Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("AGREEMENT") is made and entered into
this 23rd day of October, 2001, by and among Sales Online Direct, Inc., a
Delaware corporation ("Buyer"), ROTMAN collectibles, inc., a Massachusetts
corporation ("SELLER"), and leslie ROTMAN ("STOCKHOLDER").
RECITALS
WHEREAS, Buyer engages in the business of selling collectibles;
WHEREAS, Seller engages in the movie poster business (the "Business");
WHEREAS, Stockholder is the sole owner of all the issued and outstanding
securities of Seller, and is a creditor of Seller consistent with a Promissory
Note dated September 10, 2001, secured by an all assets Security Agreement of
even date (collectively, the "Obligations");
WHEREAS, the Board of Directors of each of Buyer and Seller has determined
it to be in their respective best interests for Buyer, and a subsidiary to be
formed by Buyer ("Buyer's Sub") to acquire Seller in accordance with the terms
and conditions hereinafter set forth; and
WHEREAS, it is intended that such acquisition qualify for federal income
tax purposes as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended;
NOW THEREFORE, for and in consideration of the foregoing recitals, which
shall be deemed a substantive part of this Agreement, and the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
I. MERGER
1.1. The Transaction. Subject to each and all of the terms and conditions
of this Agreement, at the Effective Time (as defined in Section 1.3) Seller
shall be merged with and into Buyer's Sub and the separate corporate existence
of Seller shall thereupon cease (the "Merger"). Buyer's Sub shall be the
surviving corporation (the "Surviving Corporation") in the Merger and shall be
governed by the laws of the State of Delaware. The separate corporate existence
of Buyer's Sub with all of its rights, privileges, immunities, powers and
franchises shall continue, and Buyer's Sub shall succeed, without other
transfer, to all of the rights and properties of Seller and shall be subject to
all of the debts and liabilities of Seller. The Merger shall have the effects
specified in the Delaware General Corporation Law (the "DGCL") and Massachusetts
Business Corporation Law ("MBCL").
1.2. Closing. The closing of the Merger contemplated hereby (the "Closing")
shall take place at 10:00 a.m., local time, on November 7, 2001 (the "Closing
Date") at the offices of Buyer, 4 Brussels Street, Worcester, Massachusetts, or
at such other time, date or place as Buyer and Seller may mutually agree upon in
writing; provided, however, that prior to the Closing, all of the conditions in
Sections 5 and 6 of this Agreement shall have been satisfied or waived, as the
case may be.
1.3. Articles of Merger; Effective Time. As soon as practicable following
the Closing, Articles of Merger in the form or forms required by the DGCL and
MBCL (the "Articles of Merger") shall be promptly filed and recorded by Buyer in
accordance with the DGCL and MBCL. The Merger shall thereupon become effective
at the time and date of such filing or at such date and time otherwise specified
in the Articles of Merger, and such time is hereinafter referred to as the
"Effective Time".
1.4. Surviving Corporation. The Articles of Organization and Bylaws of
Buyer's Sub shall be the Articles of Organization and Bylaws of the Surviving
Corporation. The directors and officers of Buyer's Sub shall be the directors
and officers of the Surviving Corporation, and Buyer's Sub shall agree that it
may be sued in the
Commonwealth of Massachusetts for any prior obligation of Seller and any
obligation thereafter incurred by the Surviving Corporation, including any
obligation created by Section 85 of the MBCL, so long as any liability remains
outstanding against Seller in the Commonwealth of Massachusetts. Buyer's Sub
shall irrevocably appoint the State Secretary of the Commonwealth of
Massachusetts as its agent to accept service of process in any action for the
enforcement of any such obligation, including taxes, in the same manner as
provided in Chapter 181 of the General Laws of Massachusetts.
1.5. Consideration.
(a) In consideration for the Merger, and the Stockholder releasing the lien
against Seller's assets and discharge of the Obligations, Buyer shall issue and
deliver to Stockholder 100 shares of common stock of Buyer, $.001 par value
("Common Stock"), and a Six Percent (6%) Convertible Promissory Note, the form
of which is attached as Exhibit A (the "Note"), which may be converted into
shares of Common Stock (collectively, the "Securities"), or, payable in cash, in
the event that Common Stock is not available for issuance, upon the terms and
conditions hereof and upon the terms and conditions in the Note. The total face
amount of the Note to be issued by Buyer (the "Face Value") is One Million
Dollars ($1,000,000), all in accordance with the terms of this Agreement and the
Note, based on the Appraised Value (as hereinafter defined) of the Tangible
Assets (as defined in Section 2.17).
(b) The "Appraised Value" shall mean the appraised wholesale value of the
Tangible Assets based on an appraisal conducted by an independent appraiser
prior to the Closing and within 90 days from the date of this Agreement.
(c) Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing a Registration Rights Agreement (the
"Registration Rights Agreement") substantially in the form attached hereto as
Exhibit B pursuant to which Buyer has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and applicable state
securities laws, and the rules and regulations promulgated thereunder (the "1933
Act").
(d) To secure payment of the Note, the parties shall enter into a Security
Agreement at Closing substantially in the form attached hereto as Exhibit C.
1.6 Delivery of Consideration.
(a) Buyer shall issue and deliver to Stockholder the Note immediately upon
Closing.
(b) Subject to Buyer's obligations pursuant to Section 1.5(d), Stockholder
acknowledges that the Note and any shares of Common Stock convertible thereunder
(the "Securities") are not registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless
registered thereunder or Stockholder shall have delivered to Buyer an opinion by
counsel reasonably satisfactory to Buyer, in form, scope and substance
reasonably satisfactory to Buyer, to the effect that the Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration. Stockholder further acknowledges that any sale
of the Securities made in reliance on Rule 144 (or any amendment or applicable
rule which operates to replace Rule 144), promulgated under the 1933 Act ("Rule
144") may be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of the Securities under circumstances in
which Stockholder (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations thereunder and applicable state securities laws.
(c) Unless and until the Securities have been registered under the 1933
Act, the stock certificates representing the Securities will bear a restrictive
legend (the "Legend") in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE LAWS.
The Legend shall be removed and Buyer shall issue a certificate without such
Legend to the holder of any certificate evidencing the Securities upon which it
is stamped, and a certificate for the Securities shall be originally issued
without the Legend, if, unless otherwise required by state securities laws, (x)
the sale of such Securities is registered under the 1933 Act, or (y) such holder
provides Buyer with an opinion by counsel reasonably satisfactory to Buyer, that
is in form, substance and scope reasonably satisfactory to Buyer, to the effect
that a public sale or transfer of such Securities may be made without
registration under the 1933 Act. In the event the Legend is removed from any
certificate evidencing any the Securities or any certificate evidencing any
Securities is issued without the Legend and thereafter the effectiveness of a
registration statement covering the sale of such Securities is suspended or
Buyer determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to the holder of
such Securities, Buyer shall be entitled to require that the Legend be placed
upon any certificate evidencing such Securities which cannot then be sold
pursuant to an effective registration statement or an available exemption from
registration or with respect to which the opinion referred to in clause (y) next
above has not been rendered, which Legend shall be removed when such Securities
may be sold pursuant to an effective registration statement or an available
exemption from registration (or such holder provides the opinion with respect
thereto described in clause (y) next above).
2. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER. Seller and
Stockholder hereby jointly and severally represent, warrant and agree, as of the
date hereof and as of the Closing Date, as follows:
2.1. Ownership of Securities of Seller. Stockholder is the record and
beneficial owner of all of the issued and outstanding common stock of the
Seller, and the 6% Convertible Promissory Note of Seller set forth as Schedule
2.1. Stockholder owns all such shares beneficially and of record, free and clear
of any and all liens, claims, pledges, security interests, preemptive rights,
rights of first refusal, encumbrances, or restrictions of any kind whatsoever
(collectively, the "Liens"). Stockholder holds the 6% Convertible Promissory
Note of Seller free and clear of any and all Liens. Stockholder is not a party
to or bound by any options, calls, contracts, or commitments of any character
relating to any issued or unissued stock or any other equity security issued or
to be issued by Seller.
2.2. Capitalization. The authorized common stock of Seller consists of
15,000 shares of common stock, no par value, of which 1,000 shares are
outstanding, plus a 6% Convertible Promissory Note. All such outstanding shares
are duly authorized, validly issued, fully paid and nonassessable, and the 6%
Convertible Promissory Note is duly authorized.
2.3. Outstanding Options or Warrants. There are no outstanding options or
warrants to acquire stock of Seller, and except for this Agreement and the 6%
Convertible Promissory Note, no other agreements or rights to purchase or
otherwise acquire, or securities convertible into, any shares of the capital
stock of Seller.
2.4. Organization and Authority of Seller. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and is duly qualified and in good standing as a
foreign corporation in all jurisdictions in which Seller is required to be so
qualified. Seller has no direct or indirect wholly or partially owned
subsidiaries.
