the financial statements required pursuant to Item 7(a) of Form 8-K
regarding giving effect to the consummation of the acquisitions of I/O 360 and
DigitalFacades contemplated by the respective Merger Agreements. ICC anticipates
such financial statements will be filed with the Commission on or before October
27, 1998, at which time ICC will file such financial statements under cover of
an amendment to this Form 8-K.
(b) Pro forma financial information.
As of the time that this Report on Form 8-K is being filed with the
Commission, it is impractical for ICC to provide the pro forma financial
information required pursuant to Item 7(b) of Form 8-K regarding giving effect
to the consummation of the acquisitions of I/O 360 and DigitalFacades
contemplated by the respective Merger Agreements. ICC anticipates such pro forma
financial information will be filed with the Commission on or before October 27,
1998, at which time the Company will file such pro forma financial information
under cover of an amendment to this Form 8-K.
(c) Exhibits
Exhibit No. Description
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2.1 Agreement and Plan of Merger dated as of August 13, 1998, by
and among ICC Technologies, Inc., Rare Medium, Inc., I/O 360,
Inc. and the I/O 360 Stockholders named therein.
2.2 Agreement and Plan of Merger dated as of August 13, 1998 by
and among ICC Technologies, Inc., Rare Medium, Inc.,
DigitalFacades Corporation and the DigitalFacades Stockholders
named therein.
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SIGNATURE
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 hereto duly authorized.
ICC TECHNOLOGIES, INC.
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Registrant
By: /s/ Glenn S. Meyers
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Glenn S. Meyers, President
and Chief Executive Officer
Date: August 28, 1998
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of August 13, 1998 by and among Rare Medium, Inc., a New York
corporation (the "Rare Medium" or the "Purchaser"), ICC Technologies, Inc., a
Delaware corporation ("ICC"), I/O 360, Inc., a New York corporation ("I/O 360"),
and Robert Clyatt, Gong Szeto, Nam Szeto and Arkadiusz Banasic, the Stockholders
of I/O 360 (the "Stockholders").
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as
follows:
ARTICLE I - THE MERGER
1.1 The Merger
Upon the terms and subject to the conditions hereof, (a) on the
Effective Date (as defined in Section 1.2 hereof), the separate existence of I/O
360 shall cease and I/O 360 shall merge (the "Merger") with and into Rare Medium
(Rare Medium being sometimes referred to herein as the "Surviving Corporation")
and (b) from and after the Effective Time (as defined in Section 1.2 hereto, the
Merger shall have all the effects of a merger provided by the laws of the State
of New York and other applicable law.
1.2 The Closing; Effective Date and Time of the Merger
The closing of this Agreement (the "Closing") shall occur on August 13,
1998 (the "Closing Date") at the offices of Elias, Goodman, Shanks & Zizmor,
L.L.P., or such other time or location as the parties hereto shall agree. At the
Closing, each of the parties hereto shall deliver all such funds, documents,
instruments, certificates and other items as may be required under this
Agreement or the Operative Documents (as defined in Section 2.3 hereof) or
otherwise.
On the Closing Date and subject to the terms and conditions hereof,
such officers' certificates and certificates of merger (together, the
"Certificates of Merger") as are necessary or advisable to accomplish the Merger
in compliance with the applicable provisions of the Business Corporation Law of
the State of New York (the "New York Law"), substantially in the form or forms
attached hereto as Exhibit 1.2, and in such form as required by, and executed in
duplicate in accordance with, the
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New York Law, shall be delivered for filing to the Secretary of State of the
State of New York (the "Secretary of State"). The Merger shall become effective
on the date (the "Effective Date") and at the time (the "Effective Time") that
the Certificates of Merger are so filed and a certificate to that effect is
issued by the Secretary of State. If the Secretary of State requires any changes
in the Certificates of Merger as a condition to filing the Certificates of
Merger or issuing its certificate, ICC, Rare Medium, I/O 360 and the
Stockholders will execute necessary revisions incorporating such changes,
provided such changes are not inconsistent with and do not result in any
substantial change in the terms of this Agreement.
1.3 Purchase Price
Subject to the terms and conditions of this Agreement, the purchase
price for I/O 360 (the "Purchase Price") will be paid as follows:
(a) $3,000,000 shall be paid at Closing by delivery of restricted
shares (the "Shares") of the common stock, par value $.01 per share, of ICC
("ICC Common Stock"), which the parties agree shall be valued at the average
last reported sale price per share of ICC Common Stock for the 15 trading days
during the period from August 3, 1998 through August 21, 1998, inclusive (as
reported in the Wall Street Journal) (the "Closing Date Value"); provided,
however, that shares of ICC Common Stock with an aggregate value of $400,000
shall be held in escrow subject to an Escrow Agreement by and among Rare Medium,
the Stockholders and, an escrow agent, as to be mutually agreed to by the
parties, as Escrow Agent, in the form set forth as Exhibit 1.3(a) (the "Escrow
Agreement").
(b) In the event that on the first anniversary of the Closing Date, the
shares received in payment of the Purchase Price, in the aggregate, shall have a
value of less than $3,000,000.00 (based on the average last reported sale price
per share of ICC Common Stock for the 15 trading days immediately prior to the
first anniversary of the Closing Date), the Stockholders shall be issued
additional shares (the "Additional Shares") in an amount calculated as the
difference between $3,000,000.00 and the actual value of the shares as of such
first anniversary (the "Difference"). Rare Medium and ICC shall use their best
efforts to enable the Stockholders to sell Additional Shares pursuant to Rule
144 under the 1933 Act as if they were part of the ICC Common Stock delivered to
the Stockholders pursuant to section 1.3(a) above.
In the event that the Shares are not eligible to be sold pursuant to
Rule 144 (as the result of some act, failure to act or omission on the part of
Rare Medium or ICC) or the Additional Shares do not qualify to be sold pursuant
to Rule 144 as if they were part of the ICC Common Stock delivered to the
Stockholders pursuant to section 1.3(a) above, then in the event that ICC shall
determine to proceed with the actual preparation and filing of a registration
statement under the Securities Act in
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connection with the proposed offer and sale of any of either of their securities
by it or any of its security holders (other than a registration statement on
Form S-4, S-8 or other successor or comparable form), ICC will give written
notice of its determination (the "Piggyback Notice") to the Stockholders at
least thirty (30) days prior to filing such registration statement. Upon the
written request from the holder of any of the Stockholders within twenty (20)
days after the giving of the Piggyback Notice, ICC will, except as herein
provided, cause such Shares and Additional Shares to be included in such
registration statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Shares and Additional
Shares to be so registered; provided, however, that nothing herein shall prevent
ICC from, at any time, abandoning or delaying any such registration. If any such
registration shall be underwritten in whole or in part, ICC may require that the
Additional Shares requested for inclusion pursuant to this Section be included
in the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriter(s). In the event that in the good faith
judgment of a managing underwriter of such public offering the inclusion of all
of the Additional Shares originally covered by a request for registration would
materially adversely affect the successful marketing of the shares of stock
offered by ICC, the number of shares of Additional Shares otherwise to be
included in the underwritten public offering may be reduced pro rata among all
selling security holders requesting such registration (including any selling
security holder not a party to this Agreement) as required by the managing
underwriter. To the extent only a portion of the Additional Shares are included
in the underwritten public offering, those Additional Shares that are excluded
from the underwritten public offering shall be withheld from the market by the
holders thereof for a period, not to exceed 120 days, which the managing
underwriter reasonably determines is necessary to effect the underwritten public
offering.
In the event that the Shares and/or the Additional Shares are not
eligible to be sold pursuant to Rule 144 on the first anniversary of the Closing
Date (as the result of some act, failure to act or omission on the part of Rare
Medium or ICC), then the number of Shares and Additional Shares issued to the
Stockholders shall be increased, but not decreased, to equal the number of
shares as would be necessary to make the aggregate value of the Shares and
Additional Shares (based on the average last reported sale price per share of
ICC Common Stock for the 15 trading days immediately prior to the determination
date) equal to $3,000,000 on the earlier of (i) the date on which a registration
statement registering all of the Shares and the Additional Shares requested to
be included therein is declared effective or (ii) the second anniversary of the
Closing Date.
(c) In the event that a post-Closing audit conducted by an independent
certified public accounting firm shall show that the net worth for I/O 360, as
indicated on a Balance Sheet as of the Closing Date (the "Closing Date Balance
Sheet"), was less than $250,000.00, the Purchase Price shall be deemed to be
reduced
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in an amount equal to the difference between $250,000.00 and the actual net
worth, as shown on the Closing Date Balance Sheet, with such reduction in the
Purchase Price offset against the ICC Common Stock held in escrow pursuant to
the Escrow Agreement.
1.4 Conversion of Shares
1.4.1 Exchange Ratio
As of the Effective Date, by virtue of the Merger and without any
action of the holders thereof:
(a) All shares of any class of the common stock, no par value,
of I/O 360 (the "Common Stock") held by I/O 360, whether as treasury shares or
otherwise, shall be canceled;
(b) All of the other issued and outstanding shares of Common
Stock not held by I/O 360 shall be canceled and converted into the right to
receive from ICC a pro rata portion of the Purchase Price in accordance with
Section 1.3 above;
(c) Any granted and outstanding options, warrants or other
rights to purchase or subscribe for shares of Common Stock; and
(d) Each issued and outstanding share of Rare Medium's capital
stock shall be converted into one share of the Surviving Corporation's common
stock.
1.4.2 ICC to Make Certificates Available
Upon surrender to Rare Medium of one or more certificates representing
Common Stock for cancellation, ICC shall make available, and each holder of
Common Stock shall be entitled to certificates representing the number of shares
of ICC Common Stock that such holder is entitled to receive pursuant to Section
1.4.1 (b) hereof, provided, however, that the parties acknowledge that the
Escrow Agent shall retain physical possession of the certificates representing
shares of ICC Common Stock in the aggregate value of $400,000.00 pursuant to the
terms of the Escrow Agreement.
1.4.3 No Fractional Securities
No certificates or scrip representing fractional shares of ICC Common
Stock shall be issued upon the surrender for exchange of certificates
representing Common Stock pursuant to this Article I and no ICC dividend, stock
split or interest
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shall relate to any fractional security, and such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder. In lieu
of any such fractional securities, each holder of Common Stock who would
otherwise have been entitled to a fraction of a share of ICC Common Stock upon
surrender of certificates representing Common Stock for cancellation pursuant to
this Article I will be paid cash upon such surrender or an amount equal to such
fraction times the Closing Date Value.
1.4.4 Closing Company Transfer Books
Upon the Effective Date, the stock transfer books of I/O 360 shall be
closed and no transfer of Common Stock shall thereafter be made. If, after the
Effective Date, certificates representing shares of Common Stock are presented
to the Surviving Corporation, they shall be canceled and exchanged for
certificates representing ICC Common Stock.
1.5 Assistance in Consummation of the Merger
The Stockholders, Rare Medium, ICC and I/O 360 shall provide all
reasonable assistance to, and shall cooperate with, each other to bring about
the consummation of the Merger as soon as possible in accordance with the terms
and conditions of this Agreement. ICC shall cause Rare Medium to perform all of
Rare Medium's obligations in connection with this Agreement.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF I/O 360 AND THE STOCKHOLDERS
Except as set forth in the documents provided to Rare Medium and ICC
and listed in the I/O 360 Disclosure Schedule attached hereto as Schedule II
(the "Disclosure Schedule") I/O 360 and the Stockholders jointly and severally
represent and warrant to Rare Medium and ICC, as of the date of this Agreement
and as of the Closing (which representations and warranties shall survive the
Closing to the extent provided in Section 9.3 hereof), all as follows in this
Article II:
2.1 Good Title
The Stockholders own all of the issued and outstanding shares of Common
Stock free and clear of any lien, encumbrance, adverse claim, restriction on
sale or transfer (other than restrictions imposed by applicable securities
laws), preemptive right or option.
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2.2 Organization, Good Standing
I/O 360 is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of New York, and has all requisite
corporate power and authority to own, operate and lease its properties and
assets and to carry on its business as now conducted. I/O 360 is duly qualified
and licensed as a foreign corporation to do business and is in good standing in
each jurisdiction listed on the Disclosure Schedule, which jurisdictions
constitute all the jurisdictions where the character of I/O 360's properties
occupied, owned or held under lease or the nature of the business conducted by
I/O 360 makes such qualification necessary and where the failure to be so
qualified would have a material adverse effect on the business, business
prospects, assets or financial condition (a "Material Adverse Effect") of I/O
360.
2.3 Authorization
I/O 360 has all requisite corporate power and authority and the
Stockholders have all requisite power, right and authority to enter into this
Agreement and each of the documents to which it or he is a party, including,
without limitation and as applicable, the Employment Agreements (as defined in
Section 6.3 hereof), and the Escrow Agreement (collectively, the "Operative
Documents"), and to carry out the transactions contemplated hereby and thereby.
This Agreement has been, and each Operative Document to which I/O 360 or the
Stockholders are a party will be, on the Closing Date, duly executed and
delivered by each of I/O 360 and the Stockholders, as applicable, and this
Agreement is, and each Operative Document to which I/O 360 or the Stockholders
are a party will be, on the Closing Date, a legal, valid and binding obligation
of each of I/O 360 and the Stockholders, as applicable, enforceable against each
of them in accordance with their respective terms of this Agreement and each
such Operative Document, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditor's
rights generally, or by general equitable principles, and to the extent any
indemnification or contribution provisions thereof may be limited by applicable
federal or state securities laws.
2.4 Authorized Capitalization
I/O 360's authorized capital stock consists solely of shares of Common
Stock of which 200 shares are issued and outstanding on the date of this
Agreement and entirely held by the Stockholders. All issued and outstanding
shares of Common Stock are validly issued, fully paid and nonassessable. There
are no outstanding or authorized subscriptions, options, warrants, calls,
rights, commitments or other agreements of any character which obligate or may
obligate I/O 360 to issue any additional shares of any of its capital stock or
any securities convertible into or evidencing the right to subscribe for any
shares of any such capital stock. There are
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no voting trusts or other agreements or understandings with respect to the
capital stock of I/O 360 to which I/O 360 or the Stockholders are a party or by
which I/O 360 or the Stockholders are bound, nor, in the case of the
Stockholders, is there any such agreement or understanding to which the
Stockholders are a party or by which he is bound, nor are there any such
agreements or understandings to which the Stockholders are a party or by which
the Stockholders are bound. The Stockholders are not indebted to I/O 360, and
I/O 360 is not indebted to the Stockholders.
2.5 Subsidiaries and Affiliates
I/O 360 has no Subsidiaries. As used in this Agreement, "Subsidiaries,"
when used in reference to any Person (as defined in Section 2.6 of this
Agreement), shall mean corporations of which outstanding securities having
ordinary voting power to elect a majority of the Board of Directors of such
corporations are owned directly or indirectly by such Person. I/O 360 does not
own, directly or indirectly, any ownership, equity, profits or voting interest
in, or otherwise control, any corporation, partnership, joint venture or other
entity, and has no agreement or commitment to purchase any such interest.
2.6 No Approvals or Notices Required; No Conflicts With
Instruments
The execution, delivery and performance of this Agreement and the
Operative Documents by I/O 360 and the Stockholders and the consummation of the
transactions contemplated hereby and thereby will not (a) constitute a violation
(with or without the giving of notice or lapse of time, or both) of any
provision of law or any judgment, decree, order, regulation or rule of any court
or other governmental authority applicable to I/O 360 or the Stockholders which
violation would have a Material Adverse Effect on I/O 360, (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any person, corporation, partnership, joint venture, association,
organization, other entity or governmental or regulatory authority (a "Person"),
except for compliance with applicable securities laws and the filing of all
documents necessary to consummate the Merger with the Secretaries of State (the
consent of all such Persons to be duly obtained by I/O 360 and the Stockholders
at or prior to the Closing), (c) result in a default (with or without the giving
of notice or lapse of time, or both) under, acceleration or termination of, or
the creation in any party of the right to accelerate, terminate, modify or
cancel, any agreement, lease, note or other restriction, encumbrance, obligation
or liability to which I/O 360 or the Stockholders are a party or by which either
of them is bound or to which any of their assets are subject, (d) result in the
creation of any lien or encumbrance upon any material assets of I/O 360 or upon
the Common Stock which default, acceleration or termination would have a
Material Adverse Effect on I/O 360, (e) violate any provision of the Certificate
of Incorporation or By-Laws of I/O 360, or (f) invalidate or adversely affect
any permit,
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license, authorization or status used in the conduct of the business of I/O 360
which would have a Material Adverse Effect on I/O 360.
2.7 Financial Statements
I/O 360 has delivered to Rare Medium (a) an audited balance sheet and
statement of income of I/O 360 as of or for each of the two fiscal years ending
December 31, 1996 and 1997 prepared by Richard Eisner & Sons, Inc., independent
certified public accountants, (b) a trial balance of I/O 360's accounts as of
and for the one-month period ended June 30, 1998 (the balance sheet as of June
30, 1998 being herein referred to as the "Company Balance Sheet") and (c)
balance sheet and income statement which accurately reflect, as of June 30,
1998, the business of I/O 360 without including any of the assets, liabilities
or operations of Horizon Distance Learning, Inc. All of the foregoing financial
statements are herein referred to as the "Financial Statements." The Financial
Statements have been prepared in conformity with generally accepted accounting
principles, other than the June 30, 1998 trial balance, which has been so
prepared, and on a basis consistent with prior accounting periods, and present
fairly the financial position, results of operations and changes in financial
position of I/O 360 as of the dates and for the periods indicated. I/O 360 has
no liability or obligation of any nature (absolute, contingent or otherwise)
which is not fully reflected or reserved against in the Company Balance Sheet,
except for liability reserves or obligations incurred since the date of the
Company Balance Sheet in the ordinary course of business and consistent with
past practice and not in excess of $25,000 in the aggregate or $5,000
individually.
2.8 Absence of Certain Changes or Events
Except as specifically contemplated by this Agreement, since December
31, 1997, neither I/O 360 nor any of its officers or directors in their
representative capacity on behalf of I/O 360 has:
(a) taken any action or entered into or agreed to enter into
any transaction, agreement or commitment other than in the ordinary course of
business;
(b) forgiven or canceled any indebtedness or waived any claims
or rights of material value (including, without limitation, any indebtedness
owing by the Stockholders or any officer, director or employee of I/O 360);
(c) granted any material increase in the compensation of
directors, officers or employees (including any such increase pursuant to any
bonus, pension, profit-sharing, lease payment or other plan or commitment) or
any material increase in the compensation payable or to become payable to any
director, officer or employee;
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(d) suffered any material adverse change in its working
capital, assets, liabilities (absolute, accrued, contingent or otherwise),
earnings or reserves or in its financial condition, business, business prospects
or operations;
(e) borrowed or agreed to borrow any funds, assumed or become
subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), or incurred any liabilities or
obligations (absolute, accrued, contingent or otherwise) which exceed in the
aggregate $7,500 (counting obligations or liabilities arising from one
transaction or a series of similar transactions, and all periodic installments
or payments under any lease or other agreement providing for periodic
installments or payments, as a single obligation or liability), except
liabilities and obligations reflected in the Company Balance Sheet or incurred
since the date of the Company Balance Sheet in the ordinary course of business
and consistent with past practice which do not exceed $5,000 in the aggregate,
or increased, or experienced any change in any assumptions underlying or methods
of calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of claims, liabilities and obligations reflected or reserved
against in the Company Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the date of the Company Balance
Sheet, or prepaid any obligation having a fixed maturity of more than 90 days
from the date such obligation was issued or incurred;
(g) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge, except for
(i) assessments for current taxes not yet due and payable, (ii) landlord's liens
for rental payments and other lease-related performance incurred in the ordinary
course of business and not yet due and payable, and (iii) mechanics',
materialmen's, carriers' and other similar liens securing indebtedness that was
incurred in the ordinary course of business and is not yet due and payable;
(h) written down the value of any inventory (including
write-downs by reason of shrinkage or markdown) or written off as uncollectible
any notes or accounts receivable in excess of $5,000.00;
(i) sold, transferred or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(j) disposed of or permitted to lapse any rights to the use of
any trademark, trade name, patent or copyright, or disposed of or disclosed to
any Person other than representatives of Rare Medium any trade secret, formula,
process or know-how not theretofore a matter of public knowledge, other than
pursuant to confidentiality agreements that are adequate to protect the
business, business prospects, assets, operations and condition (financial and
other) of I/O 360;
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(k) made any capital expenditure or commitment to make a
capital expenditure for additions to property, plant, equipment or intangible
capital assets in excess of $5,000.00;
(l) made any material change in any method of accounting or
accounting practice;
(m) declared, paid or set aside for payment any dividend or
other distribution in respect of its capital stock or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital stock or other
securities of I/O 360, or otherwise permitted the withdrawal by any of the
holders of capital stock of I/O 360 of any cash or other assets (real, personal
or mixed, tangible or intangible), in compensation, indebtedness or otherwise,
other than payments of compensation in the ordinary course of business and
consistent with past practice;
(n) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of the holders of capital stock of I/O 360, or any affiliate of such holder
or any of its officers or directors, except for compensation paid to officers at
rates not exceeding the rate of compensation as of December 31, 1997;
(o) entered into or agreed to enter into, or otherwise
suffered to be outstanding, any power of attorney of I/O 360 or any obligations
or liabilities (whether absolute, accrued, contingent or otherwise) of I/O 360,
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any other Person;
(p) received notice of, or otherwise obtained knowledge of:
(i) any claim, action, suit, arbitration, proceeding or investigation involving,
pending against or threatened against I/O 360 before or by any court or
governmental or non-governmental department, commission, board, bureau, agency
or instrumentality, or any other Person; (ii) any valid basis for any claim,
action, suit, arbitration, proceeding, investigation or the application of any
fine or penalty adverse to I/O 360 before or by any Person; or (iii) any
outstanding or unsatisfied judgments, orders, decrees or stipulations to which
I/O 360 is a party which relate directly to the transactions contemplated herein
or which would otherwise have an adverse effect upon the business, business
prospects, assets or financial condition of I/O 360, or
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(q) agreed, whether in writing or otherwise, to take any
action described in this Section 2.8 not otherwise specifically disclosed
pursuant to this Section 2.8.
2.9 Taxes
I/O 360 has (a) duly and timely filed, including valid extensions, with
the appropriate governmental agencies (domestic and foreign) all tax returns,
information returns and reports for all Taxes (as defined below) required to
have been filed with respect to I/O 360 prior to the Effective Date and (b) paid
in full or provided for all Taxes, interest and other governmental charges which
are shown to be due on such returns or reports. "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, but not limited to,
income, excise, gross receipts, property, sales, use, ad valorem, transfer,
franchise, profit, license, withholding, payroll, employment, severance, stamp,
occupation, windfall profit, social security and unemployment or other taxes
imposed by the United States or any agency or instrumentality thereof, any
state, county, local or foreign government, or any agency or instrumentality
thereof, and any interest or fines, and any and all penalties or additions
relating to such taxes, charges, fees, levies or other assessments. Furthermore,
(i) the reserves and provisions for Taxes reflected in the Company Balance Sheet
are adequate, as determined in accordance with generally accepted accounting
principles consistently applied; (ii) no unresolved claim for assessment or
collection of Taxes has been asserted or threatened against I/O 360, and no
audit or investigation by governmental authorities is under way with respect to
Taxes, interest or other governmental charges; (iii) no state of facts exists or
has existed which would constitute a reasonable basis for the assessment against
I/O 360 of any additional tax liability with respect to any period for which tax
returns have been filed; (iv) I/O 360 has not filed or entered into any
election, consent or extension agreement or any waiver that extends any
applicable statute of limitations; (v) any Taxes incurred by I/O 360 or accrued
by it since the date of the Company Balance Sheet have arisen in the ordinary
course of business; and (vi) I/O 360 has not filed any consent to the
application of Section 341(f)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), to any assets held, acquired or to be acquired by it. I/O
360 has furnished Rare Medium with complete and correct copies of all returns of
Taxes, except for returns of Taxes for periods as to which the applicable
statutory period of limitations has expired. I/O 360 has not been a United
States real property holding corporation within the meaning of section 897(c)(2)
of the Code during the applicable period specified in section 897(c)(1)(A)(ii)
of the Code. I/O 360 is a "small business corporation" within the meaning of
Section 280G(b)(5) of the Code.