2.5. Power and Authority. Seller and Stockholder have the absolute and
unrestricted right, power, authority and capacity to execute and deliver this
Agreement, and to perform the obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by Seller's Board of
Directors. The Agreement has been duly and validly executed and delivered by
Seller and Stockholder and (assuming the due authorization, execution and
delivery thereof by Buyer) constitutes the legal, valid and binding, joint and
several, obligation of Seller and Stockholder, enforceable against Seller and
Stockholder in accordance with its terms, except
to the extent that enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors rights
generally and subject to general principles of equity.
2.6. No Violations. The execution and delivery of this Agreement by Seller
and Stockholder, and the consummation of the transactions contemplated hereunder
by Seller and Stockholder will not (i) violate any existing provision of any law
or violate any existing term or provision of any order, writ, judgment,
injunction or decree of any court, governmental department, commission, board,
agency or instrumentality applicable to Seller or Stockholder, or their
properties or assets; (ii) conflict with or violate any of the terms, conditions
or provisions of the Articles of Organization, Bylaws or any other
organizational documents of Seller; (iii) violate, result in any breach of, or
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under any contract, agreement, indenture, mortgage or deed of
trust, security agreement, license, instrument or obligation to which Seller or
Stockholder is a party or by which any are bound; or (iv) result in the creation
or imposition of any Liens upon Seller or Stockholder or any of their properties
or assets.
2.7. No Consent. Seller has the absolute and unrestricted legal right,
power and authority to enter into this Agreement and, upon approval of the
Merger by Stockholder, as the only stockholder of Seller, Seller shall have the
absolute and unrestricted legal right, power and authority to consummate the
transactions contemplated hereby. No consent, approval, authorization, permit or
order or action of, or filing with, any court, administrative agency or other
governmental or regulatory body or authority applicable to Seller or
Stockholder, is required for (i) the execution and delivery of this Agreement by
Seller and Stockholder and (ii) the consummation by Seller and Stockholder of
the transactions provided for herein.
2.8. Liabilities. Except for the liabilities and obligations set forth on
the Balance Sheet, as defined in Section 2.18, and liabilities incurred in the
ordinary course of business between September 30, 2001 and the Closing, and
liabilities and obligations for which Seller will be covered under Seller's
policies of insurance, Seller does not have any liabilities or obligations of
any nature (whether absolute, accrued, fixed, contingent, vicarious, secured or
unsecured, known or unknown or due or to become due), and neither Seller nor
Stockholder knows, and does not have any reasonable grounds to know, of any
basis for the assertion against Seller of any material liability, obligation or
claim.
2.9. Real Property. Seller does not own and has never owned fee simple
interest in real property.
2.10. Leases. Seller is not and has never been a party to any lease of any
real or personal property.
2.11. Accounts Receivable. Any and all accounts receivable, as set forth on
the Balance Sheet, (a) represent arm's-length transactions actually made in the
ordinary course of business, (b) are collectible in the ordinary course of
business, and (c) to the knowledge of Stockholder and Seller, are subject to no
counterclaim or setoff and are not in dispute.
2.12. Contracts. A list and copy of all contracts, commitments and
agreements to which Seller is a party is attached as Schedule 2.12. All of the
contracts, commitments or agreements (the "Contracts") to which Seller is a
party or is bound, whether written or oral and whether or not listed on Schedule
2.12 are valid, binding and enforceable by Seller against the other party(ies)
thereto, in accordance with the terms thereof, and have been fully complied with
by all of the parties thereto, and none of the parties thereto is in breach
thereof or in default thereunder, nor has any event occurred which, with the
lapse of time, notice or election, may become a breach or default by any of the
parties thereunder. All payments required to be made pursuant to the Contracts
have been paid in full. Upon conclusion of the transactions contemplated by this
Agreement, Buyer's Sub shall have and succeed in all of the rights of Seller
under the Contracts.
2.13. Taxes. Seller has, as appropriate, timely filed, or will timely file
when due, all federal, state, and local tax returns and reports required to be
filed by Seller with respect to all periods ending before the Closing Date, all
of which returns are or will be true and correct in all material respects,
except where the failure to timely file such returns and reports has no adverse
effect. No tax elections have been made, and, no tax elections shall be made for
any period after December 31, 2000 that could affect Seller's tax liability for
any period after Closing. For all periods ending prior to the Closing Date,
Seller has timely paid, or will timely pay when due, all federal, state, local
and foreign taxes (and all interest, penalties or additions to tax thereon, if
any), including, without limitation, all income, franchise, transfer, real
property, unemployment, withholding, occupation, gross receipts, value added,
excise and estimated taxes required to be paid or collected. Seller has not
granted any unexpired waiver of restrictions on assessment or collections of
taxes or extension of any statute of limitation in connection with or in respect
of the examination of any federal, state, local or foreign tax return or
liability of Seller. All taxes that Seller is or was required by law to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper governmental body or person. There are no
proceedings or actions pending for the assessment or collection of additional
federal, state, or local taxes and there are no outstanding deficiencies
formally asserted by the Internal Revenue Service or any state, or local taxing
authority against Seller.
2.14. Litigation. There is no litigation, proceeding, investigation, claim,
administrative or regulatory proceeding, complaint or accusation, pending in
court or before any governmental, regulatory or administrative board, agency or
commission, or any arbitration pending against Seller or against any employee or
agent of Seller; and there is no litigation, proceeding, investigation, claim,
complaint, or accusation, formal or informal, or arbitration pending or
threatened or any contingent liability which would give rise to any right of
indemnification or similar right on the part of any past or present director,
officer, employee or agent of Seller.
2.15. Compliance with Law. To the knowledge of Seller and Stockholder,
Seller and all officers, directors, and agents of Seller have complied with all
applicable laws, rules, regulations and other legal requirements; and, without
limiting the generality of the foregoing, (i) there is not pending or, to the
knowledge of Stockholder or Seller, threatened, any notification of any
governmental or regulatory body, agency or authority that Seller is not in
compliance in all material respects with any and all applicable federal, state,
regional, county, local or foreign laws, statutes, rules, regulations,
ordinances, decrees, directives or orders concerning public health, safety or
the environment now existing and regulations respecting employment and
employment practices, occupational safety and health laws and regulations, and
(ii) neither Stockholder nor Seller have received any notification of past
violations of such laws or regulations that can reasonably be expected to result
in future claims against Seller, and Stockholder and Seller do not know, or do
not have any reasonable ground to know, of any basis therefor.
2.16. Insurance. Seller presently carries or causes to be carried all
insurance coverage against such casualties, risks and contingencies, and in such
amounts, types and forms (including without limitation fidelity bonds), as are
customarily carried by corporations engaged in the businesses and activities in
which Seller is engaged and which is for the operations and assets of Seller.
All of the insurance coverage described in Schedule 2.16 is in full force and
effect and is fully paid as to all premiums heretofore billed or due. Neither
Stockholder nor Seller have received any notification of the cancellation of any
such policies or that any such policies will not be renewed. There are no
claims, demands or offsets that would tend to impair the full value of said
insurance policies. Schedule 2.16 contains a complete list of all the policies
of insurance that Seller carries. All such policies of insurance listed on
Schedule 2.16 shall continue to be in full force and effect and Buyer's Sub
shall succeed in all of Seller rights under such policies of insurance after the
conclusion of the transactions contemplated by this Agreement.
2.17. Title to Assets. The tangible assets and personal property owned by
Seller include, without limitation, the items listed on Schedule 2.17 (the
"Tangible Assets"). The assets reflected on the Balance Sheet, as hereinafter
defined, are all of the assets of Seller used by Seller in the conduct of its
business, Seller has good and marketable title to all of their assets. At
Closing, all of the assets owned by Seller shall be free and clear of any and
all Liens, and all of the Tangible Assets will be in good operating condition
and repair, free from defects.
2.18. Balance Sheet. Seller has previously delivered a Balance Sheet of
Seller as of September 30, 2001 (the "Balance Sheet"). The Balance Sheet
presents fairly the financial position of Seller at September 30, 2001.
2.19. No Material Adverse Change. Since September 30, 2001 there has not
been:
(a) any change in the business, financial condition or results of
operations of Seller which has had or could reasonable be expected to have a
material adverse effect on Seller taken as a whole, except in the ordinary
course of the Business (including claims under any policy of insurance or
reinsurance);
(b) any damage, destruction or other casualty loss with respect to the
Tangible Assets or other assets or property owned by Seller (whether or not
covered by insurance) which has had or could reasonably be expected to have a
material adverse effect;
(c) any transaction or commitment made by Seller relating to its
assets or business (including the acquisition or disposition of any substantial
assets) material to Seller taken as a whole other than transactions and
commitments in the ordinary course of business consistent with past practice or
those contemplated by this Agreement;
(d) any change in any method of accounting or accounting practice by
Seller;
(e) any incurrence, assumption or guarantee by Seller of any
indebtedness for borrowed money;
(f) any Lien created or assumed by Seller on any asset of Seller to
secure indebtedness for borrowed money;
(g) any change in the number of shares of capital stock of Seller
issued and outstanding.