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2.10 Property
(a) I/O 360 owns no real property other than the leasehold interests
described in the Disclosure Schedule. Schedule 2.10 is a complete and accurate
list of all real property of I/O 360 which is leased, rented or used by I/O 360
(the "Real Property"). I/O 360 has delivered to Rare Medium true and complete
copies of all leases, subleases, rental agreements, contracts of sale, tenancies
or licenses of any portion of the Real Property.
The Disclosure Schedule sets forth the basis, for tax purposes, of I/O
360 in its assets.
(b) I/O 360 has provided to Rare Medium a complete and accurate list of
each item of personal property having a fair market value in excess of $500
which is owned, leased, rented or used by I/O 360 (the "Personal Property");
provided, however, that such list need not describe the Listed Intellectual
Property or the Intellectual Property Licenses (both terms as defined in Section
2.17 hereof). I/O 360 has delivered to Rare Medium true and complete copies of
all leases, subleases, rental agreements, contracts of sale, tenancies or
licenses of any portion of the Personal Property. The Real Property and the
Personal Property include all properties and assets (whether real, personal or
mixed, tangible or intangible) (other than, in the case of the Personal
Property, property rights with an individual value of less than $500, the Listed
Intellectual Property and the Intellectual Property Licenses) (i) reflected in
I/O 360 Balance Sheet purchased by I/O 360 since the date of I/O 360 Balance
Sheet (except for such properties or assets sold since the date of I/O 360
Balance Sheet in the ordinary course of business and consistent with past
practice) or (ii) used in the business of I/O 360 as presently conducted.
(c) I/O 360's leasehold interest in each parcel of the Real Property is
free and clear of all liens, mortgages, pledges, deeds of trust, security
interests, conditional sales agreements, charges, encumbrances and other adverse
claims or interests of any kind, except as set forth on Schedule 2.10(c), each
lease of any portion of the Real Property is valid, binding and enforceable in
accordance with its terms against the parties thereto and against any other
Person with an interest in such Real Property. I/O 360 has performed all
obligations imposed upon it thereunder; and neither I/O 360 nor any other party
thereto is in default thereunder nor is there any event which with notice or
lapse of time, or both, would constitute a default thereunder. No consent is
required from any Person under any lease of the Real Property in connection with
the consummation of the transactions described in this Agreement and the
Operative Documents, and I/O 360 has not received notice that any party to any
such lease intends to cancel, terminate or refuse to renew the same or to
exercise or decline to exercise any option or other right thereunder. I/O 360
has not granted any lease, sublease, tenancy or license of, or entered into any
rental agreement or Contract of sale with respect to, any portion of the Real
Property.
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(d) I/O 360's plant, structures and Personal Property are in good
operating condition and repair, normal wear and tear excepted, are adequate for
the uses to which they are being put and comply in all material respects with
applicable safety and other laws and regulations.
(e) Except for (i) assessments for current taxes not yet due and
payable, (ii) landlord's liens for rental payments and other lease-related
performance in respect of the Real Property incurred in the ordinary course of
business and not yet due and payable, and (iii) mechanics', materialmen's,
carrier's' and other similar liens securing indebtedness that was incurred in
the ordinary course of business and is not yet due and payable, the Personal
Property is free and clear of all liens, and, other than leased Personal
Property which is so noted on the list supplied pursuant to paragraph (b) of
this Section 2.10, I/O 360 owns such Personal Property.
(f) Each lease, license, rental agreement, contract of sale or other
agreement to which the Personal Property is subject is valid, binding and
enforceable in accordance with its terms against I/O 360 (except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditor's rights generally, or by general
equitable principles), I/O 360 has performed all obligations imposed upon it
thereunder, and neither I/O 360 nor any other party thereto is in default
thereunder, nor is there any event which with notice or lapse of time, or both,
would constitute a default thereunder. No consent is required from the owner or
lessor under any lease of Personal Property in connection with the consummation
of the transactions described in this Agreement and the Operative Documents, and
I/O 360 has not received notice that any party to any such lease, license,
rental agreement, contract of sale or other agreement intends to cancel,
terminate or refuse to renew the same or to exercise or decline to exercise any
option or other fight thereunder. I/O 360 has not granted any leases, subleases,
tenancies or licenses of any portion of the Personal Property, except as
described in the Disclosure Schedule.
(g) Neither the whole nor any portion of the leaseholds or any other
assets or property of I/O 360 is subject to any currently outstanding
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor, to the knowledge of the Stockholders, has any such condemnation,
expropriation or taking been proposed.
2.11 Contracts
The Disclosure Schedule contains a complete and accurate list of all
material contracts, oral or written, to which I/O 360 is a party or by which I/O
360 is bound, including, without limitation, security agreements, conditional
sales agreements, instruments relating to the borrowing of money, and broker or
distributorship
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agreements; provided, however, that the Disclosure Schedule need not include:
(a) purchase orders received by I/O 360 in the ordinary course of its business
from its customers; (b) purchase orders issued by I/O 360 in the ordinary course
of its business to its suppliers and subcontractors involving less than $ 1,000
individually and $5,000 in the aggregate; or (c) other contracts cancelable
within 30 days without penalty or involving less than $1,000 individually and
$5,000 in the aggregate. All contracts set forth in such Schedule are valid,
binding and enforceable in accordance with their terms against I/O 360, are in
full force and effect (except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditor's
rights generally, or by general equitable principles), I/O 360 has performed all
material obligations imposed upon it thereunder, and neither I/O 360 nor any
other party thereto is in default thereunder, nor is there any event which with
notice or lapse of time, or both, would constitute a default thereunder. True
and complete copies of each such contract have been heretofore delivered to Rare
Medium.
Except as set forth in the Disclosure Schedule, I/O 360 has no:
(i) restriction by agreement from carrying on its business
anywhere in the world, or restriction by agreement from providing services to
any customer or potential customer;
(ii) notice of or any knowledge that any party to a contract
to which it is a party intends to cancel, terminate or refuse to renew such
contract or to exercise or decline to exercise any option or right thereunder;
and
(iii) material disagreement with any of its suppliers or
customers.
2.12 Customers and Suppliers
The Disclosure Schedule sets forth: (a) a list of the customers of I/O
360 accounting for 5% or more of I/O 360's sales during the fiscal year last
ended showing the approximate total sales by I/O 360 to each such customer
during the fiscal year last ended and (b) a current list of the suppliers of I/O
360 from whom I/O 360 has purchased more than 5% of the goods purchased by I/O
360 in the fiscal year last ended. I/O 360 has no reasonable basis to expect any
material modification to its relationship with any customer or supplier named on
the Disclosure Schedule. I/O 360 has not had any customer who accounted,
directly or indirectly, for more than 5% of its sales during the last two fiscal
years, and I/O 360 has no supplier from whom it has purchased more than 5% of
the goods or services which it purchased during the last two fiscal years. I/O
360 is not a party to or bound by, any contract which prohibits the use or
publication by I/O 360, Rare Medium or ICC of the name of any party to such
contract and I/O 360 is not a party to or bound by, any contract which prohibits
or in any way restricts I/O 360 from freely providing services to any
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other customer of I/O 360 or any potential customer of I/O 360, Rare Medium or
ICC. None of I/O 360's customers has canceled or substantially reduced or, to
the knowledge of I/O 360, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by I/O
360. The Disclosure Schedule sets forth all of I/O 360's vendor authorizations
and vendor relationships.
2.13 Orders, Commitments and Returns
I/O 360 has no backlog. There were no outstanding claims against I/O
360 as of the date hereof to return merchandise with an aggregate retail value
in excess of $5,000 by reason of alleged overshipments, defective merchandise,
missed delivery dates, incorrect quantities or otherwise, or of merchandise in
the hands of customers under an understanding that such merchandise would be
returnable.
2.14 Claims and Legal Proceedings
There are no claims, actions, suits, arbitrations or proceedings
pending or involving or threatened against, or investigations involving, I/O 360
before or by any court or governmental or nongovernmental department,
commission, board, bureau, agency or instrumentality, or any other Person. There
is no valid basis for any claim, action, suit, arbitration, proceeding or
investigation (other than as noted on the Disclosure Schedule) adverse to the
business, business prospects, assets, operations or condition (financial or
other) of I/O 360 before or by any Person. There are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which I/O 360 is a
party which, if determined adversely to I/O 360, would have a Material Adverse
Effect.
2.15 Labor Matters
There are no disputes, employee grievances or disciplinary actions
pending or to the knowledge of I/O 360 or the Stockholders threatened or
involving I/O 360 or any of its present or former employees. I/O 360 has
complied with all provisions of law relating to employment and employment
practices, terms and conditions of employment, wages and hours, the failure to
comply with which would have a material adverse effect upon the business,
business prospects, assets, operations or condition (financial or other) of I/O
360. I/O 360 is not engaged in any unfair labor practice and has no liability
for any arrears of wages or Taxes or penalties for failure to comply with any
such provisions of law. There is no labor strike, dispute, slowdown or stoppage
pending or threatened against or affecting I/O 360, and I/O 360 has not
experienced any work stoppage or other labor difficulty. No collective
bargaining agreement is binding on I/O 360. I/O 360 has no knowledge of any
organizational efforts presently being made or threatened by or on behalf of any
labor union with respect to employees of I/O 360, and I/O 360 has not been
requested by any group of employees or others to enter into any collective
bargaining
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agreement or other agreement with any labor union or other employee
organization.
2.16 Employee Benefit Plans
(a) Except as set forth on the Disclosure Schedule, I/O 360 has no
bonus, deferred compensation, incentive, severance pay, pension, profit-sharing,
retirement, stock purchase, stock option or any other employee benefit plan,
employee fringe benefit plan, arrangement or practice with regard to present or
former employees as to which I/O 360 has any liability ("Employee Benefit
Plan"), whether formal or informal. The aggregate amount paid by I/O 360 during
the fiscal year last ended pursuant to all Employee Benefit Plans, whether
formal or informal, did not exceed $50,000.00. I/O 360 has no agreement,
arrangement or commitment, whether formal or informal and whether legally
binding or not, to create any additional plan or arrangement or to modify or
amend any existing Employee Benefit Plan.
(b) I/O 360 has delivered to Rare Medium true, correct and complete
copies of all written Employee Benefit Plans of I/O 360, all contracts related
thereto and the most recently available annual reports, summary plan
descriptions, Internal Revenue Service Form 5500s (or 5500-C or 5500-R) and
favorable determination letters for such plans to the extent applicable. I/O 360
is in compliance in all material respects with the terms of its Employee Benefit
Plans and with all applicable laws and regulations, including, but not limited
to, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code. I/O 360 has extinguished any liabilities to participants,
beneficiaries and the Pension Benefit Guaranty Corporation which may have arisen
under any such plans previously maintained by them and expects to incur no
future liabilities with regard to such plans. Neither I/O 360 nor any
"affiliate" of I/O 360 is a party to, has ever made any contributions to, or is
subject to any liability with respect to any multi-employer plan within the
meaning of Section 4001(a)(3) of ERISA or any defined benefit plan within the
meaning of Section 3(35)of ERISA. The term "affiliate" means any company,trade
or business which is a member of the same control group, as defined in Section
414(b) or 414(c) of the Code, with the Company, or any company, trade or
business which is a member of an affiliated service group, as defined in Section
414(m) or 414(o) of the Code, with I/O 360.
(c) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or failure to meet the requirements of
Section 4980B(f) of the Code has occurred with respect to any Employee Benefit
Plan which would have a Material Adverse Effect on I/O 360.
(d) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to the knowledge of I/O 360 and the Stockholders
threatened,
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against any Employee Benefit Plan or the assets of any such plan which would
have a Material Adverse Effect.
2.17 Patents, Trademarks
(a) I/O 360 has a valid license to use each copy of mass-market
third-party software used by it. Set forth on the Disclosure Schedule is a true
and complete list of all inventions, patents, trademarks, trade names, brand
names, copyrights, Software Products (as defined in paragraph (b) of this
Section 2.17), trade secrets and formulae (collectively, the "Listed
Intellectual Property") of any kind now used or reasonably anticipated to be
used in the business of I/O 360 except the mass-market third-party software
described in the first sentence of this Section 2.17. The Disclosure Schedule
contains a complete list of all licenses or agreements which in any way affect
the rights of I/O 360 to any of the Listed Intellectual Property (the
"Intellectual Property Licenses"); such list indicates the specific Listed
Intellectual Property affected by each such Intellectual Property License.
Neither I/O 360's operations nor any Listed Intellectual Property or
Intellectual Property License infringes or provides any basis to believe that
I/O 360's operations or any Listed Intellectual Property or Intellectual
Property License would infringe upon any validly issued or to the knowledge of
I/O 360 or the Stockholders any pending trademark, trade name, service mark,
copyright or, any validly issued or pending patent or other right of any other
Person, nor is there any infringement by any other Person of any of the Listed
Intellectual Property or of the intellectual property to which the Intellectual
Property Licenses relate. Except as specifically set forth on the Disclosure
Schedule, consummation of the transactions contemplated hereby and by the
Operative Documents will not alter or impair I/O 360's rights to any of the
Listed Intellectual Property or under any Intellectual Property License. The
manner in which I/O 360 has manufactured, packaged, shipped, advertised, labeled
and sold its products complies with all applicable laws and regulations
pertaining thereto, the failure to comply with which would have a material
adverse effect upon the business, business prospects, assets, operations or
condition (financial or other) of I/O 360.
(b) I/O 360 is the sole and exclusive owner or licensee of:
(i) the Listed Intellectual Property, the Intellectual
Property Licenses and the technology, know-how and processes now used by I/O
360, or used in connection with any product now being manufactured and sold by
I/O 360, in the manner that such product is now being manufactured and sold; and
(ii) all right, title and interest of whatever kind or nature
throughout the world in and to the fully or partially developed computer
software products listed on the Disclosure Schedule, with all modifications,
enhancements and additions thereto, including, without limitation, all rights in
and to all versions
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thereof and all source code, object code, manuals and other documentation and
related materials thereof (collectively, the "Software Products"). Without
limiting the generality of the above, the Software Products shall also include
all of I/O 360's related programs, trade secrets, algorithms and processes
relating to the Software Products or such programs, I/O 360's copyright in and
to each of the Software Products and all works derivative therefrom (including
the registrations of copyright listed on the Disclosure Schedule), all current,
previous, enhanced and developmental versions of the source and object code and
any variations thereof, all user and programmer documentation, all design
specifications, all maintenance and installation job control language, all
system documentation (including all flow charts, systems procedures and program
component descriptions), all procedures for modification and preparation for the
release of enhanced versions and all test data available (excluding all
proprietary information of third parties) with respect to the Software Products.
(c) Each of the Intellectual Property Licenses is valid, binding and
enforceable in accordance with its terms against I/O 360 (except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditor's rights generally, or by general
equitable principles), I/O 360 has performed all obligations imposed upon it
thereunder, and neither I/O 360 nor any other party thereto is in default
thereunder, nor is there any event which with notice or lapse of time, or both,
would constitute a default thereunder. I/O 360 has not received notice that any
party to any of the Intellectual Property Licenses intends to cancel, terminate
or refuse to renew the same or to exercise or decline to exercise any option or
other right thereunder. No licenses, sublicenses, covenants or agreements have
been granted or entered into by I/O 360 in respect of any of the Listed
Intellectual Property except the Intellectual Property Licenses. No director,
officer, Stockholders or employee of I/O 360 owns, directly or indirectly, in
whole or in part, any of the Listed Intellectual Property. Neither I/O 360 nor
the Stockholders know or have any reason to believe that there exists any new
developments in the creation, publication or marketing of the products of I/O
360 or any new or improved products or processes useful in connection with the
business of I/O 360 as now conducted or as presently anticipated to be
conducted, except such developments, products and processes as would not have a
material adverse effect upon the business, business prospects, assets,
operations or condition (financial or other) of I/O 360. None of the officers of
I/O 360 and none of I/O 360's employees, consultants, distributors, agents,
representatives or advisers has entered into any agreement regarding know-how,
trade secrets, assignment of rights in inventions, or prohibition or restriction
of competition or solicitation of customers, or any other similar restrictive
agreement or covenant, whether written or oral, with any Person other than I/O
360.
(d) To I/O 360's knowledge, since January 1, 1991 no Person has
asserted any claim of infringement or other interference with third-party rights
with respect
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to the Listed Intellectual Property. I/O 360 has not disclosed any source code
regarding the Software Products to any Person other than to an employee of I/O
360, to ICC or to Rare Medium. I/O 360 has at all times maintained reasonable
procedures to protect and has enforced all trade secrets of I/O 360. Neither I/O
360 nor any escrow agent is under any contractual or other obligation to
disclose the source code or any other proprietary information included in or
relating to the Software Products, nor is any other party to the Intellectual
Property Licenses or any escrow agent under any such obligation to disclose any
source code or other proprietary information included in or relating to Software
Products, if any, that are licensed to I/O 360, or to any Person, and no event
has taken place, including the execution of this Agreement or any related change
in I/O 360's business activities, which would give rise to such obligation, and
(iv) I/O 360 has not deposited any source code regarding the Software Products
into any source code escrows or similar arrangements. I/O 360 has not deposited
any source code to Software Products into source code escrows or similar
arrangements.
(e) The Software Products currently being marketed by I/O 360 are free
from known significant defects and substantially conform to the specifications,
documentation and sample demonstration furnished to Rare Medium.
2.18 Accounts Receivable
All accounts receivable of I/O 360 reflected in the Company Balance
Sheet, or existing at the Effective Time, represent sales actually made in the
ordinary course of business. I/O 360 has no reason to believe that any such
account receivable is not or shall not, be collected in the amounts shown. I/O
360's bad debt reserves and sales return allowances as reflected in the Company
Balance Sheet are adequate based on I/O 360's bad debts and sales returns
experience to date. Set forth on the Disclosure Schedule is a full and complete
list of all accounts receivable of I/O 360 existing as of May 31, 1998 and as of
the Closing Date.
2.19 Inventory
Subject to such reserves and write-downs as may be reflected in the
Financial Statements, all items in the inventory reflected in the Company
Balance Sheet or as currently owned by I/O 360 are of a quality and quantity
usable and saleable in the ordinary course of business. Such inventory consists
of materials and supplies used or sold in the business of I/O 360.
2.20 Corporate Books and Records
I/O 360 has furnished to Rare Medium or its representatives for their
examination true and complete copies of (a) the Certificate of Incorporation and
By-
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Laws of I/O 360, including all amendments thereto, (b) the minute books of I/O
360, and (c) the stock transfer books of I/O 360.
2.21 Licenses, Permits, Authorizations, Etc.
I/O 360 has received all currently required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign, the failure to obtain which
would, in the aggregate, have a Material Adverse Effect on I/O 360's. I/O 360
has not received any notification of any failure by it to have obtained any of
such governmental approvals, authorizations, consents, licenses, orders,
registrations or permits.
2.22 Applicable Laws
(a) I/O 360 has complied, and is in compliance with, all federal,
state, local and foreign laws, rules, regulations, ordinances, decrees and
orders applicable to the operation of its business, to its employees, or to the
Real Property and the Personal Property, the failure to comply with which would,
in the aggregate, have a Material Adverse Effect on I/O 360, including, without
limitation, all such laws, rules, regulations, ordinances, decrees and orders
relating to antitrust, consumer protection, currency exchange, environmental
protection, equal opportunity, health, occupational safety, pension, securities
and trading-with-the-enemy matters. I/O 360 has not received any notification of
any asserted present or past unremedied failure by I/O 360 to comply with any of
such laws, rules, regulations, ordinances, decrees or orders.
(b) I/O 360 is not currently in violation of any applicable building,
zoning, environmental or other law, ordinance or regulation in respect of the
Real Property or its plant, structures or operations. No such law, ordinance or
regulation would reasonably be expected to prevent the use of substantially all
the Real Property for the conduct thereon of the business of I/O 360 as
currently conducted.
(c) I/O 360 is not in violation of, and has not violated, in connection
with the ownership, use, maintenance or operation of the Real Property or the
Personal Property or the conduct of its business, any applicable federal, state,
county or local statutes, laws, regulations, guidances, rules, ordinances,
codes, licenses, permits, judgments, writs, decrees, injunctions or orders of
any governmental entity relating to environmental (air, water, groundwater,
soil, noise and odor) matters, including, by way of illustration and not of
limitation, the Clean Air Act, the Water Pollution Control Act, the Resource
Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901 et. seq.) and the
regulations issued thereunder, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et. seq.), the
Clean Water Act, the Hazardous Materials Transportation Act, the Toxic
Substances Control Act, the Hazardous Waste Control Act, comparable State of New
York laws,
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and the regulations issued thereunder, and all other applicable federal, state,
county, local and foreign environmental requirements.
2.23 Insurance
(a) I/O 360 maintains insurance as set forth on the Disclosure
Schedule.
(b) All insurance policies and binders of I/O 360 are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the date this representation is made have been paid, and no notice of
cancellation or termination has been received with respect to any such policy or
binder. Such policies and binders are sufficient for compliance with all
requirements of law currently applicable to I/O 360. Except as set forth in the
Disclosure Schedule, all agreements to which I/O 360 is a party, will remain in
full force and effect through the respective expiration dates of such policies
or binders without the payment of additional premiums, and will not in any way
be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. I/O 360 has not been refused any insurance with
respect to its assets or operations, nor has its coverage been limited, by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance.
(c) I/O 360 has no pending insurance claims.
2.24 Brokers and Finders
Neither the Stockholders nor any director, officer, agent or employee
acting on behalf of I/O 360 or the Stockholders has retained any broker or
finder in connection with the transactions contemplated by this Agreement and
the Operative Documents.
2.25 Government Contracts
I/O 360 has never been, nor as a result of the consummation of the
transactions contemplated by this Agreement is it reasonable to expect that it
will be, suspended or debarred from bidding on contracts or subcontracts for any
agency of the United States government, nor has such suspension or debarment
been threatened or action for such suspension or debarment been commenced. I/O
360 has not been nor is it now being audited or investigated by the United
States Government Accounting Office, the United States Department of Justice,
the United States Department of Defense or any of its agencies, the Defense
Contract Audit Agency or the inspector general of any agency of the United
States government, nor has such audit or investigation been threatened. There is
no valid basis for I/O 360's suspension or debarment from bidding on contracts
or subcontracts for any agency of the United States government and there is no
valid basis for a claim pursuant to
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an audit or investigation by the United States Government Accounting Office, the
United States Department of Justice, the United States Department of Defense or
any of its agencies, the Defense Contract Audit Agency or the inspector general
of any agency of the United States government, or any prime contractor.
2.26 Absence of Questionable Payments
Neither I/O 360 nor any director, officer, agent, employee or other
Person acting on behalf of I/O 360 has used any I/O 360 funds for improper or
unlawful contributions, payments, gifts or entertainment, or made any improper
or unlawful expenditures relating to political activity to government officials
or others. Neither I/O 360 nor any current director, officer, agent, employee or
other Person acting on behalf of I/O 360 has accepted or received any improper
or unlawful contributions, payments, gifts or expenditures.