2.20. Employee Benefit Plans. Seller does not have, nor has it ever been, a
party to, a sponsor of, or a contributor to (i) any employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974 ("ERISA")) (a "Retirement Plan"), (ii) any employee welfare benefit plan
(as defined in Section 3(1) of ERISA) (a "Welfare Plan"), or (iii) any plan,
contract, program, practice, or arrangement (written or unwritten) under which
benefits may be provided to one or more employees or former employees (an "Other
Plan"). All Retirement Plans, Welfare Plans and Other Plans are hereinafter
collectively referred to as "Employee Benefit Plans." The assets of Seller are
not subject to any Liens under ERISA or the Internal Revenue Code, and no event
has occurred, and no condition exists, which could subject Seller or their
assets to a future liability, obligation or lien on account of any Controlled
Group Benefit Plan. For purposes of this subsection, a Controlled Group Benefit
Plan means any Employee Benefit Plan which Seller or any affiliated entity,
within the meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue
Code, maintains or at any time maintained, or to which Seller or any Affiliate
has at any time contributed or been obligated to contribute.
2.21. Employees. Seller does not have, and has never had, any paid
employees.
2.22. Consultants. Seller does not have any formal or informal arrangement,
contract or understanding with any consultant whose current annual rate of
compensation exceeds $10,000.
2.23. Corporate Documents. On or before ten days before Closing, Seller
shall deliver to Buyer true and complete copies of the Articles of Organization,
Bylaws, share registers, minute books and all other books and records of Seller.
All such documents are correct and complete, have been maintained in accordance
with the laws of the Commonwealth of Massachusetts and in accordance with good
business practices, and accurately reflect all material transactions involving
the businesses and affairs of Seller.
2.24. Corporate Name and Logo. To the knowledge of Seller and Stockholder,
Seller's use of its name and Seller's use of any logo or mark is and has at all
times been in compliance with all applicable federal and state statutory and
common laws, rules, rights of third parties and regulations. To the knowledge of
Stockholder and Seller, Seller is not infringing or otherwise acting adversely
to the right of any person under or in respect to any patent, license,
trademark, trade name, service mark, copyright or similar intangible right and
there is no claim for damages or any proceeding pending or threatened against
Seller, with respect thereto.
2.25. Licensure. To the knowledge of Seller and Stockholder, (i) Seller
possesses all permits, licenses, orders and other governmental authorizations
and approvals required to permit Seller to carry on their respective businesses
as presently conducted (collectively, the "Permits"), (ii) all such Permits are
set forth on Schedule 2.25 to be provided by Seller, are in the name of Seller
and are in full force and effect, and no proceeding is pending or, to the
knowledge of Seller or Stockholder, threatened, to revoke, modify, suspend or
terminate any such Permit, and
(iii) except as set forth on Schedule 2.25 the consummation of the transactions
contemplated by this Agreement does not require the consent of any other party
under any Permit.
2.26. Bank Accounts. A complete list of Seller's bank accounts and the
persons authorized to draw thereon, safe deposit boxes and the persons who have
access thereto is contained in Schedule 2.26.
2.27. Transactions with Affiliates. With the exception of the Obligations,
no director, officer or stockholder of Seller has an outstanding loan or a
receivable in either event to or from Seller or is a party to or has an interest
in any contract or agreement with Seller.
2.28. Broker's Fees. No agent, broker, person, or firm acting on behalf of
Seller or Stockholder is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated herein.
2.29. No Material Misrepresentations. No warranty or representation by
Seller or Stockholder contained in this Agreement, or any document or
certificate furnished to Buyer by or for Seller or Stockholder pursuant to this
Agreement, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statement contained in such warranty or
representation, or document or certificate in light of the circumstances under
which it was made, not misleading.
2.30 Investment Purposes; Compliance With 1933 Act.
(a) Stockholder is receiving the Securities for her own account for
investment only and not with a view towards, or in connection with, the public
sale or distribution thereof, except pursuant to sales registered under or
exempt from the 1933 Act and applicable state securities laws. Stockholder is
not obtaining the Securities for the purpose of covering short sale positions in
the Common Stock, established on or prior to the Closing. Stockholder agrees to
offer, sell or otherwise transfer the Securities only (i) in accordance with the
terms of this Agreement and the Note, as applicable, and (ii) pursuant to
registration under the 1933 Act or to an exemption from registration under the
1933 Act and any other applicable securities laws. Stockholder does not by its
representations contained in this Section 2.30(a) agree to hold the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time pursuant to a registration statement or in accordance
with an exemption from registration under the 1933 Act, in all cases in
accordance with applicable state and federal securities laws. Stockholder
understands that it shall be a condition to the issuance of the Securities that
they be and are subject to the representations set forth in this Section 2.6(a).
(b) Accredited Investor Status. Stockholder is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D. Stockholder
has such knowledge and experience in financial and business matters that she is
capable of evaluating the merits and risks of an investment made pursuant to
this Agreement. Stockholder is aware that she may be required to bear the
economic risk of an investment made pursuant to this Agreement for an indefinite
period of time, and is able to bear such risk for an indefinite period.
(c) Reliance on Exemptions. Stockholder understands the Securities are
being offered and sold to her in reliance on specific exemptions from the
registration requirements of the applicable United States federal and state
securities laws and that Buyer is relying upon the truth and accuracy of, and
Stockholder's compliance with, the representations, warranties, acknowledgments,
understandings, agreements and covenants of Stockholder set forth herein in
order to determine the availability of such exemptions and the eligibility of
Stockholder to acquire the Securities.
(d) Information. Stockholder and her advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of Buyer and materials relating to the offer and sale of the Securities that
have been requested by Stockholder. Stockholder and her advisors, if any, have
been afforded the opportunity to ask all such questions of Buyer as they have in
their discretion deemed advisable. Stockholder understands that her investment
in the Securities involves a high degree of risk. Stockholder has sought such
accounting, legal and
tax advice as she has considered necessary to make an informed investment
decision with respect to the investment made pursuant to this Agreement.
(e) No Government Review. Stockholder understands that no United
States federal or state agency or any other government or governmental agency
has approved or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer and Buyer's Sub hereby
represent, warrant and agree, as of the date hereof and as of the Closing Date,
as follows:
3.1. Organization. Buyer is and Buyer's Sub will be a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2. Corporate Authority. Subject to any necessary regulatory approvals,
Buyer has the full power, authority and right to enter into this Agreement and
Buyer has and Buyer's Sub will have the full power and authority to consummate
the transactions contemplated hereby; Buyer's Board of Directors has taken all
necessary corporate action to duly authorize the execution, delivery and
performance of this Agreement and Buyer's Sub will have taken all necessary
corporate action to duly authorize performance of this Agreement; all persons
signing or executing this Agreement and the exhibits hereto have been duly
authorized by Buyer to take such actions. The Agreement has been duly and
validly executed and delivered by Buyer and (assuming the due authorization,
execution and delivery thereof by Seller and Stockholder) constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors rights generally and subject to general principles of equity.
3.3. No Violations. The execution and delivery of this Agreement by Buyer
do not, and the consummation of the transactions contemplated hereunder by Buyer
and Buyer's Sub will not (i) violate any existing provision of any law,
including any securities laws, or violate any existing term or provision of any
order, writ, judgment, injunction or decree of any court, governmental
department, commission, board, agency or instrumentality applicable to Buyer or
Buyer's Sub or their properties or assets; (ii) conflict with or violate any of
the terms, conditions or provisions of the Certificate of Incorporation, as
amended, Bylaws, as amended, or any other organizational documents of Buyer or
Buyer's Sub; (iii) violate, result in any breach of, or constitute a default (or
give rise to any right of termination, cancellation or acceleration) under any
contract, agreement, indenture, mortgage or deed of trust, security agreement,
license, instrument or obligation to which any of Buyer or Buyer's Sub is a
party or by which any is bound; (iv) result in the creation or imposition of any
other Lien upon Buyer or Buyer's Sub or any of their properties or assets.
3.4. Validity of Shares. As of the Closing Date, the shares of common stock
to be issued or delivered at Closing by Buyer in connection with this Agreement
shall have been duly authorized for issuance and will, when issued and delivered
as provided in this Agreement, be duly and validly issued, fully paid and
nonassessable. The Note shall have been duly authorized. Buyer has only one
class of common stock, which is traded on the OTCBB under the symbol "PAID."
3.5. Broker's Fees. No agent, broker, person, or firm acting on behalf of
Buyer is, or will be, entitled to any commission or broker's or finder's fees
from any of the parties hereto, or from any person controlling, controlled by or
under common control with any of the parties hereto, in connection with any of
the transactions contemplated herein.
3.6. Buyer's SEC Reports. Buyer's most recent Annual Report on Form 10-KSB
for the year ended December 31, 2000 and Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001 (the "SEC Reports"), filed by Buyer with the
Securities and Exchange Commission did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.7. No Adverse Change. Since June 30, 2001, as disclosed on Schedule 3.7,
there has been no material adverse change in the financial condition of Buyer.
3.8. Compliance with Securities Exchange Act. Buyer has complied in all
material respects with the provisions of the Securities Exchange Act of 1934, as
amended, which are applicable to Buyer.