2.27 Personnel
The Disclosure Schedule sets forth a true and complete list of:
(a) the names and current rates of pay of all directors and elected and
appointed officers of I/O 360 and the family relationships, if any, among such
persons;
(b) the current rates of pay for all nonexecutive employees of I/O 360
by classification, and all labor union contracts (if any); and
(c) all group insurance programs in effect for employees of I/O 360.
I/O 360 is not in material default with respect to any of its
obligations referred to in clause (a) or (b) above.
2.28 Bank Accounts
The Disclosure Schedule sets forth the names and locations of all
banks, trust companies, savings and loan associations and other financial
institutions at which I/O 360 maintains safe deposit boxes or accounts of any
nature and the names of all Persons authorized to draw thereon, make withdrawals
therefrom or have access thereto.
2.29 Insider Interests
Neither the Stockholders nor any officer of I/O 360 has any interest
(other than as Stockholders of I/O 360) (a) in any property, real or personal,
tangible or intangible, used in or directly pertaining to the business of I/O
360, including, without limitation, inventions, patents, trademarks or trade
names, or (b) in any
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agreement, contract, arrangement or obligation relating to I/O 360, its present
or prospective business or its operations, except for the Employment Agreements,
to be entered into between Stockholders and Rare Medium at the Closing.
2.30 Full Disclosure
No information furnished by I/O 360 or the Stockholders to ICC or Rare
Medium in this Agreement (including, but not limited to, the Financial
Statements and all information in the Schedules and the other Exhibits hereto)
and the Operative Documents is false or misleading in any material respect in
light of the circumstances pursuant to which such information was provided.
Neither the Stockholders nor I/O 360 has made any untrue statement of a material
fact nor omitted to state a material fact necessary in order to make the
statements made or information delivered in or pursuant to this Agreement,
including, but not limited to, all Schedules and Exhibits hereto, or in or
pursuant to the Operative Documents, or in or pursuant to closing certificates
executed or delivered by the Stockholders or I/O 360, in light of the
circumstances in which they were made, not misleading.
2.31 No Commission Registration
(a) Investment. The Stockholders shall receive the ICC Common Stock
with no intention of distributing or reselling the ICC Common Stock or any part
thereof, or interest therein, in any transaction which would be in violation of
the securities laws of the United States or any state thereof, without
prejudice, however, to the Stockholders' right at all times to sell or otherwise
dispose of all or any part of the ICC Common Stock under an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or under an exemption from such registration requirements
available under the Securities Act and applicable state securities laws.
(b) No Public Market. The Stockholders understand that the ICC Common
Stock received or to be received by the Stockholders pursuant to this Agreement
has not been registered under the Securities Act by reason of its sale in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that Stockholders will
have to hold the ICC Common Stock and bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration.
(c) Experience. The Stockholders acknowledge that the Stockholders and
the Stockholders' representatives are experienced in, and capable of, evaluating
the financial condition and prospects of corporations like ICC. The Stockholders
has had access to the records of ICC and has had the opportunity to ask
questions concerning ICC and an investment in the ICC Common Stock. The
Stockholders are residents of the State of New York.
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2.32 Misrepresentation
To the knowledge of the Stockholders and I/O 360, none of the
representations and warranties set forth in this Agreement and in any of the
certificates, schedules, exhibits, lists, documents, or other instruments
delivered, or to be delivered, by I/O 360 or the Stockholders as contemplated by
any provision hereof, contains any untrue statement of material fact or omits to
state any material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, misleading.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF RARE MEDIUM AND ICC
Except as is otherwise described in the applicable Schedules, Rare
Medium and ICC jointly and severally represent and warrant to I/O 360 and the
Stockholders, as of the date of this Agreement and as of the Closing (which
representations and warranties shall survive the Closing to the extent provided
in Section 9.3 hereto, all as follows in this Article III:
3.1 Organization, Good Standing
Rare Medium and ICC are corporations duly organized, validly existing
and in good standing under the laws of the States of New York and Delaware,
respectively, and have all requisite corporate power and authority to own,
operate and lease their properties and assets and to carry on their businesses
as now conducted. Rare Medium is a wholly-owned subsidiary of ICC. Rare Medium
and ICC are duly qualified and licensed as a foreign corporation to do business
and are in good standing in each jurisdiction listed on Schedule 3.1, which
jurisdictions constitute all the jurisdictions where the character of Rare
Medium's and ICC's properties occupied, owned or held under lease or the nature
of the business conducted by Rare Medium and ICC the failure to be so qualified
would have a Material Adverse Effect on Rare Medium and ICC.
3.2 Authority
Each of Rare Medium and ICC has full corporate power and authority to
execute, deliver and perform this Agreement and the Operative Documents to which
either is a party and to carry out the transactions contemplated hereby and
thereby. This Agreement has been, and each Operative Document to which Rare
Medium is a party will be, on the Closing Date, duly executed and delivered by
Rare Medium, and this Agreement is, and each Operative Document to which Rare
Medium is a party will be, on the Closing Date, a legal, valid and binding
obligation of Rare Medium, enforceable against Rare Medium in accordance with
its terms. This Agreement has been, and each Operative Document to which ICC is
a party will be, on the Closing Date, duly executed and delivered by ICC, and
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this Agreement is, and each Operative Document to which ICC is a party will be,
on the Closing Date, a legal, valid and binding obligation of ICC, enforceable
against ICC in accordance with its terms.
3.3 No Approvals or Notices Required; No Conflicts With
Instruments
The execution, delivery and performance of this Agreement and the
Operative Documents by Rare Medium and by ICC, the issuance of the ICC Common
Stock to the Stockholders and the consummation of the transactions contemplated
hereby and by the Operative Documents will not (a) constitute a violation (with
or without the giving of notice or lapse of time, or both) of any provision of
law or any judgment, decree, order, regulation or rule of any court or other
governmental authority applicable to Rare Medium or to ICC, (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any Person, except for compliance with applicable securities laws and the
filing of all documents necessary to consummate the Merger with the Secretary of
State, (c) result in a default (with or without the giving of notice or lapse of
time, or both) under, acceleration or termination of, or the creation in any
party of the right to accelerate, terminate, modify or cancel, any agreement,
lease, note or other restriction, encumbrance, obligation or liability to which
Rare Medium or ICC is a party or by which either is bound or to which any of
their assets are subject, (d) result in the creation of any material lien or
encumbrance upon the assets of Rare Medium or ICC, the ICC Common Stock or the
funds being delivered in connection herewith, (e) conflict with or result in a
breach of or constitute a default under any provision of the charter documents
of Rare Medium or ICC, or (f) invalidate or adversely affect any permit,
license, authorization or status used in the conduct of the business of ICC.
3.4 Authorized Shares
All of the shares of ICC Common Stock issuable in exchange for Common
Stock in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and will be issued in
compliance with applicable federal and state securities laws and will be free
and clear of any lien, pledge, security interest, encumbrance, claim or
equitable interest and not preemptive right, right of first refusal or other
rights of shareholders exists with respect to such shares or the issuance
thereof.
3.5 Reports
ICC has delivered to I/O 360 a complete and accurate copy of each
report, schedule, document, statement and proxy statement filed with the SEC on
or after December 31, 1997 (the "ICC SEC Documents"). Each of the ICC SEC
Documents complied in all material respects with the applicable requirements of
the 1933 Act and the 1934 Act and none of the ICC SEC Documents contained any
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untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.6 Legal Proceedings
There are no claims, actions, suits, arbitrations, proceedings or
investigations involving, pending or, to the knowledge of Rare Medium or ICC,
threatened against Rare Medium or ICC before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person, which questions the validity of this
Agreement or any action taken or to be taken by Rare Medium or ICC pursuant to
this Agreement or in connection with the transactions contemplated hereby, and,
to the knowledge of Rare Medium or ICC, there is no valid basis for any such
claim, action, suit, arbitration, proceeding or investigation.
3.7 Brokers and Finders
Neither Rare Medium nor ICC, nor any director, officer, agent or
employee acting on behalf of Rare Medium or ICC, has retained any broker or
finder in connection with the transactions contemplated by this Agreement and
the Operative Documents.
3.8 No Commission Registration
(a) Investment. Rare Medium shall receive the Common Stock of I/O 360
with no intention of distributing or reselling such Common Stock or any part
thereof, or interest therein, in any transaction which would be in violation of
the securities laws of the United States or any state thereof, without
prejudice, however, to Rare Medium's right at all times to sell or otherwise
dispose of all or any part of such Common Stock under an effective registration
statement under the Securities Act or under an exemption from such registration
requirements available under the Securities Act and applicable state securities
laws.
(b) No Public Market. Rare Medium understands that such Common Stock
has not been registered under the Securities Act by reason of its sale in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that Rare Medium will
have to hold such Common Stock and bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration.
(c) Experience. Rare Medium acknowledges that Rare Medium and its
representatives are experienced in, and capable of, evaluating the financial
condition and prospects of corporations like I/O 360. Rare Medium has had access
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to the records of I/O 360 and has had the opportunity to ask questions
concerning I/O 360 and an investment in I/O 360's Common Stock.
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE PURCHASER AND ICC
The obligations of Rare Medium and ICC to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or prior to the Closing Date shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date, which conditions may be
expressly waived in writing by Rare Medium or ICC.
4.1 Accuracy of Representations and Warranties
The representations and warranties of I/O 360 and the Stockholders
contained herein (including applicable Exhibits or Schedules) and in the
Operative Documents shall have been true in all material respects when made and
shall be true in all material respects as of the Closing Date as though made on
that date, except as affected by transactions contemplated hereby and except to
the extent that such representations and warranties are made as of a specified
date, in which case such representations and warranties shall be true in all
material respects as of the specified date.
4.2 Performance of Agreement
I/O 360 and the Stockholders shall have performed all obligations and
agreements and complied in all material respects with all covenants and
conditions contained in this Agreement or any Operative Document to be performed
and complied with by them at or prior to the Closing Date.
4.3 Opinion of Counsel for I/O 360
I/O 360 and the Stockholders shall have delivered or caused to be
delivered to ICC and Rare Medium an opinion letter of counsel for I/O 360 and
the Stockholders, dated the Closing Date, substantially in the form attached
hereto as Exhibit 4.3.
4.4 Stockholders' Approval
The Stockholders shall have executed a valid consent approving this
Agreement and the transactions contemplated hereby in accordance with the
applicable provisions of the New York Law concerning Stockholders consents in
lieu of Stockholders meetings.
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4.5 Resignations
Rare Medium shall have received resignations effective as of the
Effective Date of all the officers and directors of I/O 360.
4.6 Consents to Merger
I/O 360 shall have received written consents to the Merger from each of
the parties (other than I/O 360) to those agreements, leases, notes or other
documents identified on the Disclosure Schedule to require such consents, which
consents shall in all respects be reasonably satisfactory to ICC in its sole and
absolute discretion.
4.7 Officers' Certificate
ICC and Rare Medium shall have received a certificate of the President
and the Secretary or Assistant Secretary of I/O 360, dated the Closing Date,
substantially in the form attached hereto as Exhibit 4.7, certifying that all of
the conditions to the obligations of ICC and Rare Medium (other than the
condition of Section 4.9 hereof) have been fulfilled.
4.8 Stockholders' Certificates
ICC and Rare Medium shall have received a certificate from the
Stockholders, dated the Closing Date, substantially in the form attached hereto
as Exhibit 4.8, certifying that all of the conditions to the obligations of ICC
and Rare Medium (other than the condition of Section 4.9 hereof) have been
fulfilled.
4.9 Intentionally Deleted
4.10 Material Change
From March 31, 1998 to the Closing Date, I/O 360 shall not have
suffered any material adverse change in its business, business prospects,
assets, operations or condition (financial or other).
4.11 Intentionally Deleted.
4.12 Firpta Certification
Rare Medium shall receive from the Stockholders a properly completed
and executed Foreign Investment and Real Property Tax Act of 1980 Certification
in substantially the form attached hereto as Exhibit 4.12, stating under penalty
of perjury, the Stockholders' taxpayer identification number and that the
Stockholders are not a foreign person.
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4.13 Good Standing Certificate
I/O 360 shall have delivered to Rare Medium a certificate dated as of
no earlier than five (5) days preceding the Closing Date, duly issued by the
Secretary of State of the State of New York, and unless waived by Rare Medium,
from the appropriate governmental authority in each state in which I/O 360 is
authorized to do business, showing I/O 360 in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
I/O 360 for all periods prior to the Closing have been filed and paid.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE STOCKHOLDER AND I/O 360
The obligations of the Stockholders and I/O 360 to perform and observe
the covenants, agreements and conditions hereof to be performed and observed by
them at or prior to the Closing Date shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date, which conditions may be
expressly waived in writing by Stockholders and, on behalf of I/O 360, by the
President of I/O 360.
5.1 Accuracy of Representations and Warranties
The representations and warranties of Rare Medium and ICC contained
herein and in the Operative Documents shall have been true when made and shall
be true as of the Closing Date as though made on that date, except as affected
by transactions contemplated hereby and except and to the extent that such
representations and warranties are made as of a specified date, in which case
such representations and warranties shall be true as of the specified date.
5.2 Performance of Agreement
Rare Medium shall have performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement or any
Operative Document to be performed and complied with by them at or prior to the
Closing Date.
5.3 Opinion of Counsel for Rare Medium
Rare Medium shall have delivered or caused to be delivered to I/O 360
and the Stockholders an opinion letter of Rare Medium's general counsel, Elias,
Goodman, Shanks & Zizmor, L.L.P., dated the Closing Date, substantially in the
form attached hereto as Exhibit 5.3.
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5.4 Stockholders' Approval
ICC, as sole stockholder of Rare Medium, shall have executed a valid
consent approving the Merger in accordance with the applicable provisions of the
Delaware Law concerning shareholder consents in lieu of stockholder meetings.
5.5 Officers' Certificate
I/O 360 shall have received a certificate of a President and the
Secretary or an Assistant Secretary of Rare Medium, dated the Closing Date,
substantially in the form attached hereto as Exhibit 5.5, certifying that the
conditions to the obligations of I/O 360 and the Stockholders has been
fulfilled.
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES
The obligations of all parties to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by them at or
prior to the Closing Date shall be subject to the satisfaction of the following
conditions on or prior to the Closing Date, which conditions may be expressly
waived in writing by Rare Medium, ICC, I/O 360 and the Stockholders.
6.1 Legal Proceedings
No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened which would enjoin, restrain,
condition or prevent consummation of this Agreement or any Operative Document.
6.2 Approvals and Consents
All transfers of permits or licenses, all approvals, applications or
notices to public agencies, federal, state, local or foreign, the granting or
delivery of which is necessary for the consummation of the transactions
contemplated hereby or for the continued operation of I/O 360, shall have been
obtained, and all waiting periods specified by law shall have passed. All other
consents, approvals and notices referred to in this Agreement shall have been
obtained or delivered.
6.3 Employment Agreements
Gong Szeto and Nam Szeto shall have each entered into an employment
agreements with Rare Medium in the form attached hereto as Exhibit 6.3(a) (the
"Employment Agreements") and Robert Clyatt shall have executed a consulting
agreement in the form attached hereto as Exhibit 6.3(b) (the "Consulting
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Agreement"). At the Closing, Gong Szeto and Nam Szeto shall each receive a
signing bonus in the amount of $50,000.00.
6.4 Escrow Agreement
The Stockholders and Rare Medium shall have entered into the Escrow
Agreement.
6.5 Loans to Robert Clyatt
At the Closing, Rare Medium shall satisfy the loan to I/O 360 made by
Robert Clyatt in the amount shown on the Company Balance Sheet, in an amount not
to exceed $100,000.00.
ARTICLE VII - COVENANTS
7.1 Intentionally Deleted.
7.2 Intentionally Deleted.
7.3 Intentionally Deleted.
7.4 Cooperation
Each party hereto will fully cooperate with the other parties, their
counsel and accountants in connection with any steps required to be taken as
part of its obligations under this Agreement. Each party will use its best
efforts to cause all conditions to this Agreement to be satisfied as promptly as
possible and to obtain all consents and approvals necessary for the due and
punctual performance of this Agreement and for the satisfaction of the
conditions hereof. No party will undertake any course of action inconsistent
with this Agreement or which would make any representations, warranties or
agreements made by such party in this Agreement or any of the Operative
Documents untrue or any conditions precedent to this Agreement unable to be
satisfied at or prior to the Closing.
7.5 Information in Disclosure Documents
I/O 360 covenants that, other than with respect to information
furnished by Rare Medium and ICC to I/O 360 for use therein, none of the
information to be included in the materials to be furnished to the Stockholders
by or on behalf of the Board of Directors or management of I/O 360 in connection
with the approval of this Agreement and the Merger by the Stockholders will
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to
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make the statements therein, in light of the circumstances under which such
statements were made, not misleading.
7.6 Intentionally Deleted.
7.7 Confidentiality
(a) In connection with the Merger, ICC, Rare Medium and I/O
360 are furnishing each other and the Stockholders with certain information
which is either nonpublic, confidential or proprietary in nature. The
Stockholders recognize and acknowledge that they will have access to certain
confidential information of Rare Medium and ICC, and that such information
constitutes valuable, special and unique property of Rare Medium and ICC. The
Stockholders agree that they will not, for any reason or purpose whatsoever, use
any of such confidential information or disclose any of such confidential
information to any party without express authorization of the Rare Medium and
ICC.
(b) Without the prior written consent of the other parties to
this Agreement, no party or any of its representatives will disclose to any
other Person the fact that the Confidential Information has been made available,
or any of the terms, conditions or other facts with respect to the Merger,
including the status thereof, except as required by law or permitted under the
terms of this Agreement.
(c) This Section 7.7 shall be inoperative as to such portions
of the Confidential Information which (i) are or become generally available to
the public other than as a result of a disclosure by the receiving party or its
representatives which is not required by law; (ii) become available to the
receiving party from a source with no obligation of confidentiality to the other
party; (iii) describe technology independently developed by the receiving party;
or (iv) were known to the receiving party on a nonconfidential basis prior to
its disclosure to the receiving party by the supplying party or one of its
representatives.
(d) In the event that a receiving party or any of its
representatives is requested or becomes legally compelled (by written or oral
interrogatories, subpoena, civil investigative demand or similar process) to
disclose any of the Confidential Information for purposes not permitted by this
Agreement, the receiving party will provide the supplying party with prompt
written notice so that the supplying party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. In the event that such protective order or other remedy is not
obtained, or that the supplying party waives compliance with the provisions of
this Agreement, the receiving party will furnish only that portion of the
Confidential Information which is legally required, and will exercise good-faith
efforts to obtain reliable assurance that confidential treatment will be
accorded the Confidential Information.
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(e) Each party agrees that the other parties shall be entitled
to equitable relief, including injunction and specific performance, in the event
of any breach of the provisions of clause (a), (b), (c) or (d) of this Section
7.7. Such remedies shall not be deemed to be the exclusive remedies for a breach
of this Section 7.7 by any party or its representatives but shall be in addition
to all other remedies available at law or equity.
(f) It is further understood and agreed that no failure or
delay by any party in exercising any fight, power or privilege under this
Section 7.7 shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege hereunder.
7.8 Payment of Brokerage Fees
Any brokerage, finder's or other fee or expense due in violation of
Section 2.24 hereof shall be paid by the Stockholders.
7.9 Further Acts
After the Closing Date, each party hereto, at the request of and
without any further cost or expense to the other parties, will take any further
actions necessary or desirable to carry out the purposes of this Agreement or
any Operative Document, to vest in the Surviving Corporation full title to all
properties, assets and rights of I/O 360 and/or to effect the issuance of the
ICC Common Stock to the Stockholders.
7.10 Intentionally Deleted
7.11 Intentionally Deleted
7.12 Restrictions on Transfer
For a period of one year from the Closing Date, none of the
Stockholders shall (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint or otherwise dispose of (a) any shares of ICC Common Stock
received by the Stockholders at the Closing or (b) any interest (including,
without limitation, an option to buy or sell) in any such shares of ICC Common
Stock, in whole or in part, and no such attempted transfer shall be treated as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of ICC Common Stock or any interest herein, the
intent or effect of which is to reduce the risk of owning the shares of ICC
Common Stock acquired hereunder (including, by way of example and not
limitation, engaging in put, call, short-sale, straddle or similar market
transactions). Notwithstanding the foregoing, the Stockholders may (x) transfer
shares of ICC Common Stock to immediate family members (or trusts for the
benefit of the Stockholders or family members, the trustees of which so agree)
or (y) encumber or
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pledge any of such shares of ICC Common Stock; provided, that, the family
member, trust, trustee, pledgee or other beneficiary of such transfer,
encumbrance or pledge, as the case may be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
Stockholders and party hereto and (2) the indemnification provisions set forth
in this Agreement as if a Stockholders and party hereto. The provisions of this
Section shall apply to the shares paid to the Stockholders at the Closing and to
any Additional Shares paid to the Stockholders; provided that the restrictions
contained herein shall only apply to the Additional Shares for the balance of
the one (1) year period commencing upon the Closing Date.
The certificates evidencing the ICC Common Stock delivered to the
Stockholders hereunder will bear a legend substantially in the form set forth
below and containing such other information as Rare Medium may deem necessary or
appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN MERGER AGREEMENT AND PLAN
OF REORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NO BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE
FIRST ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
7.13 Intentionally Deleted
7.14 "Woo Art" Litigation
I/O 360 and the Stockholders hereby agree that Rare Medium's aggregate
liability with regard to the litigation in which I/O 360 is contributing
one-half of the costs of litigation, settlement and damages relating to I/O
360's dispute with Woo Art shall not exceed $40,000.00 which shall include, but
not be limited to, attorneys fees, costs, expenses, settlement payments and
damage awards (the "Woo Art Expenses"). In the event that the Woo Art Expenses
shall exceed such $40,000.00 amount, the Stockholders shall pay all such
additional Woo Art Expenses directly and shall indemnify Rare Medium against all
such additional Woo Art Expenses. In the event that the Woo Art shall not be
finally determined or settled by the date on
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which the shares placed in escrow are to be released to the Stockholders
pursuant to the Escrow Agreement, shares in an amount reasonably sufficient to
indemnify Rare Medium against any additional pending Woo Art Expenses shall be
maintained in escrow until the final determination or settlement of the Woo Art
litigation.
7.15 Reports Under the 1934 Act.
With a view to making available to the Stockholders the benefits of
Rule 144 promulgated under the, Act and any other rule or regulation of the SEC
that may at any time permit a holder to sell securities of ICC to the public
without registration, ICC and Rare Medium agree to use their best efforts to:
(a) make and keep public information regarding ICC available, within
the-meaning of Rule 144, so long as the Stockholders own restricted securities
of ICC;
(b) file with the SEC in a timely manner all reports and other
documents required of ICC under the Act and the 1934 Act; and
(c) furnish to any Stockholder upon request (a) a written statement by
ICC that it has complied with the reporting requirements of Rule 144, and of the
Act and the 1934 Act, and (b) a copy of the most recent annual or quarterly
report of, and such other reports and documents filed by ICC with the SEC as may
be reasonably requested in availing any such Stockholder to take advantage of
any rule or regulation of the SEC permitting the selling of any such securities
without registration.
7.16 Nasdaq Listing
ICC agrees to authorize for listing on Nasdaq the shares of ICC Common
Stock issuable, and those required to be reserved for issuance, in connection
with this Agreement, upon official notice of issuance.