3.9. Litigation. Except as set described in the SEC Reports there is no
litigation, proceeding, investigation, arbitration claim or administrative or
regulatory proceeding, complaint or accusation pending in court or before any
administrative board, agency or commission, which can have a material adverse
effect on the assets, financial condition or business operation of Buyer.
3.10. Licensure. To the knowledge of Buyer, Buyer, and Buyer's Sub will
have, all permits, licenses, orders and governmental authorizations and
approvals required to permit Buyer and Buyer's Sub to carry on their respective
businesses (collectively the "Permits"), all such Permits are and will be in
full force and effect, and no proceeding is pending, or to the knowledge of
Buyer threatened, to revoke, modify, suspend or terminate any such Permit.
3.11. No Material Misrepresentations. No warranty or representation by
Buyer contained in this Agreement, or any document or certificate furnished to
Buyer by or for Buyer pursuant to this Agreement, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statement contained in such warranty or representation, or document or
certificate in light of the circumstances under which it was made, not
misleading.
3.12 Acknowledgment of Dilution. Shares of Common Stock issuable upon
conversion of the Note may increase substantially in certain circumstances,
including the circumstance wherein the trading price of the Common Stock
declines. Buyer's executive officers and directors have studied and fully
understand the nature of the securities being paid as consideration for the
Merger hereunder and recognize they have a potential dilutive effect. Buyer's
board of directors has concluded in its good faith business judgment that such
issuance is in the best interest of Buyer. Buyer acknowledges that its
obligation to issue Common Stock upon conversion of the Note is binding upon it
and enforceable regardless of the dilution that such issuance may have on the
ownership interest of other stockholders.
3.13 Eligibility to File Registration Statement. Buyer is currently
eligible to file a registration statement with the SEC on Form SB-2 under the
1933 Act.
4. COVENANTS.
4.1. Conduct Prior to the Closing Date. Between the date of this Agreement
and the Closing Date, unless Buyer has given its prior written consent
otherwise, or except as otherwise expressly provided herein, including, but not
limited to, Section 4.6, Seller shall (a) conduct its business only in the
ordinary course of business as now conducted so as to properly maintain such
business, (b) use its commercially reasonable efforts to preserve the businesses
intact, (c) comply with all laws, ordinances and regulations applicable to them
in the conduct of their business, (d) conduct its business in such a manner so
that the representations and warranties contained in Article 2 shall continue to
be true and correct on and as of the Closing Date as if made on and as of the
Closing Date, (e) refrain from selling, transferring or otherwise disposing of
any assets, (f) refrain from making any capital expenditure or commitment, (g)
refrain from increasing their indebtedness for borrowed money, or making any
loan to any person, (h) except in the ordinary course of business, consistent
with past practices of Seller, refrain from making or permitting any amendment
or termination of any contract, agreement or license to which Seller is a party
or by which it or any of their respective assets and properties are subject or
bound, (i) refrain from entering into any agreement or arrangement granting any
preferential rights to purchase Seller's assets or properties or requiring the
consent of any party to the transfer and assignment of Seller's assets or
properties, (j) refrain from writing off as uncollectible any notes or accounts
receivable, except write-offs in the ordinary course of business charged to
applicable reserves, none of which individually or in the aggregate will be
material to Seller, (k) refrain from canceling or waiving any claims or rights
of substantial value, (l) refrain from making any change in any method of
accounting or auditing practice; (m) refrain from amending its Articles of
Organization or Bylaws, (n) refrain from issuing or entering into
any subscription, option agreement or other commitment of any kind in respect of
the issuance, transfer, sale or encumbrance of any of the shares of common stock
of Seller or (o) refrain from agreeing, whether or not in writing, to do any of
the foregoing.
4.2. Dividends and Other Distributions. Except as otherwise expressly
provided in this Agreement or as otherwise set forth on the Balance Sheet,
Seller shall not make or agree to any distribution of cash or of properties or
other assets by way of dividends, distributions, redemptions or otherwise.
4.3. Notification of Changes and Defaults. Seller and Stockholder shall
give notice to Buyer of (i) the occurrence of any material event or circumstance
known to Seller or Stockholder, or of any inaccuracy, omission or mistake known
to Seller or Stockholder which in any way would cause any warranty and
representation made by Seller and Stockholder in Article 2, or any of the
information or documents heretofore provided to Buyer, to be changed, modified,
become inaccurate or otherwise not true and correct in all material respects,
whether as of the date of execution of this Agreement or at any time subsequent
thereto and prior to the Closing Date; or (ii) the occurrence of any material
event or circumstance known to Seller or Stockholder that would result in a
violation or breach by Seller or Stockholder of any of the material terms and
provisions of this Agreement.
4.4. Exclusive Dealing. During the period from the date of this Agreement
to the Closing Date, Stockholder and Seller shall not take any action to
directly or indirectly encourage, initiate or engage in discussions or
negotiations with, or provide any information to, any corporation, partnership,
person, or other entity or group, other than Buyer, concerning the merger or
combination of Seller with any other entity, the purchase and sale of all or
substantially all of the assets and properties of Seller, the purchase and sale
of the common stock of Seller or any transaction similar to the foregoing
involving Seller, and Seller and Stockholder shall immediately notify Buyer if
any third party initiates or attempts to encourage, initiate or engage in any
such discussions or negotiations.
4.5. Examinations and Investigations. Between the date hereof and the
Closing Date, Buyer shall be entitled, through its employees and
representatives, including, without limitation, Buyer's counsel and accountants,
to make such investigation of the assets, properties, business and operations of
Seller, and such examination of the books, records and financial condition of
Seller as Buyer may deem necessary or desirable. Such investigations and
examinations shall be conducted at reasonable times and under reasonable
circumstances, and Stockholder and Seller shall cooperate fully therein. No
investigation or examination by Buyer shall diminish or obviate any of the
representations, warranties, covenants or agreements of Stockholder or Seller
under this Agreement. In order that Buyer may have full opportunity to make such
business, accounting and legal review, investigation and examination as it may
wish of the business and affairs of Seller, Seller shall furnish, and shall
cause Seller to furnish, to the representatives of Buyer during such period, all
such information and copies of such documents concerning the affairs of Seller
as such representatives may reasonably request and shall cause their respective
officers, consultants, agents, accountants and attorneys to cooperate fully with
such representatives in connection with such review, investigation and
examination. In the event this Agreement terminates, Buyer and its
representatives shall keep confidential and shall not use in any manner any
information or documents obtained from Stockholder or Seller concerning their
respective assets, properties, business and operations. In the event this
Agreement terminates, all but one copy of the documents obtained from Seller
shall be returned or destroyed.
4.6. Regulatory Approval. Seller will provide Buyer with any information
relating to Seller which Buyer may require to comply with requests of any
government agencies in connection with the approval of the transactions
contemplated herein, shall reasonably cooperate with Buyer and shall use its
best efforts to facilitate approval of the transactions contemplated by this
Agreement. Buyer shall file all documents necessary to obtain all regulatory
approvals required for Buyer and Seller to complete the transactions
contemplated hereby. Seller and Stockholder shall promptly notify Buyer of any
notification which Seller may receive from any regulator regarding the
regulatory proceedings and requirements in connection with the transactions
contemplated by this Agreement, and shall promptly provide Buyer with copies of
such notification.
4.7. Cooperation. Buyer, Buyer's Sub, Stockholder and Seller will cooperate
with each other and will cause their respective stockholders, directors,
officers, employees, partners, agents, auditors, and representatives to
cooperate with each other to ensure the orderly transition of ownership of
Seller to Buyer and to minimize any disruption that might result from such
transfer.
4.8. Delivery of Documents to Buyer; Further Assurances. Seller and
Stockholder shall deliver to Buyer to the extent requested by Buyer true and
complete copies of all documents described in any of the Schedules attached
hereto. Each of the parties hereto covenants and agrees that from and after the
Closing Date each will execute, deliver and acknowledge (or cause to be
executed, delivered and acknowledged), from time to time at the request of any
other party and without further consideration, all such further instruments and
take all such further action, and Seller and Stockholder shall execute, deliver
and acknowledge all such further instruments and take such further action, as
may be reasonably necessary or appropriate to implement the provisions and
intent of this Agreement and the transactions contemplated hereby.
4.9. Stockholder Approval. Stockholder shall vote all of her shares of
common stock of Seller in favor of the Merger.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
The obligations of Buyer under this Agreement shall be subject to the
fulfillment of each and all of the following conditions at or before the
Closing, each of which is individually hereby deemed material, and any one or
more of which may be waived in writing by Buyer:
5.1. Representations and Warranties. Each of the representations,
warranties and statements made by Seller and Stockholder contained in this
Agreement and in all exhibits, schedules, certificates, lists, financial
statements and other documents or information furnished by Stockholder and
Seller pursuant to the provisions hereof, or in connection with the transactions
contemplated hereby, shall be true and correct on and as of the Closing Date to
the same extent and with the same effect as if made on and as of that date.
5.2. Performance of Agreement. Stockholder and Seller shall have fully
performed and complied with all covenants, conditions, obligations and
agreements required by this Agreement to be performed or complied with by
Stockholder and Seller on or prior to or at the Closing.
5.3. Regulatory Approvals and Consents. There shall have been obtained by
Buyer, Stockholder and Seller all consents, approvals, authorizations, and
Permits required to consummate the transactions contemplated by this Agreement,
and all such consents, approvals, authorizations, and Permits shall be
unconditional, shall not place any restrictions or limitations on Buyer, Buyer's
Sub or Seller other than those restrictions or limitations to which Buyer or
Buyer's Sub has agreed to be bound, and shall be in full force and effect as of
the Closing Date. All waiting periods under any applicable law, rule or
regulation shall have expired. Consummation of the transactions contemplated by
this Agreement will not violate any applicable federal, state or local laws or
regulations.
5.4. Compliance with DGCL and MBCL. Seller and Stockholder shall have taken
all corporate action required to be taken under the DGCL and the MBCL to effect
the Merger and Stockholder shall have approved the Merger in the manner and by
the vote required by DGCL and MBCL.
5.5. Seller's Certificate for Closing. Stockholder shall have delivered to
Buyer a certificate, executed by her, and dated as of the Closing Date, stating
that to the best of her knowledge and belief, in all material respects, all of
the conditions precedent to Buyer's obligations hereunder which are required to
be fulfilled by Seller and/or Stockholder have been fulfilled, and Seller and
Stockholder have duly performed all obligations and covenants to be performed by
them on or before the Closing Date hereunder.
5.6. No Proceedings Pending. No injunction or restraining order shall
prohibit or limit the right of Buyer or Buyer's Sub to consummate the
transactions provided for in this Agreement, and no action, suit, proceeding by
or before any court, administrative agency or other governmental authority of
any kind shall have been instituted or threatened in writing which would
materially and adversely affect the ability of Seller to conduct its business as
presently conducted or which would result in restraining, prohibiting or
invalidating, or seeking monetary damages by reason of consummation of, the
transactions provided for in this Agreement.
5.7. Buyer's Due Diligence. Within 10 days after the date of this
Agreement, Buyer shall have completed its due diligence review of Seller, the
results of which shall be satisfactory to Buyer in its reasonable discretion. If
Buyer is not satisfied with its due diligence review, Buyer shall identify all
of its concerns to Seller and Stockholder and for a period of 5 days Buyer shall
attempt together with Seller and Stockholder in good faith to resolve Buyer's
concerns. If Buyer is still not satisfied after such period, it may terminate
this Agreement based on due diligence review.
5.8. No Material Adverse Change. Prior to the Closing Date, there shall be
no adverse change in the assets or liabilities, the business or financial
condition of Seller, other than as set forth and authorized herein.
6. CONDITIONS PRECEDENT TO SELLER'S AND STOCKHOLDER'S OBLIGATIONS.
The obligations of Stockholder and Seller under this Agreement shall be
subject to the fulfillment of each and all of the following conditions at or
before Closing, each of which is individually hereby deemed material, and any,
one or more of which may be waived in writing by Seller:
6.1. Representations and Warranties. Each of the representations,
warranties and statements made by Buyer contained in this Agreement shall be
true and correct on and as of the Closing Date to the same extent and with the
same effect as if made on and as of that date.
6.2. Performance by Buyer. Buyer shall have fully performed and complied
with all covenants and agreements required by this Agreement to be performed or
complied with by them on or before the Closing.
6.3. Compliance with DGCL and MBCL. Buyer shall have taken all corporate
action required to be taken under the DGCL and MBCL.
6.4. Regulatory Approvals. Buyer and Buyer's Sub shall have obtained all
regulatory approvals required to consummate the transactions contemplated by
this Agreement. All waiting periods under any applicable law, rule or regulation
shall have expired.
6.5. Buyer's Certificate. Buyer shall have delivered to Stockholder its
certificate dated as of the Closing Date, stating that to the best of its
knowledge and belief, in all material respects, all of the conditions precedent
to Stockholder's obligations hereunder which are required to be fulfilled by
Buyer or Buyer's Sub have been fulfilled and Buyer and Buyer's Sub have duly
performed all obligations to be performed by them on or before the Closing Date
hereunder.
6.6. No Proceedings Pending. No injunction or restraining order shall
prohibit or limit the right of Buyer and/or Buyer's Sub to consummate the
transactions provided for in this Agreement.
6.7. Advice from Advisor. Stockholder shall have received the advice from
her accountant or other evidence reasonably satisfactory to her that the Merger
shall qualify as a tax-free exchange within the meaning of Section 368(a) of the
Code.
6.8. Good Standing Certificates. Buyer shall have delivered to Stockholder
at Closing good standing certificates of Buyer and of Buyer's Sub certifying
that each is in good standing in the State of Delaware.
7. ACTIONS TO BE TAKEN AT CLOSING.
7.1. Seller's and Stockholder's Obligations at Closing. At the Closing,
Seller and Stockholder will deliver to Buyer the following:
(i) the Articles of Merger duly executed by Seller;
(ii) all original stock certificates evidencing all of the issued and
outstanding shares of Common Stock of Seller as held by Stockholder and the 6%
Convertible Promissory Note of Seller held by Stockholder;
(iii) duly executed Closing Certificate (as provided in Section 5.5
hereof), dated as of the Closing Date, with respect to the matters set forth in
Section 5.5 hereof;
(iv) copies of minutes of the Board of Directors and stockholders of
Seller with respect to this Agreement and the Merger, certified by their
respective secretaries;
(v) a good standing certificate of Seller certifying that Seller is in
good standing in the Commonwealth of Massachusetts dated no earlier than 30
calendar days prior to the Closing Date;
(vi) executed counterparts of any consent required to be delivered as
a condition to Closing;
(vii) originals or true and correct copies of the minute books, stock
transfer and other books and records of Seller;
(viii) executed Registration Rights Agreement; and
(ix) such other documents and instruments as may reasonably be
required to complete the transactions contemplated hereunder.
7.2. Buyer's Obligations at Closing. At the Closing, Buyer will deliver the
following to Stockholder:
(i) the Articles of Merger executed by Buyer and Buyer's Sub;
(ii) original stock certificates representing the shares of common
stock to be paid as consideration;
(iii) the executed Note;
(iv) copies of the minutes of the proceedings of the Board of
Directors of Buyer with respect to this Agreement and the Merger, certified by
its secretary;
(v) executed Registration Rights Agreement;
(vi) the Security Agreement; and
(vii) such other documents and instruments as may reasonably be
required to complete the transactions contemplated hereunder.
8. INDEMNIFICATION.
8.1. Stockholder shall indemnify and hold harmless Buyer, and its officers,
directors, and employees, and their respective successors and assigns from and
against any and all losses, damages, actions, suits, proceedings, demands,
deficiencies, liabilities, assessments, judgments, costs and expenses of any
nature (including reasonable attorneys' and experts' fees and other costs and
expenses of prosecuting or defending any claim) (a "Claim") arising from, in
connection with or incident to (i) any breach of the representations and
warranties of Seller or Stockholder under this Agreement; (ii) any default by
Seller or Stockholder of Seller's or Stockholder's covenants and agreements
under this Agreement; and (iii) any act or omission of Stockholder or Seller
which occurred prior to the Closing relative to Seller.
8.2. Buyer shall indemnify and hold harmless Seller and Stockholder and
their successors and assigns from and against any and all Claims arising from,
in connection with or incident to (i) any breach of the
representations and warranties of Buyer under this Agreement; or (ii) any
default by Buyer of any of Buyer's covenants and agreements under this
Agreement.
8.3. (a) Upon obtaining knowledge thereof, the party to be indemnified
hereunder (the "Indemnitee") shall promptly notify the indemnifying party
hereunder (the "Indemnitor") in writing of any Claim which the Indemnitee has
determined has given or could give rise to a claim for which indemnification
rights are granted hereunder (such written notice referred to as the "Notice of
Claim"); provided, however, that the giving of a Notice of Claim shall not be a
condition precedent to any liability of the Indemnitor under the provisions for
indemnification contained in this Agreement, unless (and only to the extent
that) failure to give such notice materially prejudices the rights of the
Indemnitor with respect to the applicable matter. The Notice of Claim shall
specify, in all reasonable detail, the nature and estimated amount of any such
claim giving rise to a right of indemnification.