7.17 Blue Sky Laws
ICC and Rare Medium shall take, such steps as may be reasonably
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of ICC Common Stock pursuant hereto
provided, however, that this shall not require ICC to file a consent to service
of process in any jurisdiction. The Stockholder shall use their best efforts to
assist ICC and Rare Medium as may be necessary to comply with the securities and
blue, sky laws of all jurisdictions which are applicable in connection with the
issuance of ICC Common Stock ICC and Rare Medium pursuant hereto.
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ARTICLE VIII - TERMINATION
This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual consent of I/O 360 and Rare Medium;
(b) by either I/O 360 or Rare Medium if the other parties shall have
breached their agreements hereunder; provided, however, that I/O 360 may not
terminate this Agreement for a breach by the Stockholders, and Rare Medium may
not terminate this Agreement for a breach by ICC; or
(c) by either I/O 360 or Rare Medium if the Closing has not
occurred by September 30, 1998.
In the event of any termination pursuant to this Article VIII (other
than pursuant to clause (a) above), written notice setting forth the reasons
therefor shall forthwith be given by the terminating party to the other parties
hereto. Such termination shall not prejudice any party's right to seek remedies
for another party's breach of this Agreement.
ARTICLE IX - GENERAL
9.1 Expenses
Whether or not the transactions contemplated by this Agreement are
consummated, each party shall pay its own fees and expenses incident to the
negotiation, preparation and carrying out of this Agreement and the Operative
Documents (including legal and accounting fees and expenses), provided that,
should any action be brought hereunder, the attorneys' fees and expenses of the
prevailing party shall be paid by the other party to such action. The
Stockholders shall pay any transfer or similar taxes which may be payable in
connection with the transactions contemplated by this Agreement.
9.2 Amendment
Rare Medium, ICC, I/O 360 and the Stockholders may amend, modify or
supplement this Agreement at any time, but only in writing duly executed on
behalf of each of the parties to be bound thereby.
9.3 Indemnification and Survival of Warranties
9.3.1 (a) Except for as expressly provided herein, for a
period of one (1) year from the Closing Date, the Stockholders agree to
indemnify Rare Medium, ICC, the Surviving Corporation, their successors and
assigns, and the officers, directors, affiliates, employees, controlling Persons
and agents of the foregoing, and to hold each of them harmless against and in
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respect of any and all losses, damages, Taxes, penalties or other additions to
Taxes, costs and expenses, including attorneys' and accountants' fees incurred
by any of them by reason of (i) a breach of any of the representations or
warranties made by I/O 360 or the Stockholders in this Agreement or the
Operative Documents or (ii) the nonperformance (whether partial or total) of any
covenants or agreements made by I/O 360 or the Stockholders in this Agreement or
the Operative Documents.
(b) Except for as expressly provided herein, for a period of
one (1) year from the Closing Date, ICC agrees to indemnify and to hold harmless
the Stockholders and his successors, assigns heirs, and legatees against and in
respect of all losses, damages, Taxes, penalties or other additions to Taxes,
costs and expenses, including attorneys' and accountants' fees incurred by any
of them by reason of (i) a breach of any of the representations or warranties
made by ICC or Rare Medium in this Agreement or the Operative Documents or (ii)
the nonperformance (whether partial or total) of any covenants or agreements
made by ICC or Rare Medium in this Agreement or the Operative Documents.
9.3.2 If any Person entitled to indemnification pursuant to
Section 9.3.1 hereof (an "Indemnitee") is threatened in writing with any claim,
or any claim is presented in writing to, or any action or proceeding is formally
commenced against, any of the Indemnitees which may give rise to the right of
indemnification hereunder, the Indemnitee will promptly give written notice
thereof to each indemnifying party; provided, however, that any delay by an
Indemnitee in so notifying the indemnifying party shall not relieve the
indemnifying party of any liability to any of the Indemnitees hereunder except
to the extent that the indemnifying party shall have been actually prejudiced as
a result of such failure.
9.3.3 The indemnifying party or parties, by delivery of
written notice to an Indemnitee within 30 days of notice of claim to indemnity
from an Indemnitee, may elect to assume the defense of such claim, action or
proceeding at the expense of the indemnifying party; provided, however, that (a)
unless such written notice shall be accompanied by a written agreement of each
indemnifying party acknowledging the liability of the indemnifying parties to
the Indemnitees as a result of this Agreement for any indemnified damage which
any Indemnitee might incur or suffer as a result of such claim, action or
proceeding or the contesting thereof, each indemnifying party shall be jointly
and severally liable for the attorneys' fees and expenses of the Indemnitee, if
any, incurred in connection with defending such claim; (b) counsel undertaking
such defense shall be reasonably acceptable to the Indemnitee; (c) the
indemnifying parties shall mutually elect to contest such claim, action or
proceeding and shall conduct and settle such contest in a joint manner, and if
the indemnifying parties shall fail at any time to agree, the Indemnitee shall
have no obligation to contest such claim, action or proceeding and (d) if the
Indemnitee requests in writing that such claim, action or proceeding
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<PAGE>
not to be contested, then it shall not be contested but shall not be covered by
the indemnities provided herein. The indemnifying parties may settle an
indemnifiable matter after delivering a written description of the proposed
settlement to and receiving consent from the Indemnitee. In the event the
Indemnitee unreasonably declines to consent to such settlement, then the
Indemnitee shall have no right to indemnification beyond the amount of the
proposed settlement. In the event the indemnifying parties jointly elect to
contest an indemnifiable matter, the Surviving Corporation, ICC and the
Stockholders shall permit each other reasonable access, subject to the
provisions of Section 7.7 hereof, to their respective books and records and
shall otherwise cooperate in connection with such claim. If the indemnifying
parties do not jointly elect to contest an indemnifiable matter, they shall
cooperate with the Indemnitee to the extent any of them has knowledge of facts
or circumstances relating to such matter, and the Indemnitee shall have the
exclusive right to prosecute, defend, compromise, settle or pay any claim, but
the Indemnitee shall not be obligated to do so; provided, however, that, should
the Indemnitee elect not to exercise its right exclusively to prosecute, defend,
compromise, settle or pay such claim, any indemnifying party may elect to do so
at its sole expense.
9.3.4 The representations and warranties contained in this
Agreement shall survive the Closing until the first anniversary of the Closing.
9.3.5 To secure their obligations pursuant to the provisions
of Section 9.3.l hereof, the Stockholders agree to escrow shares of ICC Common
Stock issued or issuable to them in the Merger with an aggregate value of
$400,000.00, pursuant to the terms and conditions of the Escrow Agreement.
Indemnity obligations hereunder shall be satisfied, in the case of
indemnification of Rare Medium and ICC through the release of ICC Common Stock
pursuant to the Escrow Agreement, such shares to be valued as of the last
reported sale on the last trading day prior to the release as reported in The
Wall Street Journal.
9.3.6 Notwithstanding anything to the contrary contained
herein, any limitations of indemnity set forth above shall not apply to any
breach of any of the representations or warranties made by I/O 360 or the
Stockholders in this Agreement or the Operative Documents as they may be related
to any claim made by any former shareholders of I/O 360.
9.4 Counterparts
This Agreement may be executed simultaneously 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.
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9.5 Headings
The headings preceding the text of Articles and Sections of this
Agreement are for convenience only and shall not be deemed parts thereof.
9.6 Applicable Law
This Agreement, including all matters of construction, validity and
performance, shall be governed by and construed and enforced in accordance with
the laws of the state of New York, as applied to contracts executed and to be
fully performed in such state by citizens of such state.
9.7 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 respective successors and
permitted assigns of the parties hereto, whether herein so expressed or not, but
neither this Agreement nor any of the rights, interests or obligations hereunder
of any party hereto shall be assigned without the prior written consent of the
other parties. This Agreement is not intended, nor shall it be construed, to
confer any enforceable rights on any Person not a party hereto.
9.8 Notices
Any notice or demand desired or required to be given hereunder shall be
in writing given by personal delivery or certified or registered mail, reputable
overnight courier service, telegram or confirmed facsimile transmission,
addressed as respectively set forth below or to such other address as any party
shall have previously designated by such a notice, The effective date of any
notice or request shall be three days from the date it is mailed by the
addressor, upon delivery of the courier package if it is sent by courier, upon
delivery to a telegraph company properly addressed with charges prepaid, upon
confirmation of a successful facsimile transmission, or in any event upon
personal delivery.
Notices to Rare Medium, ICC, the Stockholders and I/O 360 shall be sent
as follows:
Rare Medium, Inc.
44 West 18th Street
New York, NY 10011
Fax: (212) 634-6951
Attention: Glenn Meyers, President
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ICC Technologies, Inc.
44 West 18th Street
New York, NY 10011
Fax: (212) 634-6951
Attention: Glenn Meyers, President
with copies to:
Elias, Goodman Shanks & Zizmor, L.L.P.
444 Madison Avenue
22nd Floor
New York, NY 10022
Attention: Paul Goodman, Esq.
To I/O 360 and the Stockholders:
Horizon Live Distance Learning
841 Broadway
New York, NY 10003
Attention: Robert Clyatt
with copies to:
Brobeck, Phleger & Harrison, LLP
1633 Broadway
47th Floor
New York, NY 10019
Attention: Alexander D. Lynch, Esq.
9.9 Publicity
Neither I/O 360 nor the Stockholders shall make or issue, or cause to
be made or issued, any announcement or written statement concerning this
Agreement or the transactions contemplated hereby for dissemination to the
general public without the prior consent of Rare Medium except as required by
law.
9.10 Right of Rare Medium to Effect Merger with Newly Formed
Subsidiary
Rare Medium shall have the right and option, at its discretion, prior
to the Closing, to effect the Merger with a newly formed corporation ("NewCo"),
wholly-owned by Rare Medium in the stead of Rare Medium with I/O 360 being the
surviving entity), provided that such election by Rare Medium shall not affect
the representations and warranties or duties and obligations (other than
altering the parties to the Merger) made by Rare Medium and ICC to I/O 360 and
the
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Stockholders. Rare Medium shall exercise such right by providing notice thereof
to I/O 360, prior to the Closing, in accordance with the notice provisions
herein.
IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement as of the date and year first above written.
RARE MEDIUM, INC.
By: /s/ Glenn S. Meyers
---------------------------
Its
ICC TECHNOLOGIES, INC.
By: /s/ Glenn S. Meyers
---------------------------
Its
I/O 360, INC.
By: /s/ Robert Clyatt
---------------------------
Its
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THE STOCKHOLDERS:
/s/ Robert Clyatt
------------------------------
Robert Clyatt
/s/ Gong Szeto
------------------------------
Gong Szeto
/s/ Nam Szeto
------------------------------
Nam Szeto
/s/ Arkadiusz Banasic
------------------------------
Arkadiusz Banasic
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Exhibit 1.2
Certificate of Merger
43
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Exhibit 1.3(a)
Form of Escrow Agreement
44
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Exhibit 4.7
Form of I/O 360 Officer's Certificate
45
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Exhibit 4.8
Form of I/O 360 Stockholder's Certificate
46
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Exhibit 4.12
Form of FIRPTA Certificate
47
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Exhibit 6.3(a)
Form of Employment Agreements
48
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Exhibit 6.3(b)
Form of Consulting Agreement
49
AGREEMENT AND PLAN OF MERGER
By and among
RARE MEDIUM, INC.,
ICC TECHNOLOGIES, INC.,
DIGITALFACADES CORPORATION
and the
STOCKHOLDERS OF
DIGITALFACADES CORPORATION
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of August 13, 1998 by and among Rare Medium, Inc., a New York
corporation (the "Rare Medium" or the "Purchaser"), ICC Technologies, Inc., a
Delaware corporation ("ICC"), DigitalFacades Corporation, a California
corporation ("DigitalFacades"), and the stockholders of DigitalFacades
identified in Exhibit A hereto (collectively, the "Stockholders").
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as
follows:
ARTICLE I - THE MERGER
1.1 The Merger
Upon the terms and subject to the conditions hereof, (a) on the
Effective Date (as defined in Section 1.2 hereof), the separate existence of
DigitalFacades shall cease and DigitalFacades shall merge (the "Merger") with
and into Rare Medium (Rare Medium being sometimes referred to herein as the
"Surviving Corporation") and (b) from and after the Effective Time (as defined
in Section 1.2 hereto, the Merger shall have all the effects of a merger
provided by the laws of the State of New York, the State of California and other
applicable law. It is intended that the Merger shall qualify as a
"reorganization" under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code").
1.2 The Closing; Effective Date and Time of the Merger
The closing of this Agreement (the "Closing") shall occur on August 13,
1998 (the "Closing Date") at 10:00 a.m. local time at the offices of Elias,
Goodman, Shanks & Zizmor, L.L.P., or such other time or location as the parties
hereto shall agree. At the Closing, each of the parties hereto shall deliver all
such funds, documents, instruments, certificates and other items as may be
required under this Agreement or the Operative Agreements (as defined in Section
2.33 hereof) or otherwise.
On the Closing Date and subject to the terms and conditions hereof,
such officers' certificates and certificates of merger (together, the
"Certificates of Merger")
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as are necessary or advisable to accomplish the Merger in compliance with the
applicable provisions of the Business Corporation Law of the State of New York
(the "New York Law") and the California Corporations Code (the "California
Law"), substantially in the form or forms attached hereto as Exhibit 1.2, and in
such form as required by, and executed in duplicate in accordance with, the New
York Law, shall be delivered for filing to the Secretary of State of the State
of New York (the "New York Secretary of State") and to the Secretary of State of
the State of California pursuant to Section 1108 of the California Law. The
Merger shall become effective on the date (the "Effective Date") and at the time
(the "Effective Time") that the Certificates of Merger are so filed and a
certificate to that effect is issued by the New York Secretary of State, subject
to Section 1108 (e) of the California Law. If either the New York or California
Secretaries of State require any changes in the Certificates of Merger as a
condition to filing the Certificates of Merger or issuing its certificate, ICC,
Rare Medium, DigitalFacades and the Stockholders will execute necessary
revisions incorporating such changes, provided such changes are not inconsistent
with and do not result in any substantive change in the terms of this Agreement.
1.3 Purchase Price
Subject to the terms and conditions of this Agreement, the purchase
price for DigitalFacades (the "Purchase Price") will be paid as follows:
(a) $3,000,000 shall be paid at Closing by delivery of restricted
shares of the common stock, par value $.01 per share, of ICC ("ICC Common
Stock"), which the parties agree shall be valued at the average closing price
per share of ICC Common Stock for the 20 trading days prior to the Closing Date
(as reported in the Wall Street Journal) (the "Closing Date Value"); provided,
however, that shares of ICC Common Stock in the aggregate value of $500,000
shall be subject to a Stock Pledge Agreement by and between Rare Medium and the
Stockholders in the form set forth as Exhibit 1.3(a) (the "Stock Pledge
Agreement").
(b) In addition to the foregoing, the Stockholders shall be entitled to
receive additional shares of Stock (the "Additional Shares") in an amount not to
exceed $1,500,000.00 in value, which shall be contingent upon the amount of
revenue earned (based upon the accrual method) by DigitalFacades (and after the
Closing Date, by Rare Medium) during calendar year 1998 (the "DigitalFacades
Revenue"). If the DigitalFacades Revenue shall equal or exceed $2,500,000.00 and
the net profit margin for 1998 for providing the services which produced the
DigitalFacades Revenue (the "Profit Margin") equals or exceeds fifteen percent
(15%), the Stockholders shall receive Additional Shares in the amount of
$1,500,000.00. In the event that the DigitalFacades Revenue shall be less than
$2,500,000.00, the Additional Shares to be received by the Stockholders shall be
proportionately reduced; provided, however, that no Additional Shares shall be
received by the Stockholders in the event that the DigitalFacades Revenue shall
be
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less than $1,750,000.00 or if the Profit Margin is less than fifteen percent
(15%) (regardless of the amount of the DigitalFacades Revenue). For purposes of
illustration and not in limitation hereof, in the event that the DigitalFacades
Revenue shall be $2,000,000.00 (and the Profit Margin exceeded 15%), the amount
of Additional Shares earned shall be $500,000.00, which is one-third of the
Additional Shares since the $2,000,000.00 DigitalFacades Revenue was one-third
of the difference between $1,750,000.00 and $2,500,000.00
The value of the Additional Shares shall be based upon the average
closing price per share of ICC Common Stock for the 20 trading day period prior
to and including December 31, 1998 (as reported in the Wall Street Journal) (the
"Year End Value").
For the purposes of this paragraph, the DigitalFacades Revenue shall
include: (i) all revenue actually received by DigitalFacades on or prior to the
Closing Date during calendar year 1998; and (ii) all revenue (earned, based upon
the accrual method) by ICC, Rare Medium or other affiliates (collectively,
"Affiliated Companies") after the Closing Date during calendar year 1998 which
is attributable to work performed in or work procured by the Southern California
offices of the Affiliated Companies, excluding only (1) such revenue
attributable to contracts or projects of the Affiliated Companies existing as of
the Closing Date (except the existing DigitalFacades contracts and projects
shall be included; (2) such revenue with respect to which individuals who, prior
to the Closing were DigitalFacades employess, did not have any material
participation in procuring (through business promotion or otherwise) and (3)
such revenue specifically and mutually agreed upon on a case-by-case basis among
the parties. For the purposes of this paragraph, Profit Margin shall mean the
excess of DigitalFacades Revenue over the Direct Costs, as defined below, of
producing the DigitalFacades Revenue. Direct Costs shall be computed in a manner
consistent with the 1996 and 1997 income tax returns of DigitalFacades and shall
not include the following: (i) an allocation of corporate overhead in excess of
the corporate overhead experienced by DigitalFacades prior to the Closing, (ii)
a charge for increased employee benefits in excess of DigitalFacades' current
benefit structure (that is, if the cost of the post-Closing Date benefit
structure exceeds the cost of the pre-Closing Date benefit structure, the excess
cost shall not be taken into account in determining the Profit Margin for the
purposes of this paragraph); or (iii) all costs associated with work performed
which does not contribute to the DigitalFacades Revenue.
(c) In the event that a post-Closing audit conducted by an independent
certified public accounting firm shall show that the net worth for
DigitalFacades, as indicated on a Balance Sheet as of the Closing Date, was less
than $750,000.00, the Purchase Price shall be deemed to be reduced in an amount
equal to the difference between $750,000.00 and the actual net worth, as shown
on the Closing Date Balance Sheet, with such reduction in the Purchase Price
offset against the ICC Common
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Stock pledged pursuant to the Stock Pledge Agreement and/or the Additional
Shares only.
1.4 Conversion of Shares
1.4.1 Exchange Ratio
As of the Effective Date, by virtue of the Merger and without any
action of the holders thereof:
(a) All shares of any class of the common stock, par value
$.01 per share, of DigitalFacades (the "Common Stock") held by DigitalFacades,
whether as treasury shares or otherwise, shall be canceled;
(b) All of the other issued and outstanding shares of Common
Stock not held by DigitalFacades shall be canceled and converted into the right
of each holder to receive from ICC a pro rata portion (based upon the number of
shares of DigitalFacades Common Stock held by each Stockholder immediately prior
to the Closing) of the Purchase Price in accordance with Section 1.3 above;
(c) Any granted and outstanding options, warrants or other
rights to purchase or subscribe for shares of Common Stock shall be canceled
subject to the provisions of Section 7.10 below; and
(d) Each issued and outstanding share of Rare Medium's capital
stock shall be converted into one share of the Surviving Corporation's common
stock.
1.4.2 ICC to Make Certificates Available
Upon surrender to Rare Medium of one or more certificates representing
Common Stock for cancellation, ICC shall make available, and each holder of
Common Stock shall be entitled to certificates representing the number of shares
of ICC Common Stock that such holder is entitled to receive pursuant to Section
1.4.1 (b) hereof, provided, however, that the parties acknowledge that Rare
Medium shall retain physical possession of the certificates representing shares
of ICC Common Stock in the aggregate value of $500,000.00 pursuant to the terms
of the Stock Pledge Agreement.
1.4.3 No Fractional Securities
No certificates or scrip representing fractional shares of ICC Common
Stock shall be issued upon the surrender for exchange of certificates
representing Common Stock pursuant to this Article I and no ICC dividend, stock
split or interest
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<PAGE>
shall relate to any fractional security, and such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder. In lieu
of any such fractional securities, each holder of Common Stock who would
otherwise have been entitled to a fraction of a share of ICC Common Stock upon
surrender of certificates representing Common Stock for cancellation pursuant to
this Article I will be paid cash upon such surrender in an amount equal to such
fraction times, with respect to the stock issued under Section 1.3(a), the
Closing Date Value and, with respect to stock issued under Section 1.3(b), the
Year End Value.
1.4.4 Closing Company Transfer Books
Upon the Effective Date, the stock transfer books of DigitalFacades
shall be closed and no transfer of Common Stock shall thereafter be made. If,
after the Effective Date, certificates representing shares of Common Stock are
presented to the Surviving Corporation, they shall be canceled and exchanged for
certificates representing ICC Common Stock.
1.5 Assistance in Consummation of the Merger
The Stockholders, Rare Medium, ICC and DigitalFacades shall provide all
reasonable assistance to, and shall cooperate with, each other to bring about
the consummation of the Merger as soon as possible in accordance with the terms
and conditions of this Agreement. ICC shall cause Rare Medium to perform all of
Rare Medium's obligations in connection with this Agreement.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF DIGITALFACADES AND THE STOCKHOLDERS
A. Except as otherwise disclosed in the applicable Schedules,
DigitalFacades and the Stockholders jointly and severally represent and warrant
to Rare Medium and ICC, as of the date of this Agreement (which representations
and warranties shall survive the Closing to the extent provided in Section 9.3
hereof), all as follows in this Article II:
2.1 Intentionally Deleted/Moved
2.2 Organization, Good Standing
DigitalFacades is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own, operate and lease its properties
and assets and to carry on its business as now conducted. DigitalFacades is duly
qualified and licensed as a foreign corporation to do business and is in good
standing in each jurisdiction listed
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on Schedule 2.2, which jurisdictions constitute all the jurisdictions where
because of the character of DigitalFacades' properties occupied, owned or held
under lease or the nature of the business conducted by DigitalFacades the
failure to be so qualified would have a material adverse effect on
DigitalFacades.
2.3 Authorization
DigitalFacades has full corporate power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby. This
Agreement has been and will be, on the Closing Date, duty executed and delivered
by DigitalFacades and except as set forth on Schedule 2.3, this Agreement is,
and will be, on the Closing Date, a legal, valid and binding obligation of
DigitalFacades, enforceable against DigitalFacades in accordance with the
respective terms of this Agreement.
2.4 Authorized Capitalization
DigitalFacades' authorized capital stock consists solely of shares of
Common Stock of which 1,444,500 shares are issued and outstanding on the date of
this Agreement and entirely held by the Stockholders. All issued and outstanding
shares of Common Stock are validly issued, fully paid and nonassessable. Except
as set forth on Schedule 2.4, there are no outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or other agreements
of any character which obligate or may obligate DigitalFacades to issue any
additional shares of any of its capital stock or any securities convertible into
or evidencing the right to subscribe for any shares of any such capital stock.
2.5 Subsidiaries and Affiliates
DigitalFacades has no Subsidiary. As used in this Agreement,
"Subsidiary," when used in reference to any Person (as defined in Section 2.6 of
this Agreement), shall mean any corporation of which outstanding securities
having ordinary voting power to elect a majority of the Board of Directors of
such corporation are owned directly or indirectly by such Person. Except as set
forth in Schedule 2.5, DigitalFacades does not own, directly or indirectly, any
ownership, equity, profits or voting interest in, or otherwise control, any
corporation, partnership, joint venture or other entity, and has no agreement or
commitment to purchase any such interest.
2.6 No Approvals or Notices Required; No Conflicts With
Instruments
Except as set forth on Schedule 2.6, the execution, delivery and
performance of this Agreement and the Operative Agreements, as defined below, by
DigitalFacades and the consummation of the transactions contemplated hereby and
thereby will not (a) constitute a violation (with or without the giving of
notice or
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lapse of time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court or other governmental authority applicable to
DigitalFacades, (b) require any consent, approval or authorization of, or
declaration, filing or registration with, any person, corporation, partnership,
joint venture, association, organization, other entity or governmental or
regulatory authority (a "Person"), except for compliance with applicable
securities laws and the filing of all documents necessary to consummate the
Merger with the Secretaries of State, (c) result in a default (with or without
the giving of notice or lapse of time, or both) under, acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which DigitalFacades is a party or by
which it is bound or to which any of its assets are subject, (d) result in the
creation of any lien or encumbrance upon the assets of DigitalFacades or upon
the Common Stock, (e) conflict with or result in a breach of or constitute a
default under any provision of the Articles of Incorporation or By-Laws of
DigitalFacades, or (f) invalidate or adversely affect any permit, license, or
authorization used in the conduct of the business of DigitalFacades.
2.7 Financial Statements
DigitalFacades has delivered to Rare Medium (a) an internally prepared
balance sheet and statement of income of DigitalFacades as of or for each of the
three fiscal years ending December 31, 1995, 1996 and 1997 and (b) an internally
prepared trial balance of DigitalFacades' accounts as of and for the one-month
period ended May 31, 1998 (the balance sheet as of May 31, 1998 being herein
referred to as the "Company Balance Sheet"). All the foregoing financial
statements are herein referred to as the "Financial Statements." The Financial
Statements have been prepared in conformity with generally accepted accounting
principles, and on a basis consistent with prior accounting periods, and present
fairly the financial position, results of operations and changes in financial
position of DigitalFacades as of the dates and for the periods indicated.
DigitalFacades has no liability or obligation of any nature (absolute,
contingent or otherwise) of a type which is customarily reflected or reserved
against on a balance sheet which is not fully reflected or reserved against in
the Company Balance Sheet, except for liability reserves or obligations incurred
since the date of the Company Balance Sheet (i) in the ordinary course of
business and consistent with past practice and not in excess of $25,000 in the
aggregate or $5,000 individually or (ii) specifically set forth on Schedule 2.7.
2.8 Absence of Certain Changes or Events
Except as specifically set forth on Schedule 2.8 or as specifically
contemplated by this Agreement, since May 31, 1998, neither DigitalFacades nor
any of its officers or directors in their representative capacity on behalf of
DigitalFacades has:
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(a) taken any action or entered into or agreed to enter into
any transaction, agreement or commitment other than in the ordinary course of
business;
(b) forgiven or canceled any indebtedness or waived any claims
or rights of material value (including, without limitation, any indebtedness
owing by the Stockholders or any officer, director or employee of
DigitalFacades);
(c) granted any increase in the compensation of directors,
officers or employees (including any such increase pursuant to any bonus,
pension, profit-sharing, lease payment or other plan or commitment) or any
increase in the compensation payable or to become payable to any director,
officer or employee;
(d) suffered any material adverse change in its working
capital, assets, liabilities (absolute, accrued, contingent or otherwise),
earnings or reserves or in its financial condition, business, business prospects
or operations;
(e) borrowed or agreed to borrow any funds, assumed or become
subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), or incurred any liabilities or
obligations (absolute, accrued, contingent or otherwise) which exceed in the
aggregate $7,500 (counting obligations or liabilities arising from one
transaction or a series of similar transactions, and all periodic installments
or payments under any lease or other agreement providing for periodic
installments or payments, as a single obligation or liability), except
liabilities and obligations reflected in the Company Balance Sheet or incurred
since the date of the Company Balance Sheet in the ordinary course of business
and consistent with past practice which do not exceed $5,000 in the aggregate,
or increased, or experienced any change in any assumptions underlying or methods
of calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of claims, liabilities and obligations reflected or reserved
against in the Company Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the date of the Company Balance
Sheet, or prepaid any obligation having a fixed maturity of more than 90 days
from the date such obligation was issued or incurred;
(g) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge, except for
(i) assessments for current taxes not yet due and payable, (ii) landlord's liens
for rental payments and
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other lease-related performance incurred in the ordinary course of business and
not yet due and payable, and (iii) mechanics', materialmen's, carriers' and
other similar liens securing indebtedness that was incurred in the ordinary
course of business and is not yet due and payable;
(h) written down the value of any inventory (including
write-downs by reason of shrinkage or markdown) or written off as uncollectible
any notes or accounts receivable;
(i) sold, transferred or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(j) intentionally deleted;
(k) made any capital expenditure or commitment to make a
capital expenditure for additions to property, plant, equipment or intangible
capital assets;
(l) made any change in any method of accounting or accounting
practice;
(m) issued any capital stock or other securities or declared,
paid or set aside for payment any dividend or other distribution in respect of
its capital stock or redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or other securities of DigitalFacades,
or otherwise permitted the withdrawal by any of the holders of capital stock of
DigitalFacades of any cash or other assets (real, personal or mixed, tangible or
intangible), in compensation, indebtedness or otherwise, other than payments of
compensation in the ordinary course of business and consistent with past
practice;
(n) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of the holders of capital stock of DigitalFacades, or any affiliate of such
holder or any of its officers or directors, except for compensation paid to
officers at rates not exceeding the rate of compensation as of May 31, 1998;
(o) entered into or agreed to enter into, or otherwise
suffered to be outstanding, any power of attorney of DigitalFacades or any
obligations or liabilities (whether absolute, accrued, contingent or otherwise)
of DigitalFacades as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any other Person;
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(p) received notice of, or otherwise obtained knowledge of:
(i) any claim, action, suit, arbitration, proceeding or investigation involving,
pending against or threatened against DigitalFacades before or by any court or
governmental or non-governmental department, commission, board, bureau, agency
or instrumentality, or any other Person; (ii) any valid basis for any claim,
action, suit, arbitration, proceeding, investigation or the application of any
fine or penalty adverse to DigitalFacades before or by any Person; or (iii) any
outstanding or unsatisfied judgments, orders, decrees or stipulations to which
DigitalFacades is a party which relate directly to the transactions contemplated
herein or which would otherwise have an adverse effect upon the business,
business prospects, assets or financial condition of DigitalFacades, or
(q) agreed, whether in writing or otherwise, to take any
action described in this Section 2.8 not otherwise specifically disclosed
pursuant to this Section 2.8.
2.9 Taxes
Except as described on Schedule 2.9, DigitalFacades has (a) duly and
timely filed, including valid extensions, with the appropriate governmental
agencies (domestic and foreign) all tax returns, information returns and reports
for all Taxes (as defined below) required to have been filed with respect to
DigitalFacades and (b) paid in full or provided for all Taxes, interest and
other governmental charges which are shown to be due on such returns or reports.
All accrued taxes have been properly reserved for in the Company Balance Sheet.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, but not limited to, income, excise, gross receipts, property, sales,
use, ad valorem, transfer, franchise, profit, license, withholding, payroll,
employment, severance, stamp, occupation, windfall profit, social security and
unemployment or other taxes imposed by the United States or any agency or
instrumentality thereof, any state, county, local or foreign government, or any
agency or instrumentality thereof, and any interest or fines, and any and all
penalties or additions relating to such taxes, charges, fees, levies or other
assessments. Furthermore, except as described on Schedule 2.9, (i) the reserves
and provisions for Taxes reflected in the Company Balance Sheet are adequate, as
determined in accordance with generally accepted accounting principles
consistently applied; (ii) no unresolved claim for assessment or collection of
Taxes has been asserted or to DigitalFacades' and the Stockholders' actual
knowledge threatened against DigitalFacades, and to DigitalFacades' and the
Stockholders' actual knowledge no audit or investigation by governmental
authorities is under way with respect to Taxes, interest or other governmental
charges; (iii) no state of facts exists or has existed which would constitute a
reasonable basis for the assessment against DigitalFacades of any additional tax
liability with respect to any period for which tax returns have been filed; (iv)
DigitalFacades has not filed or entered into any election, consent or extension
agreement or any waiver that extends any
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applicable statute of limitations; (v) any Taxes incurred by DigitalFacades or
accrued by it since the date of the Company Balance Sheet have arisen in the
ordinary course of business; and (vi) DigitalFacades has not filed any consent
to the application of Section 341(f)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), to any assets held, acquired or to be acquired by it.
DigitalFacades has furnished Rare Medium with complete and correct copies of all
returns, of Taxes, except for returns of Taxes for periods as to which the
applicable statutory period of limitations has expired. DigitalFacades has not
been a United States real property holding corporation within the meaning of
section 897(c)(2) of the Code during the applicable period specified in section
897(c)(1)(A)(ii) of the Code. DigitalFacades is a "small business corporation"
within the meaning of Section 280G(b)(5) of the Code.
2.10 Property
(a) DigitalFacades owns no real property other than the leasehold
interests described herein. Schedule 2.10 is a complete and accurate list of all
real property of DigitalFacades which is leased, rented or used by
DigitalFacades (the "Real Property"). DigitalFacades has delivered to Rare
Medium true and complete copies of all leases, subleases, rental agreements,
contracts of sale, tenancies or licenses of any portion of the Real Property.
(b) DigitalFacades has provided to Rare Medium a complete and accurate
list of each item of personal property having a fair market value in excess of
$2,500 which is owned, leased, rented or used by DigitalFacades (the "Personal
Property"); provided, however, that such list need not describe the Listed
Intellectual Property or the Intellectual Property Licenses (both terms as
defined in Section 2.17 hereof). DigitalFacades has delivered to Rare Medium
true and complete copies of all leases, subleases, rental agreements, contracts
of sale, tenancies or licenses of any portion of the Personal Property. The Real
Property and the Personal Property include all properties and assets (whether
real, personal or mixed, tangible or intangible) (other than, in the case of the
Personal Property, property rights with an individual value of less than $2,500,
the Listed Intellectual Property and the Intellectual Property Licenses) (i)
reflected in DigitalFacades Balance Sheet or purchased by DigitalFacades since
the date of DigitalFacades Balance Sheet (except for such properties or assets
sold since the date of DigitalFacades Balance Sheet in the ordinary course of
business and consistent with past practice) or (ii) used in the business of
DigitalFacades as presently conducted.
(c) Except as set forth on Schedule 2.10(c), DigitalFacades' leasehold
interest in each parcel of the Real Property is free and clear of all liens,
mortgages, pledges, deeds of trust, security interests, conditional sales
agreements, charges, encumbrances and other adverse claims or interests of any
kind. Each lease of any
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portion of the Real Property is valid, binding and enforceable in accordance
with its terms against the parties thereto. DigitalFacades has performed all
obligations imposed upon it thereunder; and neither DigitalFacades nor any other
party thereto is in default thereunder nor is there any event which with notice
or lapse of time, or both, would constitute a default by DigitalFacades
thereunder, or to the actual knowledge of DigitalFacades and the Stockholders,
would constitute a default by any other party. Except as set forth on Schedule
2.6, no consent is required from any Person under any lease of the Real Property
in connection with the consummation of the transactions described in this
Agreement and the Operative Agreements, and DigitalFacades has not received
notice that any party to any such lease intends to cancel, terminate or refuse
to renew the same or to exercise or decline to exercise any option or other
right thereunder. Except as set forth in Schedule 2.10(c) DigitalFacades has not
granted any lease, sublease, tenancy or license of, or entered into any rental
agreement or contract of sale with respect to, any portion of the Real Property.
(d) Except as described on Schedule 2.10(d), DigitalFacades' plant,
structures and Personal Property are in good operating condition and repair,
normal wear and tear excepted, are adequate for the uses to which they are being
put and comply in all material respects with applicable safety and other laws
and regulations.
(e) Except as set forth on Schedule 2.10(e), and except for (i)
assessments for current taxes not yet due and payable, (ii) landlord's liens for
rental payments and other lease-related performance in respect of the Real
Property incurred in the ordinary course of business and not yet due and
payable, and (iii) mechanics', materialmen's, carrier's' and other similar liens
securing indebtedness that was incurred in the ordinary course of business and
is not yet due and payable, the Personal Property is free and clear of all
liens, and, other than leased Personal Property which is so noted on the list
supplied pursuant to paragraph (b) of this Section 2.10, DigitalFacades owns
such Personal Property.
(f) Except as set forth on Schedule 2.10(f), each lease, license,
rental agreement, contract of sale or other agreement to which the Personal
Property is subject is valid, binding and enforceable in accordance with its
terms against the parties thereto, DigitalFacades has performed all obligations
imposed upon it thereunder, and neither DigitalFacades nor any other party
thereto is in default thereunder, nor is there any event which with notice or
lapse of time, or both, would constitute a default by DigitalFacades thereunder,
or to the actual knowledge of DigitalFacades and the Stockholders, would
constitute a default by any other party. Except as set forth on Schedule 2.6, no
consent is required from the owner or lessor under any lease of Personal
Property in connection with the consummation of the transactions described in
this Agreement and the Operative Agreements, and DigitalFacades has not received
notice that any party to any such lease, license, rental agreement, contract of
sale or other agreement intends to cancel, terminate or refuse
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to renew the same or to exercise or decline to exercise any option or other
right thereunder. DigitalFacades has not granted any leases, subleases,
tenancies or licenses of any portion of the Personal Property, except as
described in Schedule 2.10(f) or Schedule 2.17.
(g) Neither the whole nor any portion of the leaseholds or any other
assets or property of DigitalFacades is subject to any currently outstanding
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor, to the knowledge of the Stockholders, has any such condemnation,
expropriation or taking been proposed.
2.11 Contracts
Schedule 2.11 contains a complete and accurate list of all material
contracts, oral or written, to which DigitalFacades is a party or by which
DigitalFacades is bound, including, without limitation, security agreements,
conditional sales agreements, instruments relating to the borrowing of money,
and broker or distributorship agreements; provided, however, that Schedule 2.11
need not include: (a) purchase orders received by DigitalFacades in the ordinary
course of its business from its customers; (b) purchase orders issued by
DigitalFacades in the ordinary course of its business to its suppliers and
subcontractors involving less than $3,500 individually and $15,000 in the
aggregate; or (c) other contracts cancelable within 30 days without penalty or
involving less than $ 3,500 individually and $15,000 in the aggregate. Except as
set forth on such Schedule 2.11, all contracts set forth in such Schedule are
valid, binding and enforceable in accordance with their terms against each party
thereto, are in full force and effect, DigitalFacades has performed all material
obligations imposed upon it thereunder, neither DigitalFacades nor any other
party thereto is in default thereunder, nor is there any event which with notice
or lapse of time, or both, would constitute a default by DigitalFacades
thereunder, or to the actual knowledge of DigitalFacades and the Stockholders,
would constitute a default by any other party and none of the contracts have
been modified or amended. True and complete copies of each such contract have
been heretofore delivered to Rare Medium. Except as specifically set forth on
such Schedule 2.11, DigitalFacades has no contracts, agreements, indentures,
instruments, commitments or understandings, of any nature, either oral or
written.
Except as specifically set forth on such Schedule 2.11, DigitalFacades
has no:
(i) restriction by agreement from carrying on its business
anywhere in the world, or restriction by agreement from providing services to
any customer or potential customer;
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(ii) notice of or any knowledge that any party to a contract
to which it is a party intends to cancel, terminate or refuse to renew such
contract or to exercise or decline to exercise any option or right thereunder;
and
(iii) material disagreement with any of its suppliers or
customers.
2.12 Customers and Suppliers
Schedule 2.12 sets forth: (a) a list of the customers of DigitalFacades
accounting for 5% or more of DigitalFacades' sales during the fiscal year last
ended showing the approximate total sales by DigitalFacades to each such
customer during the fiscal year last ended and (b) a current list of the
suppliers of DigitalFacades from whom DigitalFacades has purchased more than 5%
of the goods purchased by DigitalFacades in the fiscal year last ended.
DigitalFacades has no reasonable basis to expect any material modification to
its relationship with any customer or supplier named on Schedule 2.12, other
than in the normal course of business. Except as set forth on such Schedule
2.12, DigitalFacades has not had any customer who accounted, directly or
indirectly, for more than 5% of its sales during the last two fiscal years, and
DigitalFacades has no supplier from whom it has purchased more than 5% of the
goods or services which it purchased during the last two fiscal years. Except as
set forth on such Schedule 2.12, DigitalFacades is not a party to or bound by,
any contract which prohibits the use or publication by DigitalFacades, Rare
Medium or ICC of the name of any party to such contract and DigitalFacades is
not a party to or bound by, any contract which prohibits or in any way restricts
DigitalFacades from freely providing services to any other customer of
DigitalFacades or any potential customer of DigitalFacades, Rare Medium or ICC.
Except as set forth on such Schedule 2.12, none of DigitalFacades' customers has
canceled or has notified DigitalFacades that it plans to cancel a contract or to
substantially reduce utilization of the services provided by DigitalFacades.
Schedule 2.12 sets forth all of DigitalFacades' vendor authorizations for the
resale of goods and services.
2.13 Intentionally Deleted
2.14 Claims and Legal Proceedings
Except as set forth on Schedule 2.14 and Schedule 2.17, there are no
claims, actions, suits, arbitrations, proceedings or to the actual knowledge of
DigitalFacades and the Stockholders investigations pending or involving or
threatened against, DigitalFacades before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality. There is no valid basis for any claim, action, suit,
arbitration, proceeding or investigation (other than as noted on Schedule 2.14
or Schedule 2.17) adverse to the business, business prospects, assets,
operations or condition (financial or other) of DigitalFacades before
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or by any Person. There are no outstanding or unsatisfied judgments, orders,
decrees or stipulations to which DigitalFacades is a party which involve the
transactions contemplated herein or which would have an adverse effect upon the
business, business prospects, assets, operations or condition (financial or
other) of DigitalFacades.
2.15 Labor Matters
Except as set forth in Schedule 2.15, there are no disputes, employee
grievances or disciplinary actions pending or to the knowledge of DigitalFacades
or the Stockholders threatened or involving DigitalFacades or any of its present
or former employees. Except as set forth in Schedule 2.15, DigitalFacades has
complied with all provisions of law relating to employment and employment
practices, terms and conditions of employment, wages and hours, the failure to
comply with which would have a material adverse effect upon the business,
business prospects, assets, operations or condition (financial or other) of
DigitalFacades. DigitalFacades is not engaged in any unfair labor practice and
has no liability for any arrears of wages or Taxes or penalties for failure to
comply with any such provisions of law. There is no labor strike, dispute,
slowdown or stoppage pending or to DigitalFacades' and the Stockholders' actual
knowledge threatened against or affecting DigitalFacades, and DigitalFacades has
not experienced any work stoppage or other labor difficulty. No collective
bargaining agreement is binding on DigitalFacades. DigitalFacades has no
knowledge of any organizational efforts presently being made or threatened by or
on behalf of any labor union with respect to employees of DigitalFacades, and
DigitalFacades has not been requested by any group of employees or others to
enter into any collective bargaining agreement or other agreement with any labor
union or other employee organization.
2.16 Employee Benefit Plans
(a) Except as set forth on Schedule 2.16, DigitalFacades has no bonus,
deferred compensation, incentive, severance pay, pension, profit-sharing,
retirement, stock purchase, stock option or any other employee benefit plan,
employee fringe benefit plan, arrangement or payroll practice with regard to
present or former employees as to which DigitalFacades has any liability
("Employee Benefit Plan"). The aggregate contributions made by DigitalFacades
during the fiscal year last ended pursuant to all Employee Benefit Plans, did
not exceed $25,000. Except as set forth in Schedule 2.16, DigitalFacades has no
current agreement, arrangement or commitment, to adopt any additional Employee
Benefit Plan or to modify or amend any existing Employee Benefit Plan.
(b) DigitalFacades has delivered to Rare Medium true, correct and
complete copies of all written Employee Benefit Plans of DigitalFacades, all
contracts
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related thereto and the most recently available annual reports, summary plan
descriptions, Internal Revenue Service Form 5500s (or 5500-C or 5500-R) and the
most recent favorable determination letters for such plans to the extent
applicable. DigitalFacades is in compliance in all material respects with the
terms of its Employee Benefit Plans and with all applicable laws and
regulations, including, but not limited to, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Code. DigitalFacades has
satisfied any benefit payments or amounts due to participants, beneficiaries and
the Pension Benefit Guaranty Corporation which may have arisen under any such
plans previously maintained by them and does not anticipate any future claims
for benefits with regard to such plans. Neither DigitalFacades nor any
"affiliate" of DigitalFacades is a party to, has ever made any contributions to,
or is subject to any liability with respect to any multi-employer plan within
the meaning of Section 4001(a)(3) of ERISA or any defined benefit plan within
the meaning of Section 3(35)of ERISA. The term "affiliate" means any
company,trade or business which is a member of the same control group, as
defined in Section 414(b) or 414(c) of the Code, with the Company, or any
company, trade or business which is a member of an affiliated service group, as
defined in Section 414(m) or 414(o) of the Code, with DigitalFacades.
(c) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or failure to meet the requirements of
Section 4980B(f) of the Code has occurred with respect to any Employee Benefit
Plan which could subject DigitalFacades to any liability.
(d) There are no actions, suits or claims pending (other than routine
claims for benefits) or which could reasonably be expected to be asserted
against any Employee Benefit Plan or the assets of any such plan which would
have a material adverse effect upon the business, business prospects, assets,
operations or condition (financial or other) of DigitalFacades.
2.17 Patents, Trademarks
(a) DigitalFacades has a valid license to use each copy of mass-market
third-party software used by it. Set forth on Schedule 2.17(a) is a true and
complete list of all material inventions, patents, trademarks, trade names,
brand names, copyrights, and Software Products (as defined in paragraph (b) of
this Section 2.17), (collectively, the "Listed Intellectual Property") of any
kind now used or reasonably anticipated to be used in the business of
DigitalFacades except the mass-market third-party software described in the
first sentence of this Section 2.17. Schedule 2.17(b) contains a complete list
of all licenses or agreements which relate to the Listed Intellectual Property
(the "Intellectual Property Licenses"); such list indicates the specific Listed
Intellectual Property affected by each such Intellectual Property License.
Except as set forth on Schedules 2.17(a) or Schedule 2.17(b), neither
DigitalFacades' operations nor any Listed Intellectual Property owned by
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DigitalFacades or to the actual knowledge of DigitalFacades or the Stockholders,
any Intellectual Property License would infringe upon any validly issued or to
the knowledge of DigitalFacades, any pending trademark, trade name, service
mark, copyright or, any validly issued patent or other right of any other
Person, nor, to the actual knowledge of DigitalFacades and the Stockholders, is
there any infringement by any other Person of any of the Listed Intellectual
Property or of the intellectual property to which the Intellectual Property
Licenses relate. Except as specifically set forth on Schedule 2.17(a) or
2.17(b), consummation of the transactions contemplated hereby and by the
Operative Agreements will not alter or impair DigitalFacades' rights to any of
the Listed Intellectual Property or under any Intellectual Property License. The
manner in which DigitalFacades has manufactured, packaged, shipped, advertised,
labeled and sold its products complies with all applicable laws and regulations
pertaining thereto, the failure to comply with which would have a material
adverse effect upon the business, business prospects, assets, operations or
condition (financial or other) of DigitalFacades.