(b) With respect to any matter set forth in a Notice of Claim relating
to a third party claim, the Indemnitor may compromise or defend, at the
Indemnitor's own expense, and by the Indemnitor's own counsel (which counsel
shall be subject to the Indemnitee's reasonable approval), any such matter
involving the asserted liability of the Indemnitee; provided, however, that no
compromise or settlement thereof may be effected by the Indemnitor without the
Indemnitee's consent (which shall in any event not be unreasonably withheld)
unless (i) there is no finding or admission of any violation of law by the
Indemnitee or any violation of the rights of any person by the Indemnitee and no
effect on any other claims that may be made against the Indemnitee and (ii) the
sole relief provided is monetary damages that are paid in full by the
Indemnitor. In the event that the Indemnitor shall elect to compromise or defend
such matter, then the Indemnitee shall be entitled to request and receive
reasonable security from the Indemnitor sufficient to make the Indemnitee whole
with respect to such claim. If the Indemnitor elects not to compromise or defend
such matter, then the Indemnitee, at the Indemnitor's expense but by the
Indemnitee's own counsel, may defend such matter but regardless of whether or
not the Indemnitor assumes the defense of any such action the Indemnitee may not
compromise the defense of any such matter without the prior written consent of
the Indemnitor, which consent shall not be unreasonably withheld, and the
Indemnitor shall have no liability with respect to any such matter, the defense
of which is compromised without the Indemnitor's consent (unless such consent
was unreasonably withheld). In any event, the Indemnitee, the Indemnitor and the
Indemnitor's counsel (and, if applicable, the Indemnitee's counsel) shall
cooperate in good faith in the compromise of, or the defense against, any such
asserted liability. If the Indemnitor chooses to defend any claim, the
Indemnitee shall make available to the Indemnitor any books, records, or other
documents within its control that are reasonably necessary or appropriate for
such defense.
(c) Notwithstanding the subsection (b) above, if there is a reasonable
probability that a third party claim for which Stockholder has granted
indemnification rights to Buyer hereunder will materially and adversely affect
Buyer, Buyer's Sub, Seller or the Business after the Closing Date other than as
a result of money damages or other payments, Buyer shall be entitled to conduct
the defense of such claim at its own expense, provided that Stockholder shall
remain liable for all liabilities, losses, damages, costs or expenses other than
Buyer's attorney's fees, and further provided that Stockholder shall have the
right, at their sole cost and expense, to employ counsel separate from counsel
employed by Buyer in any such action and to participate therein.
(d) Notices of Claim must be given by Stockholder or Buyer on or
before three (3) years from the date of Closing hereunder.
8.4. (a) After the closing of the transactions contemplated by this
Agreement, Stockholder's liability pursuant to this Section 8 shall be limited
as follows: (i) Stockholder shall only be liable for claims giving rise to a
liability or obligation of Buyer by a third party (including a government or
governmental agency or instrumentality); (ii) to the extent that the breach or
default giving rise to the Claim is covered by Seller's errors and omissions
insurance policy in effect as of the closing, Stockholder shall not be liable
for the amount actually received by Buyer in respect of such breach under the
policy; and (iii) except as otherwise provided in Section 8.4(b) below, the
amount of Stockholder's liability shall not exceed the Face Value of the Note.
(b) Anything contained in Section 8.4(a) to the contrary
notwithstanding, there shall be no limit on Stockholder's liability if such
liability arises out of or results from the fraud, gross negligence or
misrepresentation of Seller and/or Stockholder.
9. TERMINATION OF AGREEMENT
9.1. Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned, prior to Closing:
(a) by mutual written consent of Buyer and Seller; or
(b) by Buyer if there has been a material misrepresentation on the
part of Seller or Stockholder in any representation or warranty of Seller or
Stockholder contained herein or in any instrument delivered or furnished by
Seller or Stockholder pursuant hereto, or if there has been any failure on the
part of Stockholder or Seller or any of them to comply with or perform any of
their agreements, covenants or obligations hereunder in any material respect, or
to satisfy any condition precedent set forth in Section 5 hereof, and such
misrepresentation, noncompliance or nonperformance shall not have been (1) cured
or eliminated by Seller or Stockholder on or before the Closing Date, or (2)
waived by Buyer on or before the Closing Date; or
(c) by Seller and Stockholder if there has been a material
misrepresentation on the part of Buyer in any representation or warranty of
Buyer contained herein or in any certificates or other instrument delivered or
furnished to Seller and Stockholder pursuant hereto, or if there has been any
failure on the part of Buyer to comply with or perform any of either of their
agreements, covenants or obligations hereunder in any material respect, and such
misrepresentation, non-compliance or non-performance shall not have been (1)
cured or eliminated by Buyer on or before the Closing Date, or (2) waived by
Seller and Stockholder on or before the Closing Date; or
(d) this Agreement does not close on or before November 30, 2001, or
such later date that the parties hereto agree.
9.2. Remedies.
(a) If this Agreement does not close due to a failure of a condition
set forth in Section 5 hereof, other than a condition that can be satisfied by
action of Stockholder, Buyer's remedy shall be limited to monetary damages for
its out-of-pocket expenses.
(b) The parties hereto acknowledge that in the event of a breach of
this Agreement other than as provided in Section 9.2(a), any claim for monetary
damages hereunder may not constitute an adequate remedy, and that it may
therefore be necessary for the protection of the parties and to carry out the
terms of this Agreement to apply for the specific performance of the provisions
hereof. It is accordingly hereby agreed by all parties that no objection to the
form of the action or the relief prayed for in any proceeding for specific
performance of this Agreement shall be raised by any party in order that such
relief may be expeditiously obtained by an aggrieved party. All parties may
proceed to protect and enforce their rights hereunder by a suit in equity,
action at law or other appropriate proceeding, whether for specific performance
or for an injunction against a violation of the terms hereof or in aid of the
exercise of any right, power or remedy granted hereunder or by law, equity or
statute or otherwise. No course of dealing and no delay on the part of any party
hereto in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice its rights, powers or remedies, and no right,
power or remedy conferred hereby shall be exclusive of any other right, power or
remedy referred to herein or now or hereafter available at law, in equity, by
statute or otherwise.
10. CONFIDENTIALITY
Each of the parties hereto shall keep strictly confidential any and all
information furnished to it or to its agents or representatives in the course of
negotiations relating to this Agreement or any transaction contemplated by this
Agreement, and the business and financial reviews and investigation conducted by
the parties hereto in connection with this Agreement, and such parties have
instructed their respective officers, employees and other
representatives having access to such information of such obligation of
confidentiality. In the event of the termination of this Agreement, each of the
parties hereto shall promptly deliver to the appropriate party or certify as to
the destruction of all originals and copies, except one copy thereof which may
be retained by Buyer's counsel (including all notices, extracts and computer
tapes) of documents, work papers and other written material or tangible media of
expression concerning such party and obtained from such party or its agents,
employees or representatives in connection with such negotiations and business
and financial reviews and investigations, whether so obtained before or after
the execution hereof, and the parties hereto covenant and agree that they will
not use any information so obtained; provided, however, that any disclosure of
such information may be made after consultation with the other party to the
extent required by applicable law and that such information may be used as
evidence in or in connection with any pending or threatened litigation related
to this Agreement or any transaction contemplated hereby. The obligations of
confidentiality set forth herein shall not apply to information generally
available to the public or in the possession of the receiving party prior to its
disclosure under this Agreement or that is given to the receiving party by
another person other than in breach of obligations of confidentiality owed by
such person to the disclosing party under this Agreement. Each of the parties to
this Agreement agrees that, except as required by law, it will not issue or file
any public reports, statements or releases pertaining to this Agreement or any
transaction contemplated by this Agreement without the prior written consent of
the other party, which consent will not be unreasonably withheld.
11. MISCELLANEOUS.
11.1. Entire Agreement. This Agreement and the Exhibits and Schedules
hereto contain the entire agreement between the parties with respect to the
subject matter hereof, and supersede any and all prior agreements, arrangements
or understandings. No oral understandings, statements, promises or inducements
contrary to the terms of this Agreement exist. No representations, warranties,
covenants or conditions, express or implied, have been made by the parties
hereto.
11.2. Waiver and Modification. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances shall be deemed to be or construed as a further or continuing waiver
of any such term, provision or condition of this Agreement. This Agreement
cannot be modified except by a written document signed by the parties hereto.
11.3. Survival of Representations. The representations, warranties and
covenants of Seller and Stockholder contained in this Agreement shall survive
the Closing for the period of the applicable statutes of limitations and the
consummation of the transactions contemplated by this Agreement shall not be
discharged, dissolved or terminated by the Closing.
11.4. Headings. The headings and titles of articles and sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
11.5. Knowledge. Where any representation or warranty contained in this
Agreement is expressly qualified by reference to knowledge of Seller or
Stockholder, such reference shall be deemed to mean actual knowledge of Seller
and/or Stockholder after reasonable inquiry of the officers, directors,
stockholders, and professional advisors of Seller.
11.6. Severability. The unenforceability or invalidity of any article,
section or subsection of this Agreement shall not affect the enforceability or
validity of the balance of this Agreement.
11.7. Notices. Any notice, demand, approval, consent, request, waiver or
other communication which may be or is required to be given pursuant to this
Agreement shall be in writing and shall be deemed given when personally
delivered or mailed by first-class registered or certified mail, return receipt
requested, or when sent by telegram, telex, or telefax, on the day actually
received and shall be addressed to a party at the address set forth after its
respective name below, or at such different address as such party shall have
theretofore advised the other parties in writing, with copies sent to the
persons indicated:
If to Seller or Stockholder:
Rotman Collectibles, Inc.
101 Aylesbury Road
Worcester, MA 01609
Attn: President
with a copy to:
David T. Bunker, Esquire
Gould & Ettenberg, P.C.
370 Main Street
Worcester, MA 01608
If to Buyer:
Sales Online Direct, Inc.