(b) Except as specifically set forth on Schedule 2.17(a) or Schedule
2.17(b), DigitalFacades is the sole and exclusive owner or licensee of:
(i) the Listed Intellectual Property, the Intellectual
Property Licenses and the technology, know-how and processes now used by
DigitalFacades, or used in connection with any product now being manufactured
and sold by DigitalFacades, in the manner that such product is now being
manufactured and sold; and
(ii) all rights, title and interest of whatever kind or nature
throughout the world in and to the fully or partially developed computer
software products listed on Schedule 2.17(a) or Schedule 2.17(b), with all
modifications, enhancements and additions thereto, including, without
limitation, all rights in and to all versions thereof and all source code,
object code, manuals and other documentation and related materials thereof
(collectively, the "Software Products"). Without limiting the generality of the
above, the Software Products shall also include all of DigitalFacades' related
programs, trade secrets, algorithms and processes relating to the Software
Products or such programs, DigitalFacades' copyright in and to each of the
Software Products and all works derivative therefrom (including the
registrations of copyright listed on Schedule 2.17(a)), all current, previous,
enhanced and developmental versions of the source and object code and any
variations thereof, all user and programmer documentation, all design
specifications, all maintenance and installation job control language, all
system documentation (including all flow charts, systems procedures and program
component descriptions), all procedures for modification and preparation for the
release of enhanced versions and all test data available (excluding all
proprietary information of third parties) with respect to the Software Products.
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(c) Except as set forth on Schedule 2.17(a) or Schedule 2.17(b), each
of the Intellectual Property Licenses is valid, binding and enforceable in
accordance with its terms against the parties thereto, DigitalFacades has
performed all obligations imposed upon it thereunder, and neither DigitalFacades
nor to the actual knowledge of DigitalFacades and the Stockholders any other
party thereto is in default thereunder, nor is there any event which with notice
or lapse of time, or both, would constitute a default by DigitalFacades
thereunder nor, to the the actual knowledge of DigitalFacades and the
Stockholders, a default thereunder by any other party thereunder. Except as set
forth on Schedule 2.17(a) or Schedule 2.17(b), DigitalFacades has not received
notice that any party to any of the Intellectual Property Licenses intends to
cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder. Except as set forth on Schedule
2.17(a) or Schedule 2.17(b), no licenses, sublicenses, covenants or agreements
have been granted or entered into by DigitalFacades in respect of any of the
Listed Intellectual Property except the Intellectual Property Licenses. Except
as set forth on Schedule 2.17(a) or Schedule 2.17(b), no director, officer,
Stockholders or employee of DigitalFacades owns, directly or indirectly, in
whole or in part, any of the Listed Intellectual Property. Except as set forth
on Schedule 2.17(a) or Schedule 2.17(b), none of the employees or consultants of
DigitalFacades is a party to any currently effective agreement regarding
know-how, trade secrets, assignment of rights in inventions, or prohibition or
restriction of competition or solicitation of customers, or any other similar
restrictive agreement or covenant, whether written or oral, with any Person
other than DigitalFacades.
(d) Except as set forth on Schedule 2.17(a) or Schedule 2.17(b), since
January 1, 1991 no Person has asserted to DigitalFacades any claim of
infringement or other interference with third-party rights with respect to the
Listed Intellectual Property. Except as set forth on Schedule 2.17(a) or
Schedule 2.17(b), (i) DigitalFacades has not disclosed any source code regarding
the Software Products to any Person other than to an employee of DigitalFacades,
to ICC or to Rare Medium, (ii) DigitalFacades has at all times maintained
reasonable procedures to protect and has enforced all material trade secrets of
DigitalFacades; (iii) neither DigitalFacades nor any escrow agent is under any
contractual or other obligation to disclose the source code or any other
proprietary information included in or relating to the Software Products, nor is
any other party to the Intellectual Property Licenses or any escrow agent under
any such obligation to disclose any source code or other proprietary information
included in or relating to Software Products, if any, that are licensed to
DigitalFacades, or to any Person, and no event has taken place, including the
execution of this Agreement or any related change in DigitalFacades' business
activities, which would give rise to such obligation, and (iv) DigitalFacades
has not deposited any source code regarding the Software Products into any
source code escrows or similar arrangements. If, as disclosed on Schedule
2.17(a) or Schedule 2.17(b), DigitalFacades has deposited any source code to
Software Products into
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source code escrows or similar arrangements, no event has occurred that has or
could reasonably form the basis for a release of such source code from such
escrows or arrangements.
(e) Except as set forth on Schedule 2.17(a) or Schedule 2.17(b), the
Software Products currently being marketed by DigitalFacades are free from known
significant defects and substantially conform to the specifications,
documentation and sample demonstration furnished to Rare Medium.
2.18 Accounts Receivable
All accounts receivable of DigitalFacades reflected in the Company
Balance Sheet, or existing at the Effective Time, represent sales actually made
in the ordinary course of business. Except as described on Schedule 2.18,
DigitalFacades has no reason to believe that any such account receivable shall
not be collected in the amounts shown. Except as described on Schedule 2.18,
DigitalFacades' bad debt reserves and sales return allowances as reflected in
the Company Balance Sheet are adequate based on DigitalFacades' bad debts and
sales returns experience to date. Set forth on Schedule 2.18 is a full and
complete list of all accounts receivable of DigitalFacades existing as of May
31, 1998 and as of the Closing Date.
2.19 Inventory
DigitalFacades maintains no inventory.
2.20 Corporate Books and Records
DigitalFacades has furnished to Rare Medium or its representatives for
their examination true and complete copies of (a) the Articles of Incorporation
and By-Laws of DigitalFacades, including all amendments thereto, (b) the minute
books of DigitalFacades, and (c) the stock transfer books of DigitalFacades.
2.21 Licenses, Permits, Authorizations, Etc.
Except as identified on Schedule 2.21, DigitalFacades has received all
currently required governmental approvals, authorizations, consents, licenses,
orders, registrations and permits of all agencies, whether federal, state, local
or foreign, the failure to obtain which would, in the aggregate, have a material
adverse effect on DigitalFacades' business, business prospects, assets,
operations or condition (financial or other). DigitalFacades has not received
any notification of any failure by it to have obtained any of such governmental
approvals, authorizations, consents, licenses, orders, registrations or permits.
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2.22 Applicable Laws
(a) Except as described on Schedule 2.22, DigitalFacades has complied,
and is in compliance with, all federal, state, local and foreign laws, rules,
regulations, ordinances, decrees and orders applicable to the operation of its
business, to its employees, or to the Real Property and the Personal Property,
the failure to comply with which would, in the aggregate, have a material
adverse effect on the business, assets or operations of DigitalFacades,
including, without limitation, all such laws, rules, regulations, ordinances,
decrees and orders relating to antitrust, consumer protection, currency
exchange, environmental protection, equal opportunity, health, occupational
safety, pension, securities and trading-with-the-enemy matters. DigitalFacades
has not received any notification of any asserted present or past unremedied
failure by DigitalFacades to comply with any of such laws, rules, regulations,
ordinances, decrees or orders.
(b) To the actual knowledge of DigitalFacades and the Stockholders,
DigitalFacades is not currently in violation of any applicable building, zoning,
environmental or other law, ordinance or regulation in respect of the Real
Property or its plant, structures or operations. To the actual knowledge of
DigitalFacades and the Stockholders, no such law, ordinance or regulation would
reasonably be expected to prevent the use of substantially all the Real Property
for the conduct thereon of the business of DigitalFacades as currently
conducted.
(c) To the actual knowledge of DigitalFacades and the Stockholders,
DigitalFacades is not in violation of, and has not violated, in connection with
the ownership, use, maintenance or operation of the Real Property or the
Personal Property or the conduct of its business, any applicable federal, state,
county or local statutes, laws, regulations, guidances, rules, ordinances,
codes, licenses, permits, judgments, writs, decrees, injunctions or orders of
any governmental entity relating to environmental (air, water, groundwater,
soil, noise and odor) matters, including, by way of illustration and not of
limitation, the Clean Air Act, the Water Pollution Control Act, the Resource
Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901 et. seq.) and the
regulations issued thereunder, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et. seq.), the
Clean Water Act, the Hazardous Materials Transportation Act, the Toxic
Substances Control Act, the Hazardous Waste Control Act, comparable State of
California laws, and the regulations issued thereunder, and all other applicable
federal, state, county, local and foreign environmental requirements.
2.23 Insurance
(a) DigitalFacades maintains insurance as set forth on
Schedule 2.23.
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(b) All insurance policies and binders of DigitalFacades are in full
force and effect, all premiums with respect thereto covering all periods up to
and including the date this representation is made have been paid, and no notice
of cancellation or termination has been received with respect to any such policy
or binder. Except as set forth on Schedule 2.23 all insurance agreements to
which DigitalFacades is a party, will remain in full force and effect through
the respective expiration dates of such policies or binders without the payment
of additional premiums, and except as set forth on Schedule 2.23 will not in any
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. DigitalFacades has not been refused any
insurance with respect to its assets or operations, nor has its coverage been
limited, by any insurance carrier to which it has applied for any such insurance
or with which it has carried insurance.
(c) Except as set forth on Schedule 2.23, DigitalFacades has no pending
insurance claims.
2.24 Brokers and Finders
Neither DigitalFacades, nor the Stockholders nor any director, officer,
agent or employee acting on behalf of DigitalFacades or the Stockholders have
retained any broker or finder in connection with the transactions contemplated
by this Agreement and the Operative Agreements.
2.25 Government Contracts
DigitalFacades has never been suspended or debarred from bidding on
contracts or subcontracts for any agency of the United States government, nor
has DigitalFacades received notice that such suspension or debarment has been
threatened or action for such suspension or debarment been commenced.
DigitalFacades has not been nor is it now being audited or investigated by the
United States Government Accounting Office, the United States Department of
Justice, the United States Department of Defense or any of its agencies, the
Defense Contract Audit Agency or the inspector general of any agency of the
United States government, nor has DigitalFacades received notice that such audit
or investigation been threatened. There is no valid basis for DigitalFacades'
suspension or debarment from bidding on contracts or subcontracts for any agency
of the United States government and there is no valid basis for a claim pursuant
to an audit or investigation by the United States Government Accounting Office,
the United States Department of Justice, the United States Department of Defense
or any of its agencies, the Defense Contract Audit Agency or the inspector
general of any agency of the United States government, or any prime contractor.
Except as set forth in Schedule 2.25, DigitalFacades has never had a contract or
subcontract terminated for default, nor has it ever been determined to be
non-responsible, by any agency of the
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United States government. Except as set forth on Schedule 2.25, DigitalFacades
has no outstanding agreements, contracts or commitments which require it to
obtain or maintain a government security clearance.
2.26 Absence of Questionable Payments
Neither DigitalFacades nor any director, officer, agent, employee or
other Person acting on behalf of DigitalFacades has used any DigitalFacades
funds for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials or
others. Neither DigitalFacades nor any current director, officer, agent,
employee or other Person acting on behalf of DigitalFacades has accepted or
received unlawful contributions, payments, gifts or expenditures.
2.27 Personnel
Schedule 2.27 sets forth a true and complete list of:
(a) the names and current rates of pay of all directors and elected and
appointed officers of DigitalFacades and the family relationships, if any, among
such persons; and
(b) the current rates of pay for all nonexecutive employees of
DigitalFacades by classification, and all labor union contracts (if any).
DigitalFacades is not in material default with respect to any of its
obligations referred to in clause (a) or (b) above.
2.28 Bank Accounts
Schedule 2.28 sets forth the names and locations of all banks, trust
companies, savings and loan associations and other financial institutions at
which DigitalFacades maintains safe deposit boxes or accounts of any nature and
the names of all Persons authorized to draw thereon, make withdrawals therefrom
or have access thereto.
2.29 Insider Interests
Except as set forth on Schedule 2.29 neither the Stockholders nor any
officer of DigitalFacades has any interest (other than as a stockholder of
DigitalFacades) (a) in any property, real or personal, tangible or intangible,
used in or directly pertaining to the business of DigitalFacades, including,
without limitation, inventions, patents, trademarks or trade names, or (b) in
any agreement, contract, arrangement or obligation relating to DigitalFacades,
its present or prospective business or its
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operations, except for the Employment Agreement, if any, to be entered into
between Stockholders and Rare Medium at the Closing.
2.30 Full Disclosure
No information furnished by DigitalFacades to ICC or Rare Medium in
this Agreement, the Financial Statements, the Schedules and the other Exhibits
to this Agreement) is false or misleading in any material respect in light of
the circumstances pursuant to which such information was provided.
DigitalFacades has not made any untrue statement of a material fact nor omitted
to state a material fact necessary in order to make the statements made or
information delivered in or pursuant to this Agreement, and all Schedules and
Exhibits hereto, or in or pursuant to closing certificates executed or delivered
by the Stockholders or DigitalFacades, in light of the circumstances in which
they were made, not misleading.
2.31 No Commission Registration
(a) Investment. The Stockholders shall receive the ICC Common Stock
with no intention of distributing or reselling the ICC Common Stock or any part
thereof, or interest therein, in any transaction which would be in violation of
the securities laws of the United States or any state thereof, without
prejudice, however, to the Stockholders' right at all times to sell or otherwise
dispose of all or any part of the ICC Common Stock under an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or under an exemption from such registration requirements
available under the Securities Act and applicable state securities laws.
(b) No Public Market. The Stockholders understand that the ICC Common
Stock received or to be received by the Stockholders pursuant to this Agreement
has not been registered under the Securities Act by reason of its sale in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that Stockholders will
have to hold the ICC Common Stock and bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration.
(c) Experience. The Stockholders acknowledge that each Stockholder,
either alone, or together with such Stockholder's representatives, are
experienced in, and capable of, evaluating the financial condition and prospects
of corporations like ICC. The Stockholders have had access to the records of ICC
and has had the opportunity to ask questions concerning ICC and an investment in
the ICC Common Stock. The Stockholders are residents of the states set forth in
Exhibit A hereto.
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(d) No Intention to Dispose of Stock. No Stockholder has any current
plan or intention, or is under any binding commitment or contract, to sell,
exchange or otherwise dispose of the ICC Common Stock received hereunder.
B. Except as otherwise disclosed in the applicable Schedules, each
Stockholder represents and warrants, severally andnot jointly, to Rare Medium
and ICC with respect to themselves only and John Lin represents and warrants to
Rare Medium and ICC with respect to himself and jointly with the other
Stockholders, as of the date of this Agreement (which representations and
warranties shall survive the Closing to the extent provided in Section 9.3
hereof), the following:
2.32 Good Title
Each Stockholder represents that such Stockholder owns all of the
issued and outstanding shares of Common Stock shown to be owned by such
Stockholder on Schedule 2.32, free and clear of any lien, encumbrance, adverse
claim, restriction on sale or transfer (other than restrictions imposed by
applicable securities laws), preemptive right or option.
2.33 Due Authorization
The Stockholders have full power, right and authority to enter into
this Agreement and each of the documents to which he or she is a party,
including, as applicable, the Employment Agreement (as defined in Section 6.3
hereof), and the Stock Pledge Agreement (the Employment Agreement and the Stock
Pledge Agreement are sometimes collectively, referred to herein as the
"Operative Agreements"), and to carry out the transactions contemplated hereby
and thereby. This Agreement has been, and each Operative Agreement to which the
Stockholders are a party will be, on the Closing Date, duty executed and
delivered by the Stockholders, and this Agreement is, and each Operative
Agreement to which the Stockholders are a party will be, on the Closing Date, a
legal, valid and binding obligation of each of the Stockholders, as applicable,
enforceable against each of them in accordance with their respective terms of
this Agreement and each such Operative Agreement.
Except as set forth on Schedule 2.33, there are no voting trusts or
other agreements or understandings with respect to the capital stock of
DigitalFacades to which the Stockholders are a party or by which the
Stockholders are bound, nor, is there any such agreement or understanding to
which the Stockholders are a party or by which he or she is bound, nor are there
any such agreements or understandings to which the Stockholders are a party or
by which the Stockholders are bound. Except as set forth on Schedule 2.33, the
Stockholders are not indebted to DigitalFacades, and DigitalFacades is not
indebted to the Stockholders.
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2.34 No Approvals or Notices Required; No Conflicts With
Instruments
Except as set forth on Schedule 2.34, the execution, delivery and
performance of this Agreement and the Operative Agreements by the Stockholders
and the consummation of the transactions contemplated hereby and thereby will
not (a) constitute a violation (with or without the giving of notice or lapse of
time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court or other governmental authority applicable to
the Stockholders, (b) require any consent, approval or authorization of, or
declaration, filing or registration with, any person, corporation, partnership,
joint venture, association, organization, other entity or governmental or
regulatory authority (a "Person"), except for compliance with applicable
securities laws and the filing of all documents necessary to consummate the
Merger with the Secretaries of State (the consent of all such Persons to be duly
obtained by the Stockholders at or prior to the Closing), (c) result in a
default (with or without the giving of notice or lapse of time, or both) under,
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any agreement, lease, note or other
restriction, encumbrance, obligation or liability to which the Stockholders are
a party or by which either of them is bound or to which any of their assets are
subject, (d) result in the creation of any lien or encumbrance upon the assets
of DigitalFacades or upon the Common Stock, (e) conflict with or result in a
breach of or constitute a default under any provision of the Articles of
Incorporation or By-Laws of DigitalFacades, or (f) invalidate or adversely
affect any permit, license, or authorization used in the conduct of the business
of DigitalFacades.
2.35 Disclosure
No information furnished by the Stockholders to ICC or Rare Medium in
this Agreement, the Financial Statements, the Schedules and the other Exhibits
to this Agreement is false or misleading in any material respect in light of the
circumstances pursuant to which such information was provided. The Stockholders
have not made any untrue statement of a material fact nor omitted to state a
material fact necessary in order to make the statements made or information
delivered in or pursuant to this Agreement, and all Schedules and Exhibits
hereto, or in or pursuant to closing certificates executed or delivered by the
Stockholders, in light of the circumstances in which they were made, not
misleading.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF RARE MEDIUM AND ICC
Except as is otherwise described in the applicable Schedules, Rare
Medium and ICC jointly and severally represent and warrant to DigitalFacades and
the Stockholders, as of the date of this Agreement and as of the Closing (which
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representations and warranties shall survive the Closing to the extent provided
in Section 9.3 hereto, all as follows in this Article III:
3.1 Organization, Good Standing
Rare Medium and ICC are corporations duly organized, validly existing
and in good standing under the laws of the States of New York and Delaware,
respectively, and have all requisite corporate power and authority to own,
operate and lease their properties and assets and to carry on their businesses
as now conducted. Rare Medium is a wholly-owned subsidiary of ICC. Rare Medium
and ICC are duly qualified and licensed as a foreign corporation to do business
and are in good standing in each jurisdiction listed on Schedule 3.1, which
jurisdictions constitute all the jurisdictions where the character of Rare
Medium's and ICC's properties occupied, owned or held under lease or the nature
of the business conducted by Rare Medium and ICC the failure to be so qualified
would have a material adverse effect on Rare Medium and ICC.
3.2 Authority
Each of Rare Medium and ICC has full corporate power and authority to
execute, deliver and perform this Agreement and the Operative Agreements to
which either is a party and to carry out the transactions contemplated hereby
and thereby. This Agreement has been, and each Operative Agreements to which
Rare Medium is a party will be, on the Closing Date, duly executed and delivered
by Rare Medium, and this Agreement is, and each Operative Agreements to which
Rare Medium is a party will be, on the Closing Date, a legal, valid and binding
obligation of Rare Medium, enforceable against Rare Medium in accordance with
its terms. This Agreement has been, and each Operative Agreement to which ICC is
a party will be, on the Closing Date, duly executed and delivered by ICC, and
this Agreement is, and each Operative Agreement to which ICC is a party will be,
on the Closing Date, a legal, valid and binding obligation of ICC, enforceable
against ICC in accordance with its terms.
3.3 No Approvals or Notices Required; No Conflicts With
Instruments
The execution, delivery and performance of this Agreement and the
Operative Agreements by Rare Medium and by ICC, the issuance of the ICC Common
Stock to the Stockholders and the consummation of the transactions contemplated
hereby and by the Operative Agreements will not (a) constitute a violation (with
or without the giving of notice or lapse of time, or both) of any provision of
law or any judgment, decree, order, regulation or rule of any court or other
governmental authority applicable to Rare Medium or to ICC, (b) require any
consent, approval or authorization of, or declaration, filing or registration
with, any Person, except for compliance with applicable securities laws and the
filing of all
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documents necessary to consummate the Merger with the Secretaries of State, (c)
result in a default (with or without the giving of notice or lapse of time, or
both) under, acceleration or termination of, or the creation in any party of the
right to accelerate, terminate, modify or cancel, any agreement, lease, note or
other restriction, encumbrance, obligation or liability to which Rare Medium or
ICC is a party or by which either is bound or to which any of their assets are
subject, (d) result in the creation of any material lien or encumbrance upon the
assets of Rare Medium or ICC, the ICC Common Stock or the funds being delivered
in connection herewith, (e) conflict with or result in a breach of or constitute
a default under any provision of the charter documents of Rare Medium or ICC, or
(f) invalidate or adversely affect any permit, license, authorization or status
used in the conduct of the business of ICC.
3.4 Authorized Shares
All of the shares of ICC Common Stock issuable in exchange for Common
Stock in accordance with this Agreement will be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and will be delivered
in accordance with all applicable State and Federal securities laws.
3.5 Reports
ICC has delivered to DigitalFacades its annual report on Form 10-K for
the fiscal year ended December 31, 1997 (the "Annual Report") which complies
with the 1933 Act and the 1934 Act in all material respects.
3.6 Legal Proceedings
There are no claims, actions, suits, arbitrations, proceedings or
investigations involving, pending or, to the knowledge of Rare Medium or ICC,
threatened against Rare Medium or ICC before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person, which questions the validity of this
Agreement or any action taken or to be taken by Rare Medium or ICC pursuant to
this Agreement or in connection with the transactions contemplated hereby, and,
to the knowledge of Rare Medium or ICC, there is no valid basis for any such
claim, action, suit, arbitration, proceeding or investigation. There are no
outstanding or unsatisfied judgments, orders, decrees or stipulations to which
Rare Medium or ICC is a party which involve the transactions contemplated herein
or which would have an adverse effect upon the business, business prospects,
assets, operations or condition (financial or other) of Rare Medium or ICC.
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3.7 Brokers and Finders
Neither Rare Medium nor ICC, nor any director, officer, agent or
employee acting on behalf of Rare Medium or ICC, has retained any broker or
finder in connection with the transactions contemplated by this Agreement and
the Operative Agreements.
3.8 No Commission Registration
(a) Investment. Rare Medium shall receive the Common Stock of
DigitalFacades with no intention of distributing or reselling such Common Stock
or any part thereof, or interest therein, in any transaction which would be in
violation of the securities laws of the United States or any state thereof,
without prejudice, however, to Rare Medium's right at all times to sell or
otherwise dispose of all or any part of such Common Stock under an effective
registration statement under the Securities Act or under an exemption from such
registration requirements available under the Securities Act and applicable
state securities laws.
(b) No Public Market. Rare Medium understands that such Common Stock
has not been registered under the Securities Act by reason of its sale in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that Rare Medium will
have to hold such Common Stock and bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration.
(c) Experience. Rare Medium acknowledges that Rare Medium and its
representatives are experienced in, and capable of, evaluating the financial
condition and prospects of corporations like DigitalFacades. Rare Medium has had
access to the records of DigitalFacades and has had the opportunity to ask
questions concerning DigitalFacades and an investment in DigitalFacades' Common
Stock. Rare Medium has its principal place of business in the State of New York.
3.9 Licenses, Permits, Authorizations, Etc.
ICC and Rare Medium have each received all currently required
governmental approvals, authorizations, consents, licenses, orders,
registrations and permits of all agencies, whether federal, state, local or
foreign, the failure to obtain which would, in the aggregate, have a material
adverse effect on Rare Medium's or ICC's (as the case may be) business, business
prospects, assets, operations or condition (financial or other). Neither Rare
Medium nor ICC has received any notification of any failure by it to have
obtained any of such
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governmental approvals, authorizations, consents, licenses, orders,
registrations or permits.
3.10 Financial Statements
Rare Medium has delivered to DigitalFacades (a) an audited balance
sheet and statement of income of Rare Medium as of or for each of the two fiscal
years ending December 31, 1996 and 1997 and an interim, unaudited for the three
months ending March 31, 1998 (the "Company Balance Sheet"). All the foregoing
financial statements are herein referred to as the "Rare Medium Financial
Statements." The Rare Medium Financial Statements have been prepared in
conformity with generally accepted accounting principles, and on a basis
consistent with prior accounting periods, and present fairly the financial
position, results of operations and changes in financial position of Rare
Medium. The financial statements included in or incorporated by reference in the
Annual Report (including the related notes and schedules) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered thereby and present fairly the financial
condition of ICC as of the indicated dates and the results of operations of ICC
for the indicated periods.
3.11 Taxes
Except as described on Schedule 3.11, Rare Medium and ICC have (a) duly
and timely filed, including valid extensions, with the appropriate governmental
agencies (domestic and foreign) all tax returns, information returns and reports
for all Taxes (as defined below) required to have been filed with respect to
Rare Medium and ICC and (b) paid in full or provided for all Taxes, interest and
other governmental charges which are shown to be due on such returns or reports.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, but not limited to, income, excise, gross receipts, property, sales,
use, ad valorem, transfer, franchise, profit, license, withholding, payroll,
employment, severance, stamp, occupation, windfall profit, social security and
unemployment or other taxes imposed by the United States or any agency or
instrumentality thereof, any state, county, local or foreign government, or any
agency or instrumentality thereof, and any interest or fines, and any and all
penalties or additions relating to such taxes, charges, fees, levies or other
assessments. Furthermore, except as described on Schedule 3.11, (i) the reserves
and provisions for Taxes reflected in the Company Balance Sheet are adequate, as
determined in accordance with generally accepted accounting principles
consistently applied; (ii) no unresolved claim for assessment or collection of
Taxes has been asserted or threatened (to Rare Medium and ICC's actual
knowledge) against Rare Medium or ICC, and no audit or investigation by
governmental authorities is under way with respect to Taxes, interest or other
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governmental charges; (iii) no state of facts exists or has existed which would
constitute a reasonable basis for the assessment against Rare Medium or ICC of
any additional tax liability with respect to any period for which tax returns
have been filed; (iv) Rare Medium and ICC have not filed or entered into any
election, consent or extension agreement or any waiver that extends any
applicable statute of limitations; (v) any Taxes incurred by Rare Medium or ICC
or accrued by it since the date of the Company Balance Sheet have arisen in the
ordinary course of business; and (vi) Rare Medium or ICC has not filed any
consent to the application of Section 341(f)(2) of the Internal Revenue Code of
1986, as amended (the "Code"), to any assets held, acquired or to be acquired by
it.
3.12 Applicable Laws
(a) Except as described on Schedule 3.12, Rare Medium has complied, and
is in compliance with, all federal, state, local and foreign laws, rules,
regulations, ordinances, decrees and orders applicable to the operation of its
business, to its employees, or to any real property ("Rare Medium Real
Property") and personal property ("Rare Medium Personal Property") used in the
operation of Rare Medium's business, the failure to comply with which would, in
the aggregate, have a material adverse effect on the business, assets or
operations of Rare Medium, including, without limitation, all such laws, rules,
regulations, ordinances, decrees and orders relating to antitrust, consumer
protection, currency exchange, environmental protection, equal opportunity,
health, occupational safety, pension, securities and trading-with-the-enemy
matters. Rare Medium has not received any notification of any asserted present
or past unremedied failure by Rare Medium to comply with any of such laws,
rules, regulations, ordinances, decrees or orders.
(b) Except as described on Schedule 3.12, ICC has complied, and is in
compliance with, all federal, state, local and foreign laws, rules, regulations,
ordinances, decrees and orders applicable to the operation of its business, to
its employees, or to any real property ("ICC Real Property") and personal
property ("ICC Personal Property") used in the operation of ICC's business, the
failure to comply with which would, in the aggregate, have a material adverse
effect on the business, assets or operations of ICC, including, without
limitation, all such laws, rules, regulations, ordinances, decrees and orders
relating to antitrust, consumer protection, currency exchange, environmental
protection, equal opportunity, health, occupational safety, pension, securities
and trading-with-the-enemy matters. ICC has not received any notification of any
asserted present or past unremedied failure by ICC to comply with any of such
laws, rules, regulations, ordinances, decrees or orders.
(c) Rare Medium is not currently in violation of any applicable
building, zoning, environmental or other law, ordinance or regulation in respect
of the Rare Medium Real Property or its plant, structures or operations. No such
law, ordinance or regulation would reasonably be expected to prevent the use of
substantially the
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Rare Medium Real Property for the conduct thereon of the business of Rare Medium
as currently conducted.
(d) ICC is not currently in violation of any applicable building,
zoning, environmental or other law, ordinance or regulation in respect of the
ICC Real Property or its plant, structures or operations. No such law, ordinance
or regulation would reasonably be expected to prevent the use of substantially
the ICC Real Property for the conduct thereon of the business of ICC as
currently conducted.
(e) Rare Medium is not in violation of, and has not violated, in
connection with the ownership, use, maintenance or operation of the Rare Medium
Real Property or the Rare Medium Personal Property or the conduct of its
business, any applicable federal, state, county or local statutes, laws,
regulations, guidances, rules, ordinances, codes, licenses, permits, judgments,
writs, decrees, injunctions or orders of any governmental entity relating to
environmental (air, water, groundwater, soil, noise and odor) matters,
including, by way of illustration and not of limitation, the Clean Air Act, the
Water Pollution Control Act, the Resource Conservation and Recovery Act of 1976
(42 U.S.C. ss.ss.6901 et. seq.) and the regulations issued thereunder, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. ss.ss.9601 et. seq.), the Clean Water Act, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Hazardous Waste
Control Act, comparable State of New York laws, and the regulations issued
thereunder, and all other applicable federal, state, county, local and foreign
environmental requirements.
(f) ICC is not in violation of, and has not violated, in connection
with the ownership, use, maintenance or operation of the ICC Real Property or
the ICC Personal Property or the conduct of its business, any applicable
federal, state, county or local statutes, laws, regulations, guidances, rules,
ordinances, codes, licenses, permits, judgments, writs, decrees, injunctions or
orders of any governmental entity relating to environmental (air, water,
groundwater, soil, noise and odor) matters, including, by way of illustration
and not of limitation, the Clean Air Act, the Water Pollution Control Act, the
Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901 et. seq.)
and the regulations issued thereunder, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. ss.ss.9601 et. seq.), the
Clean Water Act, the Hazardous Materials Transportation Act, the Toxic
Substances Control Act, the Hazardous Waste Control Act, comparable State of New
York laws, and the regulations issued thereunder, and all other applicable
federal, state, county, local and foreign environmental requirements.
3.13 Full Disclosure
No information furnished by Rare Medium or ICC in this Agreement, the
Rare Medium Financial Statements, the Schedules and the other Exhibits to this
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Agreement is false or misleading in any material respect in light of the
circumstances pursuant to which such information was provided. Neither Rare
Medium nor ICC has made any untrue statement of a material fact nor omitted to
state a material fact necessary in order to make the statements made or
information delivered in or pursuant to this Agreement, all Schedules and
Exhibits hereto or in or pursuant to closing certificates executed or delivered
by Rare Medium or ICC, in light of the circumstances in which they were made,
not misleading.
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS
OF RARE MEDIUM AND ICC
The obligations of Rare Medium and ICC to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or prior to the Closing Date shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date, which condition may be
expressly waived in writing by Rare Medium or ICC.
4.1 Accuracy of Representations and Warranties
The representations and warranties of DigitalFacades and the
Stockholders contained herein (including applicable Exhibits or Schedules) and
in the Operative Agreements shall have been true in all material respects when
made and shall be true as of the Closing Date as though made on that date,
except as affected by transactions contemplated hereby and except to the extent
that such representations and warranties are made as of a specified date, in
which case such representations and warranties shall be true as of the specified
date.
4.2 Performance of Agreement
DigitalFacades and the Stockholders shall have performed all
obligations and agreements and complied with all covenants and conditions
contained in this Agreement or any Operative Agreement to be performed and
complied with by them at or prior to the Closing Date.
4.3 Opinion of Counsel for DigitalFacades
DigitalFacades and the Stockholders shall have delivered or caused to
be delivered to ICC and Rare Medium an opinion letter of counsel for
DigitalFacades and the Stockholders, dated the Closing Date, substantially in
the form attached hereto as Exhibit 4.3.
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4.4 Stockholder Approval
The Stockholders shall have approved the principal terms of the Merger
in accordance with the applicable provisions of the California Law concerning
stockholder approval of mergers.
4.5 Resignations
Rare Medium shall have received resignations effective as of the
Effective Date of all the officers and directors of DigitalFacades.
4.6 Consents to Merger
DigitalFacades shall have received written consents to the Merger from
each of the parties (other than DigitalFacades) to those agreements, leases,
notes or other documents identified on Schedule 2.6 and Schedule 2.17 as
requiring such consents, which consents shall be reasonably satisfactory to ICC.
4.7 Officers' Certificate
ICC and Rare Medium shall have received a certificate of the President
and the Secretary or Assistant Secretary of DigitalFacades, dated the Closing
Date, substantially in the form attached hereto as Exhibit 4.7, certifying that
all of the conditions to the obligations of Rare Medium and ICC (other than the
condition of Section 4.9 and 4.11 hereof) have been fulfilled.
4.8 Stockholders' Certificates
ICC and Rare Medium shall have received a certificate from the
Stockholders, dated the Closing Date, substantially in the form attached hereto
as Exhibit 4.8, certifying that all of the conditions to the obligations of ICC
and Rare Medium (other than the condition of Section 4.9 and 4.11 hereof) have
been fulfilled and that all representations and warranties made by the
Stockholders pursuant to Section 2 hereunder shall still be true and correct as
of the date of such certificate.
4.9 Due Diligence
ICC and Rare Medium shall have completed their due diligence review to
their satisfaction, and their investigations shall not have revealed any facts
or circumstances which, in their sole and absolute judgment, reflect in a
material adverse way on the business, business prospects, assets, operations or
condition (financial or other) of DigitalFacades.
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4.10 Material Change
From May 31, 1998 to the Closing Date, DigitalFacades shall not have
suffered any material adverse change in its business, business prospects,
assets, operations or condition (financial or other).
4.11 Board Approvals
The Board of Directors of ICC and Rare Medium shall have approved this
Agreement and the transactions contemplated hereby.
4.12 Firpta Certification
Rare Medium shall receive from the Stockholders a properly completed
and executed Foreign Investment and Real Property Tax Act of 1980 Certification
in substantially the form attached hereto as Exhibit 4.12, stating under penalty
of perjury, the Stockholders' taxpayer identification number and that the
Stockholders are not a foreign person.
4.13 Good Standing Certificate
DigitalFacades shall have delivered to Rare Medium a certificate dated
as of no earlier than five (5) days preceding the Closing Date, duly issued by
the Secretary of State of the State of California, and unless waived by Rare
Medium, from the appropriate governmental authority in each state in which
DigitalFacades is authorized to do business, showing DigitalFacades in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for DigitalFacades for all periods prior to the
Closing have been filed and paid.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE STOCKHOLDERS AND DIGITALFACADES
The obligations of the Stockholders and DigitalFacades to perform and
observe the covenants, agreements and conditions hereof to be performed and
observed by them at or prior to the Closing Date shall be subject to the
satisfaction of the following conditions on or prior to the Closing Date, which
conditions may be expressly waived in writing by Stockholders and, on behalf of
DigitalFacades, by the President of DigitalFacades.
5.1 Accuracy of Representations and Warranties
The representations and warranties of Rare Medium and ICC contained
herein (including the Exhibits and the Schedules) in the Operative Agreements
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shall have been true when made and shall be true as of the Closing Date as
though made on that date, except as affected by transactions contemplated hereby
and except and to the extent that such representations and warranties are made
as of a specified date, in which case such representations and warranties shall
be true as of the specified date.
5.2 Performance of Agreement
Rare Medium and ICC shall have performed all obligations and agreements
and complied with all covenants and conditions contained in this Agreement or
any Operative Agreement to be performed and complied with by them at or prior to
the Closing Date.
5.3 Opinion of Counsel for Rare Medium
Rare Medium and ICC shall have delivered or caused to be delivered to
DigitalFacades and the Stockholders an opinion letter of Rare Medium's and ICC's
counsel, Elias, Goodman, Shanks & Zizmor, L.L.P., dated the Closing Date,
substantially in the form attached hereto as Exhibit 5.3.
5.4 Stockholder Approval
ICC, as sole stockholder of Rare Medium, shall have executed a valid
consent approving the Merger in accordance with the applicable provisions of the
Delaware Law concerning stockholder consents in lieu of stockholder meetings.
5.5 Officers' Certificate
DigitalFacades shall have received a certificate of the President and
the Secretary or an Assistant Secretary of Rare Medium and of ICC, dated the
Closing Date, substantially in the form attached hereto as Exhibit 5.5,
certifying that the conditions to the obligations of DigitalFacades and the
Stockholders have been fulfilled.
5.6 Personal Guarantees
Rare Medium shall have obtained releases of all guarantees on any
indebtedness of DigitalFacades made by John Lin and Yvonne Lin or agreed in
writing to indemnify John Lin and Yvonne Lin, in writing, if such guarantees
will not be released by the guaranteed party or cannot be obtained by the
Closing Date.
5.7 Good Standing Certificate
Rare Medium and ICC shall have delivered to DigitalFacades a
certificate dated as of no earlier than five (5) days preceding the Closing
Date, duly issued by
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the Secretary of State of the State of New York for Rare Medium and the
Secretary of State of the State of Delaware for ICC, and unless waived by
DigitalFacades, from the appropriate governmental authority in each state in
which Rare Medium and ICC is authorized to do business, showing Rare Medium and
ICC in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for Rare Medium and ICC for all periods
prior to the Closing have been filed and paid.
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES
The obligations of all parties to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by them at or
prior to the Closing Date shall be subject to the satisfaction of the following
conditions on or prior to the Closing Date, which conditions may be expressly
waived in writing by Rare Medium, ICC, DigitalFacades and the Stockholders.
6.1 Legal Proceedings
No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any Operative Agreement, and no litigation, investigation or administrative
proceeding shall be pending or threatened which would enjoin, restrain,
condition or prevent consummation of this Agreement or any Operative Agreement.
6.2 Approvals and Consents
Except as set forth in Schedule 6.2, all transfers of permits or
licenses, all approvals, applications or notices to public agencies, federal,
state, local or foreign, the granting or delivery of which is necessary for the
consummation of the transactions contemplated hereby or for the continued
operation of DigitalFacades, shall have been obtained, and all waiting periods
specified by law shall have passed. All other consents, approvals and notices
referred to in this Agreement shall have been obtained or delivered.
6.3 Employment Agreement
Rare Medium and John Lin shall have entered into an employment
agreement in the form attached hereto as Exhibit 6.3 (the "Employment
Agreement").
6.4 Stock Pledge Agreement
The Stockholders and Rare Medium shall have entered into the Stock
Pledge Agreement.
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6.5 Lease Agreement
Rare Medium shall have assumed the obligations of DigitalFacades
pursuant to the terms of that certain Lease Agreement dated as of February 11,
1998 and the lessor pursuant to such lease agreement shall have consented to
such assumption of the lease.
ARTICLE VII - COVENANTS
7.1 Conduct of Business by DigitalFacades Pending the Merger
Prior to the Effective Date, unless Rare Medium and ICC shall otherwise
agree or as otherwise contemplated by this Agreement:
(a) DigitalFacades shall conduct its business only in the ordinary
course and shall not materially change its operations;
(b) DigitalFacades shall not (i) amend its Articles of Incorporation or
By- Laws or (ii) split, combine, reclassify, redeem, purchase or otherwise
acquire its outstanding capital stock or declare, set aside or pay any dividend
payable in cash, stock or property;
(c) DigitalFacades shall not (i) issue or agree to issue any additional
shares of, or rights of any kind to acquire any shares of, its capital stock of
any class, (ii) acquire or dispose of any fixed assets or acquire or dispose of
any other assets other than in the ordinary course of business, (iii) incur a
material amount of additional indebtedness or any other material liabilities or
enter into any other material transaction, (iv) take any other of the actions
listed in Section 2.8 hereof, or (v) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(d) DigitalFacades shall use its best efforts to preserve its business
organization and distribution network, to keep available the services of its
present officers and key employees, to preserve the good will of those having
business relationships with it and to continue its existing relationships with
its lenders, suppliers, customers and key employees; and
(e) DigitalFacades shall promptly notify Rare Medium of any material
adverse change in the assets, properties, business, results of operations,
properties or financial condition of DigitalFacades.
(f) Rare Medium shall promptly notify DigitalFacades of any material
adverse change in the assets, properties, business, results of operations,
properties or financial condition of Rare Medium.
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7.2 Access and Information
Subject to ICC's and Rare Medium's compliance with Section 7.7 hereof,
DigitalFacades shall afford ICC and Rare Medium and their respective
accountants, counsel and other representatives full access during normal
business hours throughout the period prior to the Effective Date to all of
DigitalFacades' properties, books, contracts, commitments and records
(including, but not limited to, tax returns), and, during such period,
DigitalFacades shall furnish promptly to ICC and Rare Medium all information
concerning DigitalFacades' business, properties and personnel as ICC or Rare
Medium may reasonably request; provided, however, that no investigation pursuant
to this Section 7.2 shall affect any representations or warranties made herein
or the conditions to the obligations of Rare Medium and ICC to consummate the
Merger. Subject to their compliance with Section 7.7 hereof, Rare Medium shall
and shall cause ICC to make available to DigitalFacades and its authorized
representatives, information regarding its assets, liabilities, contracts,
operations and business.
7.3 Advice of Claims
From the date of this Agreement to and including the Closing Date,
DigitalFacades shall promptly advise Rare Medium in writing of the commencement
or threat of any claims, litigation or proceedings against or affecting
DigitalFacades of which DigitalFacades has knowledge.
From the date of this Agreement to and including the Closing Date, Rare
Medium shall promptly advise DigitalFacades in writing of the commencement or
threat of any material claims, litigation or proceedings against or affecting
Rare Medium or ICC of which Rare Medium or ICC has knowledge.
7.4 Cooperation
Each party hereto will fully cooperate with the other parties, their
counsel and accountants in connection with any steps required to be taken as
part of its obligations under this Agreement. Each party will use its reasonable
best efforts to cause all conditions to this Agreement to be satisfied as
promptly as possible and to obtain all consents and approvals necessary for the
due and punctual performance of this Agreement and for the satisfaction of the
conditions hereof. No party will undertake any course of action inconsistent
with this Agreement or which would make any representations, warranties or
agreements made by such party in this Agreement or any of the Operative
Agreements untrue or any conditions precedent to this Agreement unable to be
satisfied at or prior to the Closing.
7.5 Intentionally Deleted
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7.6 No Offers
Unless this Agreement terminates pursuant to Article VIII hereof,
neither DigitalFacades nor the Stockholder shall, directly or indirectly, take
(nor allow its officers, directors, employees, investment bankers, attorneys,
accountants or other agents or affiliates to take) any action to encourage,
solicit, initiate or otherwise facilitate the submission by a third party of, or
negotiate or enter into any agreement with a third party with respect to, a
proposal to acquire, directly or indirectly, any of the capital stock of
DigitalFacades or substantially all the assets of DigitalFacades or the business
of DigitalFacades, and DigitalFacades shall immediately cease any current
negotiations.
7.7 Confidentiality
In connection with the Merger, ICC, Rare Medium and DigitalFacades are
furnishing each other and the Stockholders with certain information which is
either nonpublic, confidential or proprietary in nature. All such information
furnished by one party to the other or its representatives is hereinafter
referred to as the "Confidential Information." As used in this Agreement, the
"representatives" of any party shall mean such party's officers, employees,
agents or other representatives, including, without limitation, attorneys,
accountants, consultants and financial advisors. In consideration of each
party's being furnished with the Confidential Information of the other, each
party agrees that:
(a) The Confidential Information will be kept confidential and
except as required by law will not, without the prior written consent of the
party supplying the information, be disclosed by the receiving party or its
representatives during such three-year period in any manner whatsoever, in whole
or in part, and will not be used by the receiving party or its representatives
directly or indirectly for any purpose other than evaluating and facilitating
the Merger; provided, however, that upon the execution of this Agreement by ICC,
Rare Medium, the Stockholders and DigitalFacades, ICC and Rare Medium and their
representatives will be free to use the Confidential Information to the extent
required by law in any subsequent filings with federal or state authorities
relating to the Merger. Each party agrees to transmit the Confidential
Information only to those of its representatives who need to know the
Confidential Information for the purpose of advising it regarding any of the
purposes for which it is permitted to use the Confidential Information under the
terms of this Agreement, who are informed by the party supplying such
information of the confidential nature of the Confidential Information and who
are directed by such party to comply with the terms of this Agreement. Each
party will be responsible for any material breach of this Agreement by its
representatives.
(b) Without the prior written consent of the other parties to
this Agreement, no party or any of its representatives will disclose to any
other Person the fact that the Confidential Information has been made available,
or any of the
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terms, conditions or other facts with respect to the Merger, including the
status thereof, except as required by law or permitted under the terms of this
Agreement.
(c) In the event the parties do not proceed with the Merger,
the Confidential Information and all copies thereof will be destroyed or
returned promptly without retaining any copies thereof. Analyses, studies or
other documents prepared by any party or its representatives for the purpose of
assisting it in connection with the Merger will be held by the receiving party
and kept confidential and subject to the terms of this Agreement or, at the
election of the other party, destroyed.
(d) This Section 7.7 shall be inoperative as to such portions
of the Confidential Information which (i) are or become generally available to
the public other than as a result of a disclosure by the receiving party or its
representatives which is not required by law; (ii) become available to the
receiving party from a source with no obligation of confidentiality to the other
party; (iii) describe technology independently developed by the receiving party;
or (iv) were known to the receiving party on a nonconfidential basis prior to
its disclosure to the receiving party by the supplying party or one of its
representatives.
(e) In the event that a receiving party or any of its
representatives is requested or becomes legally compelled (by written or oral
interrogatories, subpoena, civil investigative demand or similar process) to
disclose any of the Confidential Information for purposes not permitted by this
Agreement, the receiving party will provide the supplying party with prompt
written notice so that the supplying party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. In the event that such protective order or other remedy is not
obtained, or that the supplying party waives compliance with the provisions of
this Agreement, the receiving party will furnish only that portion of the
Confidential Information which is legally required, and will exercise good-faith
efforts to obtain reliable assurance that confidential treatment will be
accorded the Confidential Information.
(f) Each party agrees that the other parties shall be entitled
to equitable relief, including injunction and specific performance, in the event
of any breach of the provisions of clause (a), (b), (c) or (e) of this Section
7.7. Such remedies shall not be deemed to be the exclusive remedies for a breach
of this Section 7.7 by any party or its representatives but shall be in addition
to all other remedies available at law or equity.
(g) It is further understood and agreed that no failure or
delay by any party in exercising any right, power or privilege under this
Section 7.7 shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise of any right, power or
privilege hereunder.
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7.8 Payment of Brokerage Fees
Any brokerage, finder's or other fee or expense due in violation of
Section 2.24 hereof shall be paid by the Stockholders. Any brokerage, finder's
or other fee or expense due in violation of Section 3.7 hereof shall be paid by
Rare Medium.