4 Brussels Street
Worcester, MA 01610
Attn: President
with a copy to:
Michael A. Refolo, Esquire
Bowditch & Dewey, LLP
311 Main Street
Worcester, MA 01608
11.8. Submission to Jurisdiction. The parties hereby agree that any action,
suit or proceeding brought under this Agreement shall be submitted to the courts
of the Commonwealth of Massachusetts or the federal courts for the Commonwealth
of Massachusetts; the parties hereby consent and submit to the jurisdiction of
such courts in any such action, suit or proceeding hereby waiving any objection
as to jurisdiction or venue. Seller and Stockholder hereby appoint David T.
Bunker, Esquire as its agent for receiving service of process in any such
action, suit or proceeding in the state or federal courts of Massachusetts; and
each of the parties agrees that service of process may be made upon him or it in
any such action, suit or proceeding either personally or by telex, cablegram or
telefax, with a copy by registered or certified mail, return receipt requested,
to it at the address hereinabove set forth, or by service of process upon David
T. Bunker, Esquire, hereby waiving any objection to the form of or based upon
service of process made in such manner. If any action is brought in the U.S.
District Court for the District of Massachusetts or is removed to such court
from a state court, each of the parties hereto waives any right it may have to
obtain a change of venue to any other federal court.
11.9. Waiver of Jury Trial. IN THE EVENT ANY LAWSUIT, PROCEEDING OR OTHER
LITIGATION IS COMMENCED IN CONNECTION WITH THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, Seller, Stockholder, AND BUYER MUTUALLY WAIVE
ALL RIGHTS TO HAVE SUCH LAWSUIT, PROCEEDING OR OTHER LITIGATION TRIED BEFORE A
JURY, AND AGREE THAT ALL SUCH LAWSUITS, PROCEEDINGS AND OTHER LITIGATION SHALL
BE HEARD BY A COURT SITTING AS THE TRIER OF FACT AND LAW.
11.10. Governing Law. This Agreement has been made in and shall be governed
by and construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts, exclusive of the conflict of laws principles of that state.
11.11. Enforceability. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, and their respecting, heirs, personal
representative, successors and permitted assigns.
11.12. Execution of Additional Documents. Each party shall make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as may be reasonably required in order to effectuate the purposes
of this Agreement and to consummate the transactions contemplated hereby.
11.13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal, with the intention of making this a sealed instrument, as of the day and
year first above written.
WITNESS/ATTEST SALES ONLINE DIRECT, INC.
By: /s/ Gregory Rotman
- ---------------------------- -------------------------------------
Name: Name: Gregory Rotman
Title: Title: President
ROTMAN COLLECTIBLES, INC.
By: /s/ Leslie Rotman
- ---------------------------- -------------------------------------
Name: Name: Leslie Rotman
Title: Title: President
/s/ Leslie Rotman
- ---------------------------- -------------------------------------
Leslie Rotman
EXHIBIT A
Form of 6% Convertible Promissory Note
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM,
SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE LAWS.
SALES ONLINE DIRECT, INC.
CONVERTIBLE PROMISSORY NOTE
US$1,000,000 November ___, 2001
SALES ONLINE DIRECT, INC., a Delaware corporation (the "Corporation"), for
value received, hereby promises to pay to Leslie Rotman (the "Creditor"), and
her successors and assigns, the principal sum of One Million Dollars and No/100
($1,000,000.00) (the "Principal Sum"), plus interest thereon as hereinafter
provided. The Principal Sum and all accrued and unpaid interest shall be payable
two years from the date hereof pursuant to the terms set forth below.
This Note is issued under and pursuant to the terms and provisions of the
Agreement and Plan of Merger, dated October 23, 2001, between the Corporation
and the Creditor (as the same may be amended, supplemented or otherwise modified
from time to time, the "Agreement and Plan of Merger"). This Note is secured by
an "all assets" Security Agreement of even date herewith (the "Security
Agreement") and the holder hereof is entitled to all of the rights and benefits
provided for thereby or referred to therein. All capitalized terms used herein
without definition shall have the meanings ascribed in the Agreement and Plan of
Merger.
The Principal Sum shall bear interest, commencing on and as of the date of
such Advance to and including the date such Advance is repaid in full, at a rate
of six percent (6%) per annum. Interest shall be due and payable in arrears on
the last Business Day of each March, June, September, and December commencing on
March 31, 2002 and continuing until all amounts owing under the Note has been
paid. Principal and interest payable to the holder of this Note shall be paid in
shares of Common Stock of the Corporation, as set forth in the Agreement and
Plan of Merger, or, if no such shares of Common Stock are available for
issuance, in cash.
If any principal or interest is not paid in full on the due date thereof
(taking into account any applicable grace periods) (whether by maturity,
prepayment or acceleration), and upon and during the continuance of any Event of
Default (as defined in the Agreement and Plan of Merger), the outstanding
principal balance of this Note shall bear interest thereafter at a rate equal to
eighteen percent (18%) per annum until such payment is paid in full or such
Event of Default is cured or waived in accordance with the terms of the
Agreement and Plan of Merger.
To the extent permitted by law, the Corporation hereby waives diligence,
presentment, demand, protest and notice of every kind whatsoever. The failure of
the holder hereof to exercise any of its rights hereunder in any particular
instance shall not constitute a waiver of the same or of any other right in that
or any subsequent instance.
This Note shall be binding upon the Corporation, its successors, and
permitted assigns, and shall inure to the benefit of the Creditor, its
successors and assigns.
This Note is a contract made under and governed by, and shall be construed
and enforced in accordance with, the laws of the Commonwealth of Massachusetts,
without regard to conflict of laws principles.
Conversion Rights and Procedures
In addition to the rights set forth above, the holder of this Note shall
have the conversion rights set forth below:
1. Conversion Right. At the Creditor's election, exercisable at any time
and from time to time, all or a portion of the principal outstanding under this
Note shall be converted, without the payment of any additional consideration,
into the number of fully-paid and nonassessable shares of Common Stock as
provided in Section 2 below.
2. Conversion Calculation.
The number of shares issuable upon conversion of all or a portion of the
principal outstanding under this Note at any time shall be determined by
dividing the amount of principal to be converted by the Conversion Price, where
the Conversion Price equals eighty percent (80%) (the "Conversion Percentage")
of the average of the five (5) Closing Bid Prices for the Common Stock for the
five (5) consecutive trading days immediately preceding the Conversion Date (as
herein defined), as reported on the National Association of Securities Dealers
OTC Bulletin Board Market (or on such other national securities exchange or
market as the Common Stock may trade at such time); notwithstanding anything in
this paragraph to the contrary, if the registration statement covering the
resale of the shares of Common Stock issuable upon conversion of this Note has
not been declared effective within 240 days after the date of issuance of this
Note (the "Due Date"), then, upon written notice by the Creditor to the Company,
the Conversion Percentage shall decrease by two percent (2%) for each month
after such notice (that is, each thirty (30) day period after the notice after
the Due Date, beginning on the 30th day of the month in which the notice was
first provided) or partial month in which the said registration statement has
not been declared, or does not remain, effective to a Minimum Conversion
Percentage of seventy percent (70%); if such registration statement has not been
declared and does not remain effective on the date which is one (1) year after
the date of issuance of this Note, then, upon written notice by Creditor to the
Company, the Conversion Percentage shall be seventy percent (70%). For purposes
hereof, the term "Closing Bid Price" shall mean for any security as of any date,
the last closing bid price for such security on the OTC Bulletin Board Market as
reported by Bloomberg, L.P., or, if the OTC Bulletin Board Market is not the
principal trading market for such security, the last closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, L.P., or, if no last
closing bid or trade price is reported for such security by Bloomberg, L.P., the
closing bid price shall be determined by reference to the closing bid price as
reported on the principal trading market, and if not so reported shall be
determined from the average of the bid prices of any market makers for such
security as reported in the "pink sheets" published by the National Quotation
Bureau, Inc. If the closing bid price cannot be calculated for such security on
such date on any of the foregoing bases, the closing bid price of such security
on such date shall be the fair market value as mutually agreed by the Company
and the holder of this Note.
If the Common Stock issuable upon the conversion of this Note shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, stock split, stock
dividend, or similar event, then and in each such event, the holder of this Note
shall have the right thereafter to convert all or any portion of the principal
amount outstanding under this Note into the kind and amount of shares of stock
and other securities and property receivable upon such capital reorganization,
reclassification or other change which such holder would have received had this
Note been converted immediately prior to such capital reorganization,
reclassification or other change.
3. Conversion Procedure.
The holder of this Note may exercise its right to convert all or any
portion of the principal amount outstanding under this Note by telecopying an
executed and completed notice to the Corporation and delivering the original
notice in the form annexed hereto as Exhibit A ("Notice of Conversion") by
express courier. Each business date on which a Notice of Conversion is
telecopied to and received by the Corporation in accordance with the provisions
hereof shall be deemed a "Conversion Date." The Corporation will transmit, or
instruct its transfer agent to transmit the certificates representing shares of
Common Stock issuable upon conversion of this Note to the holder
thereof via express courier, by electronic transfer or otherwise, within three
(3) business days after the Corporation has received the facsimile Notice of
Conversion. In addition to any other remedies which may be available to the
holders of this Note, except as otherwise stated in the Agreement and Plan of
Merger, in the event that the Corporation fails to deliver, or has failed to
contact its transfer agent within two (2) business days to deliver, such shares
of Common Stock within such three business-day period, the holder will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Company whereupon the Company and the holder shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion.