7.9 Further Acts
After the Closing Date, each party hereto, at the request of and
without any further cost or expense to the other parties, will take any further
actions reasonably necessary to carry out the purposes of this Agreement or any
Operative Agreement, to vest in the Surviving Corporation full title to all
properties, assets and rights of DigitalFacades and/or to effect the issuance of
the ICC Common Stock to the Stockholders.
7.10 Options
All currently outstanding options to purchase shares of DigitalFacades
granted to employees of DigitalFacades shall be canceled at the Closing in lieu
of options for the purchase of ICC Common Stock being granted to such employees,
on an equivalent basis, and on the specific terms set forth in Schedule 7.10.
Schedule 7.10 sets forth the outstanding options to purchase shares of
DigitalFacades granted to employees of DigitalFacades as of the date hereof.
7.11 Intentionally Deleted
7.12 Restrictions on Transfer
For a period of one year from the Closing Date, none of the
Stockholders set forth on Schedule 7.12 shall (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (a) any
shares of ICC Common Stock received by the Stockholders at the Closing or (b)
any interest (including, without limitation, an option to buy or sell) in any
such shares of ICC Common Stock, in whole or in part, and no such attempted
transfer shall be treated as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of ICC Common Stock or
any interest herein, the intent or effect of which is to reduce the risk of
owning the shares of ICC Common Stock acquired hereunder (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions). Notwithstanding the foregoing, the Stockholders
may (x) transfer shares of ICC Common Stock to immediate family members (or
trusts for the benefit of the Stockholders or family members, the trustees of
which so agree); (y) encumber or pledge any of such shares of ICC Common Stock;
provided, that, the family member, trust, trustee, pledgee or other beneficiary
of such transfer, encumbrance or pledge, as the case may be, agrees in
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writing prior to such transaction to be bound by (1) the provisions of this
Section as if a Stockholders and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a Stockholder and party hereto or
(z) pledge such shares of ICC Common Stock as additional security in connection
with any real property loans obtained by such Stockholders for their personal
residence. The provisions of this Section shall apply to the shares paid to the
Stockholders at the Closing and to any Additional Shares paid to the
Stockholders; provided that the restrictions contained herein shall only apply
to the Additional Shares for the balance of the one (1) year period commencing
upon the Closing Date.
The certificates evidencing the ICC Common Stock delivered to the
Stockholders hereunder will bear a legend substantially in the form set forth
below and containing such other information as Rare Medium may deem necessary or
appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN MERGER AGREEMENT AND PLAN
OF REORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE
FIRST ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
7.13 Personal Guarantees
Rare Medium shall use its best efforts to have John Lin and Yvonne Lin
released from any and all guarantees on any indebtedness that they personally
guaranteed and from any and all pledges of assets that they pledged to secure
such indebtedness for the benefit of DigitalFacades, with all such guarantees
being assumed by Rare Medium if necessary to achieve such releases. In the event
that any such guarantees will not be released by the guaranteed party, Rare
Medium shall, in writing to indemnify John Lin and Yvonne Lin, against such any
liability pursuant to such guarantees.
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7.14 Restrictive Covenant
(a) Prohibited Activities. The Stockholders set forth in Schedule 7.14
(the "Restricted Stockholders" will not, for a period of four (4) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative, in
any business selling any products or services in direct competition with Rare
Medium (or its parent, affiliates or subsidiaries), within 100 miles of where
DigitalFacades or any of its subsidiaries conducted business prior to the
effectiveness of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Rare Medium (or its parent, affiliates or
subsidiaries) in a sales representative or managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the employ of
Rare Medium (or its parent, affiliates or subsidiaries), provided that each
Restricted Stockholder shall be permitted to call upon and hire any member of
his or her immediate family;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to the Closing Date, a customer of
Rare Medium (or its parent, affiliates or subsidiaries), of DigitalFacades
within the Territory for the purpose of soliciting or selling products or
services in direct competition with Rare Medium (or its parent, affiliates or
subsidiaries) within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Restricted Stockholder's own behalf or on behalf of any competitor in similar or
incidental businesses or activities, which candidate, to the actual knowledge of
such Restricted Stockholder after due inquiry, was called upon by Rare Medium
(or its parent, affiliates or subsidiaries) or for which, to the actual
knowledge of such Restricted Stockholders after due inquiry, Rare Medium (or its
parent, affiliates or subsidiaries) made an acquisition analysis, for the
purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
DigitalFacades to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that DigitalFacades has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Restricted Stockholder from acquiring as an investment not more
than one
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percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the Restricted
Stockholder does not consult with or is not employed by such competitor.
(b) Damages. Because of the difficulty of measuring economic losses to
Rare Medium as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to Rare Medium for
which it would have no other adequate remedy, each Restricted Stockholder agrees
that, in the event of breach by such Restricted Stockholder, the foregoing
covenant may be enforced by Rare Medium by injunctions and restraining orders.
(c) Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 7.14 impose a reasonable restraint on the
Restricted Stockholders in light of the activities and business of Rare Medium
(including its parent, affiliates or subsidiaries) on the date of the execution
of this Agreement and the current plans of Rare Medium; but it is also the
intent of Rare Medium and the Restricted Stockholders that such covenants be
construed and enforced in accordance with the changing activities and business
of Rare Medium (including its parent, affiliates or subsidiaries) throughout the
term of this covenant. It is further agreed by the parties hereto that, in the
event that any Restricted Stockholder who has entered into an employment
agreement with Rare Medium as set forth herein, shall thereafter cease to be
employed thereunder, and such Restricted Stockholder shall enter into a business
or pursue other activities not in competition with Rare Medium (or its parent,
affiliates or subsidiaries), or similar activities or business in locations the
operations of which, under such circumstances, does not violate this Section and
in any event such new business, activities or location are not in violation of
this Section or such Restricted Stockholder's obligations under this Section,
such Restricted Stockholder shall not be chargeable with a violation of this
Section if Rare Medium (or its parent, affiliates or subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business (ii) course of
activities, or (iii) location, as applicable.
(d) Severability; Reformation. The covenants in this Section 7.14 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
(e) Independent Covenant. All of the covenants in this Section 7.14
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Restricted
Stockholders against Rare Medium (or its parent, affiliates or subsidiaries),
whether
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predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Rare Medium of such covenants. It is specifically agreed that the
period of four (4) years stated at the beginning of this Section, during which
the agreements and covenants of each Restricted Stockholder made in this Section
shall be effective, shall be computed by excluding from such computation any
time during which such Restricted Stockholder is in violation of any provision
of this Section. The covenants contained in Section shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
(f) Materiality. DigitalFacades and the Restricted Stockholders hereby
agree that this covenant is a material and substantial part of this transaction.
(g) Breach by Other Stockholders. Nothing to the contrary contained
herein, no Restricted Stockholder shall be liable for any breach of this Section
7.14 by any other Restricted Stockholder.
7.15 DigitalFacades' Business
Except as otherwise agreed to by DigitalFacades (or, after the Closing
by John Lin), neither Rare Medium, nor ICC shall, until January 1, 1999, take
any action which would materially, adversely affect the ability of
DigitalFacades to earn and realize the DigitalFacades Revenue, including, but
not limited to, not properly staffing projects which would accrue revenue to the
DigitalFacades Revenue in lieu of other projects which would not accrue revenue
to the DigitalFacades Revenue or refusing projects which would accrue revenue to
the DigitalFacades Revenue.
ARTICLE VIII - TERMINATION
This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual consent of DigitalFacades and Rare Medium;
(b) by either DigitalFacades or Rare Medium if the other parties shall
have breached their agreements hereunder; provided, however, that DigitalFacades
may not terminate this Agreement for a breach by the Stockholders, and Rare
Medium may not terminate this Agreement for a breach by ICC; or
(c) by either DigitalFacades or Rare Medium if the Closing has not
occurred by August 31, 1998.
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In the event of any termination pursuant to this Article VIII (other
than pursuant to clause (a) above), written notice setting forth the reasons
therefor shall forthwith be given by the terminating party to the other parties
hereto. Such termination shall not prejudice any party's right to seek remedies
for another party's breach of this Agreement.
ARTICLE IX - GENERAL
9.1 Expenses
Whether or not the transactions contemplated by this Agreement are
consummated, each party shall pay its own fees and expenses incident to the
negotiation, preparation and carrying out of this Agreement and the Operative
Agreements (including legal and accounting fees and expenses), provided that,
should any action be brought hereunder, the attorneys' fees and expenses of the
prevailing party shall be paid by the other party to such action. The
Stockholders shall pay any transfer or similar taxes which may be payable in
connection with the transactions contemplated by this Agreement.
9.2 Amendment
Rare Medium, ICC, DigitalFacades and the Stockholders may amend, modify
or supplement this Agreement at any time, but only in writing duly executed on
behalf of each of the parties to be bound thereby.
9.3 Indemnification and Survival of Warranties
9.3.1 (a) The Stockholders agree to indemnify Rare Medium,
ICC, the Surviving Corporation, their successors and assigns, and the officers,
directors, affiliates, employees, controlling Persons and agents of the
foregoing, and to hold each of them harmless against and in respect of any and
all losses, damages, Taxes, penalties or other additions to Taxes, costs and
expenses, including attorneys' and accountants' fees incurred by any of them by
reason of (i) a breach of any of the representations or warranties made by
DigitalFacades or the Stockholders in this Agreement (except Section 7.14 above)
or the Stock Pledge Agreement or (ii) the nonperformance (whether partial or
total) of any covenants or agreements made by DigitalFacades or the Stockholders
in this Agreement (except Section 7.14 above) or the Stock Pledge Agreement.
(b) ICC, Rare Medium and the Surviving Corporation, jointly
and severally, agree to indemnify and to hold harmless DigitalFacades and the
Stockholders and their respective successors, assigns, heirs, and legatees
against and in respect of all losses, damages, Taxes, penalties or other
additions to Taxes, costs
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and expenses, including attorneys' and accountants' fees incurred by any of them
by reason of (i) a breach of any of the representations or warranties made by
ICC or Rare Medium in this Agreement or the Operative Agreements or (ii) the
nonperformance (whether partial or total) of any covenants or agreements made by
ICC or Rare Medium in this Agreement or the Operative Agreements.
9.3.2 If any Person entitled to indemnification pursuant to
Section 9.3.1 hereof (an "Indemnitee") is threatened in writing with any claim,
or any claim is presented in writing to, or any action or proceeding is formally
commenced against, any of the Indemnitees which may give rise to the right of
indemnification hereunder, the Indemnitee will promptly give written notice
thereof to each indemnifying party; provided, however, that any delay by an
Indemnitee in so notifying the indemnifying party shall not relieve the
indemnifying party of any liability to any of the Indemnitees hereunder except
to the extent that the indemnifying party shall have been actually prejudiced as
a result of such failure.
9.3.3 The indemnifying party or parties, by delivery of
written notice to an Indemnitee within 30 days of notice of claim to indemnity
from an Indemnitee, may elect to assume the defense of such claim, action or
proceeding at the expense of the indemnifying party; provided, however, that (a)
unless such written notice shall be accompanied by a written agreement of each
indemnifying party acknowledging the liability of the indemnifying parties to
the Indemnitees as a result of this Agreement for any indemnified damage which
any Indemnitee might incur or suffer as a result of such claim, action or
proceeding or the contesting thereof, each indemnifying party shall be jointly
and severally liable for the reasonable attorneys' fees and expenses of the
Indemnitee, if any, incurred in connection with defending such claim; (b)
counsel undertaking such defense shall be reasonably acceptable to the
Indemnitee; (c) the indemnifying parties shall mutually elect to contest such
claim, action or proceeding and shall conduct and settle such contest in a joint
manner, and if the indemnifying parties shall fail at any time to agree, the
Indemnitee shall have no obligation to contest such claim, action or proceeding
and (d) if the Indemnitee requests in writing that such claim, action or
proceeding not to be contested, then it shall not be contested but shall not be
covered by the indemnities provided herein. The indemnifying parties may settle
an indemnifiable matter after delivering a written description of the proposed
settlement to and receiving consent from the Indemnitee. In the event the
Indemnitee unreasonably declines to consent to such settlement, then the
Indemnitee shall have no right to indemnification beyond the amount of the
proposed settlement. In the event the indemnifying parties jointly elect to
contest an indemnifiable matter, the Surviving Corporation, ICC, Rare Medium and
the Stockholders shall permit each other reasonable access, subject to the
provisions of Section 7.7 hereof, to their respective books and records and
shall otherwise cooperate in connection with such claim. If the indemnifying
parties do not jointly elect to contest an indemnifiable matter, they shall
cooperate with the Indemnitee to
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the extent any of them has knowledge of facts or circumstances relating to such
matter, and the Indemnitee shall have the exclusive right to prosecute, defend,
compromise, settle or pay any claim, but the Indemnitee shall not be obligated
to do so; provided, however, that, should the Indemnitee elect not to exercise
its right exclusively to prosecute, defend, compromise, settle or pay such
claim, any indemnifying party may elect to do so at its sole expense.
9.3.4 The representations and warranties contained in this
Agreement shall survive the Closing for a period of twelve (12) months.
9.3.5 (a) Notwithstanding any other provision of this
Agreement, the indemnification obligations of the Stockholders contained in
Section 9.3.1(a), as limited by this Section 9.3.5 and 9.3.6, is the sole and
exclusive remedy of Rare Medium, ICC, the Surviving Corporation, their
successors and assigns, and the officers, directors, affiliates, employees,
controlling Persons and agents of the foregoing (collectively, the "Rare Medium
Indemnitees") against DigitalFacades and/or the Stockholders, in any action or
proceeding of any kind or nature seeking damages or any other form of monetary
relief brought by or behalf of Rare Medium Indemnitees and related to or
involving (i) this Agreement, including, without limitation, its negotiation,
performance, interpretation, breach or alleged or threatened breach, (ii) any
agreement, instrument or document required by or related to or referred to in
this Agreement, or (iii) any representation or warranty or promise or covenant
contained in this Agreement or any agreement, instrument or document referred to
in clause (ii); provided that nothing herein shall be construed to limit the
right of a Rare Medium Indemnitee, in a proper case, to seek injunctive relief.
(b) The indemnification obligation of the Stockholders in this
Agreement shall terminate on that date which is twelve (12) months from the
Closing Date, except with regard to claims made for indemnification prior to
such date.
(c) The indemnification obligation of the Stockholders under this
Agreement shall be satisfied from, and shall be solely limited to, the value of
the ICC Common Stock pledged pursuant to the Stock Pledge Agreement ("Pledged
Shares"). No Stockholder shall be liable under this Agreement for an amount
which exceeds his or her pro rata portion (based upon the percentage ownership
of DigitalFacades prior to the Merger) of the Pledged Shares. The limitations
set forth in this Section 9.3.5(c), however, shall not apply to an indemnity
claim related to representations and warranties made by DigitalFacades in
Sections 2.2, 2.3, 2.4, and by the Stockholders in Sections 2.32, 2.33 or 2.34.
For the purposes of this paragraph, the value of the Pledged Shares shall be the
closing asking price of ICC Common Stock (as reported in The Wall Street
Journal) on the last trading day prior to the tender of the indemnification
claim.
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9.3.6 Rare Medium, ICC and the other persons or entities
indemnified pursuant to Section 9.3.1 shall not assert any claim other than a
Third Person claim for indemnification hereunder against the Stockholders until
such time as, and solely to the extent that, the aggregate of all claims which
such persons may have against the Stockholders shall exceed $25,000 (the
"Indemnification Threshold"), and then only for the amount which the aggregate
of all claims exceeds the Indemnification Threshold, provided, however, that
Rare Medium, ICC and the other persons or entities indemnified pursuant to
Section 9.3.1 may assert and shall be indemnified for any claim regarding Taxes
at any time, regardless of whether the aggregate of all claims which such
persons may have against any Stockholders or all Stockholders exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
regarding Taxes shall not be counted towards the Indemnification Threshold. The
Stockholders shall not assert any claim for indemnification hereunder against
Rare Medium or ICC until such time as, and solely to the extent that, the
aggregate of all claims which Stockholders may have against Rare Medium or ICC
shall exceed the Indemnification Threshold. No person shall be entitled to
indemnification under this Section 9.3 to the extent that such person's claim
for indemnification is directly or indirectly related to a breach by such person
of any representation, warranty, covenant or other agreement set forth in this
Agreement.
9.4 Rule 144 Availability
ICC and Rare Medium covenant that they will use their best efforts to
file the reports required to be filed by ICC under Rule 144 under the 1933 Act
and the 1934 Act, so as to enable any Stockholders to sell ICC Common stock
pursuant to Rule 144 under the 1933 Act and ICC shall cooperate with such
Stockholder to facilitate the timely preparation and delivery after such sale of
stock certificates not bearing any 1933 Act restrictive legend. This covenant
shall survive the Closing.
9.5 Counterparts
This Agreement may be executed simultaneously 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.
9.6 Headings
The headings preceding the text of Articles and Sections of this
Agreement are for convenience only and shall not be deemed parts hereof.
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9.7 Applicable Law
This Agreement, including all matters of construction, validity and
performance, shall be governed by and construed and enforced in accordance with
the laws of the state of New York, as applied to contracts executed and to be
fully performed in such state by citizens of such state.
9.8 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 respective successors and
permitted assigns of the parties hereto, whether herein so expressed or not, but
neither this Agreement nor any of the rights, interests or obligations hereunder
of any party hereto shall be assigned without the prior written consent of the
other parties. This Agreement is not intended, nor shall it be construed, to
confer any enforceable rights on any Person not a party hereto.
9.9 Notices
Any notice or demand desired or required to be given hereunder shall be
in writing given by personal delivery or certified or registered mail, reputable
overnight courier service, telegram or confirmed facsimile transmission,
addressed as respectively set forth below or to such other address as any party
shall have previously designated by such a notice. The effective date of any
notice or request shall be three days from the date it is mailed by the
addressor, upon delivery of the courier package if it is sent by courier, upon
delivery to a telegraph company properly addressed with charges prepaid, upon
confirmation of a successful facsimile transmission, or in any event upon
personal delivery.
Notices to Rare Medium, ICC, the Stockholders and DigitalFacades shall
be sent as follows:
Rare Medium, Inc.
44 West 18th Street
New York, NY 10011
Fax: (212) 634-6951
Attention: Glenn Meyers, President
ICC Technologies, Inc.
44 West 18th Street
New York, NY 10011
Fax: (212) 634-6951
Attention: Glenn Meyers, President
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with copies to:
Elias, Goodman Shanks & Zizmor, L.L.P.
444 Madison Avenue
22nd Floor
New York, NY 10022
Attention: Paul Goodman
To DigitalFacades:
DigitalFacades Corporation
4081 Redwood Avenue
Los Angeles, CA 90066
Attention: John Lin
with copies to:
Arter & Hadden, LLP
5959 Topanga Canyon Boulevard
Suite 244
Woodland Hills, CA 91367
Attention:Tomoko Aoyama, Esq.
To the Stockholders:
To their respective addresses set forth in Exhibit A
9.10 Publicity
Until the Closing, neither Digital nor the Stockholders shall make or
issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of Rare Medium
except as required by law.
9.11 Tax Free Reorganization
The parties hereto intend for the Merger to qualify as a tax free
reorganization within the meaning of Section 368 and related sections of the
Code and the Regulations thereunder. Nevertheless, notwithstanding anything
contained herein or the Merger Agreement to the contrary, the parties hereto
acknowledge and agree that (i) such qualification shall not be a condition to
the obligations of any of the parties hereto to consummate the transactions
contemplated hereunder and under the Merger Agreement, and (ii) ICC and Rare
Medium shall have no obligation to take any action (except as expressly provided
under the terms of this Agreement) to cause the Merger to qualify as a
reorganization under Section 368 of the Code.
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9.12 Right of Rare Medium to Effect Merger with Newly Formed
Subsidiary
Rare Medium shall have the right and option, at its discretion, prior
to the Closing, to effect the Merger with a newly formed corporation ("NewCo"),
wholly-owned by Rare Medium in the stead of Rare Medium with DigitalFacades
being the surviving entity), provided that such election by Rare Medium shall
not affect the representations and warranties or duties and obligations (other
than altering the parties to the Merger) made by Rare Medium and ICC to
DigitalFacades and the Stockholders. Rare Medium shall exercise such right by
providing notice thereof to DigitalFacades, prior to the Closing, in accordance
with the notice provisions herein.
In the event that Rare Medium shall exercise such right, the
obligations of the Stockholders and DigitalFacades to perform and observe the
covenants, agreements and conditions hereto to be performed and observed by them
at or prior to the Closing Date shall be subject to receipt by the Stockholders
and DigitalFacades, of representations and warranties of Rare Medium, ICC and
NewCo, jointly and severally, covering, with respect to NewCo, those matters
covered by the representations and warranties set forth in Section 3.1, 3.2,
3.3, 3.4, 3.6, 3.7, 3.8, 3.9, 3.12 and 3.13 herein. In addition,
(a) the matters covered by Sections 5.1, 5.2, 5.3, 5.5 and 5.7 shall be
construed to include NewCo (by way of example and not limitation, the legal
opinion required by Section 5.3 shall include opinions with respect to NewCo and
a good standing certificate of NewCo shall be required under Section 5.7);
(b) NewCo shall, in addition to Rare Medium, provide the indemnities
required by Sections 5.6 and 7.13;
(c) NewCo shall make the promises contained in Section 6.6; and
(d) Section 1.3(b) shall be revised as the parties to this Agreement
may mutually agree to reflect the foregoing exercise of right by Rare Medium.
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IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement as of the date and year first above written.
RARE MEDIUM, INC.
By: /s/ Glenn S. Meyers
-------------------------------
Its
ICC TECHNOLOGIES, INC.
By: /s/ Glenn S. Meyers
-------------------------------
Its
DIGITALFACADES CORPORATION
By: /s/ John Lin
-------------------------------
Its
The Stockholders:
/s/ John Lin
-----------------------------------
John Lin
/s/ Yvonne S. Tsai
-----------------------------------
Yvonne S. Tsai
/s/ Oliver Chan
-----------------------------------
Oliver Chan
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/s/ Gregory Holland
-----------------------------------
Gregory Holland
/s/ William Kessler
-----------------------------------
William Kessler
/s/ Steven B. Klinenberg
-----------------------------------
Steven B. Klinenberg
/s/ Ching-Shen Lin
-----------------------------------
Ching-Shen Lin
/s/ Lily R. C. Lin
-----------------------------------
Lily R. C. Lin
/s/ Judith C. Lin
-----------------------------------
Judith C. Lin
/s/ Jane Lin
-----------------------------------
Jane Lin
/s/ Jeanette Perez
-----------------------------------
Jeanette Perez
/s/ Stephen Rowe
-----------------------------------
Stephen Rowe
/s/ Rosemary Scarzoni
-----------------------------------
Rosemary Scarzoni
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Exhibit A
The DigitalFacades Shareholders
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Exhibit 1.2
Form of Certificates of Merger
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Exhibit 1.3(a)
Form of Stock Pledge Agreement
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Exhibit 4.3
Form of Opinion of Counsel for DigitalFacades
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Exhibit 4.7
Form of DigitalFacades Officers Certificate
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Exhibit 4.8
Form of DigitalFacades Stockholders Certificate
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Exhibit 4.12
Form of FIRPTA Certificate
61
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Exhibit 5.3
Form of Opinion of Counsel for Rare Medium
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Exhibit 5.5
Form of Rare Medium Officer's Certificate
63
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Exhibit 6.3
Form of John Lin Employment Agreement
64