No fractional shares of Common Stock shall be issued upon conversion of
this Note. In lieu of any fractional share to which the holder would be entitled
but for this paragraph, the number of shares of Common Stock to be received
shall be rounded to the nearest whole share.
4. Issuance of Common Stock. The issuance of certificates for shares of
Common Stock upon conversion of this Note will be made without charge to the
holder for any issuance tax or other governmental charge in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of Common Stock. Upon the conversion of this Note, the
Corporation will take all such actions as are necessary in order to insure that
the shares of Common Stock issuable with respect to such conversion will be
validly issued, fully paid and nonassessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the
issuance thereof. Upon receipt of the certificates evidencing shares of Common
Stock issued upon a conversion of principal outstanding under this Note, the
holder of this Note shall make provide documentation indicating the date of the
conversion and the amount of principal so converted. In the event that the
holder elects to convert all of the principal outstanding under this Note, the
holder shall surrender this Note to the Corporation upon receipt of the
certificates representing the shares of Common Stock issued upon such
conversion.
5. Reorganization. If at any time or from time to time there shall be a
stock split, reverse stock split, stock dividend, or other capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for above), or a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company's properties, stock and/or assets to any
other person or entity (any of which events is herein referred to as a
"Reorganization"), then as a part of such Reorganization, provision shall be
made so that the holder of this Note shall thereafter be entitled to receive
upon conversion of this Note, the number of shares of stock or other securities
or property of the Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted this Note immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holder of this Note after the
Reorganization, to the end that the provisions of this Section 5 (including
adjustment of the number of shares issuable upon conversion of this Note) shall
be applicable after that event in as nearly equivalent a manner as may be
practicable. Upon the occurrence of each adjustment or readjustment of the
Conversion Price, the Company, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to the holder of this Note a certificate executed by the president and
chief financial officer (or in the absence of a person designated as the chief
financial officer, by the treasurer) setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment are based. The Company shall, upon written request at any time of
the holder of this Note, furnish or cause to be furnished to such holder a
certificate setting forth (A) the Conversion Price at the time in effect, and
(B) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of this Note.
6. Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Note, such number of its
shares of Common Stock as shall from time to time be sufficient or as may be
available to effect the conversion of the maximum principal amount of this Note,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the then outstanding
principal amount of this Note, the Company shall use its best efforts to take
such corporate action as may be necessary to have a sufficient number of
authorized but unissued shares of Common Stock available to effect the
conversion.
7. Restriction on Conversion. Notwithstanding anything to the contrary set
forth herein, in no event shall the holder of this Note be entitled to convert
all or any portion of the principal outstanding under this Note in excess of
such portion of the principal of this Note that, upon giving effect to such
conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by such converting holder and its affiliates to exceed 4.99%
of the outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of this Note with
respect to which the determination of such proviso is being made. Except as set
forth in the preceding sentence, for purposes of this Section, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. The limitations imposed by this Section on
conversion of this Note shall no longer apply, and the holder of this Note, upon
notice to the Corporation, may convert all or any portion of the principal
outstanding under this Note, irrespective of the resulting beneficial ownership
of the Corporation's Common Stock, should any Event of Default, as defined in
Paragraph 8, occur.
8. Events of Default. The following shall constitute an Event of Default
under this Note: (a) any default under either the Agreement and Plan of Merger
or the Security Agreement; (b) The Corporation shall either: (i) become
insolvent; or (ii) admit in writing its inability to pay its debts generally or
as they become due; (iii) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (iv) apply for, or consent to the
appointment of, a trustee, liquidator, or receiver for its or for a substantial
part of its property or business; or (c) A trustee, liquidator or receiver shall
be appointed for the Corporation or for a substantial part of its property or
business without the Corporation's consent and such appointment is not
discharged within sixty (60) days after such appointment; or (d) Any
governmental agency or any court of competent jurisdiction at the instance of
any governmental agency shall assume custody or control of the whole or any
substantial portion of the properties or assets of the Corporation; or (e) Any
money judgment, writ or note of attachment, or similar process in excess of Five
Hundred Thousand United States Dollars (US$500,000.00) in the aggregate shall be
entered or filed against the Corporation or any of its properties or assets and
shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen
(15) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or (f) Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Corporation and, if instituted against the Corporation, shall not be dismissed
within sixty (60) days after such institution or the Corporation shall by any
action or answer approve of, consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in answering a petition filed in,
any such proceeding.
9. Notices. Any notices desired, required or permitted to be given
hereunder shall be delivered in accordance with the notice provision in the
Agreement and Plan of Merger.
Executed as a sealed instrument.
SALES ONLINE DIRECT, INC.
By:
----------------------------
Name: Gregory Rotman
Title: President
Exhibit B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made as of
November 7, 2001, between Sales Online Direct, Inc., a corporation organized
under the laws of the State of Delaware, with headquarters located at 4 Brussels
Street, Worcester, Massachusetts 01610 (the "Company") and Leslie Rotman
("Holder"). This Agreement is being entered into pursuant to that certain
Agreement and Plan of Merger, dated as of the date hereof, between the Company
and the Holder (the "Agreement and Plan of Merger").
The Company and the Holder hereby agree as follows:
1.Definitions
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Agreement and Plan of Merger. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section 3(n).
"Board" shall have the meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the
Commonwealth of Massachusetts generally are authorized or required by law or
other government actions to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.001 value per share.
"Convertible Note" means that certain 6% Convertible Promissory Note of the
Company issued to the Holder pursuant to the Agreement and Plan of Merger.
"Effectiveness Date" means, with respect to the Registration Statement, no
later than 240 days from the Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means no later than the 180th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"OTC Bulletin Board" shall mean the over-the-counter electronic bulletin
board market or exchange.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock issuable upon
conversion of the Convertible Note (the "Conversion Shares"), any shares of
Common Stock issuable as payment of interest on the Convertible Note ("Interest
Payment Shares"), and any shares of Common Stock issuable upon any stock split,
stock dividend, recapitalization or similar event with respect to such
Conversion Shares or Interest Payment Shares and (ii) any other dividend or
other distribution with respect to, conversion or exchange of, or in replacement
of, Registrable Securities; provided, however, that Registrable Securities shall
include (but not be limited to) a number of shares of Common Stock (the
"Required Number") equal to no less than 200% of the maximum number of shares of
Common Stock which would be issuable upon conversion of the Convertible Note and
upon election to receive all interest payable under the Convertible Note until
their maturity dates in the form of Interest Payment Shares, assuming such
conversion and election occurred on the Closing Date or the Filing Date,
whichever date would result in the greater number of Registrable Securities.
Notwithstanding anything contained herein to the contrary, if the actual number
of shares of Common Stock issuable as Interest Payment Shares or upon conversion
of the Convertible Note exceeds the Required Number, the term "Registrable
Securities" shall be deemed to include such additional shares of Common Stock as
are necessary to include all of the shares of Common Stock issuable as Interest
Payment Shares or upon conversion of the Convertible Note.
"Registration Statement" means the registration statements and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
2. Registration.
(a) Required Registration. On or prior to the Filing Date, the Company
shall prepare and file with the Commission a Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form SB-2 or such other
appropriate form. The Company shall use its reasonable best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, and to keep such Registration
Statement continuously effective under the Securities Act until such date as is
the earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold by the Holder or (y) the date on which the
Registrable Securities may be sold without any restriction pursuant to Rule
144(k) as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period"). If an additional Registration Statement is required to
be filed because the Holder reasonably determines that the actual number of
Interest Payment Shares and the shares of Common Stock into which the
Convertible Note are convertible may exceed the number of shares of Common Stock
initially registered in respect of the Conversion Shares and the Interest
Payment Shares based upon the computation on the Closing Date, the Holder shall
give the Company written notice of such fact, and the Company shall have twenty
(20) Business Days from the date of its receipt of such notice to file such
additional Registration Statement. The Company shall use its best efforts to
cause such additional Registration Statement to be declared effective by the
Commission as soon as possible, but in no event later than ninety (90) days
after filing.
(b) Shelf Registration. If the Company is not on the Filing Date
eligible to file a registration statement on Form S-3, then as soon as possible
but no later than thirty (30) days after becoming eligible to file a
registration statement for a secondary or resale offering of the Registrable
Securities on Form S-3, the Company shall prepare and file with the Commission a
post-effective amendment to Form SB-2 on Form S-3 to continue the registration
of all Registrable Securities pursuant to a "shelf" Registration Statement on
Form S-3 covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. Notwithstanding anything to the contrary
contained herein, at no time during the Effectiveness Period shall any of the
Registrable Securities cease being registered.
3. Registration Procedures. In connection with the Company's registration
obligations hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form SB-2 (or such other appropriate form in
accordance herewith) in accordance with the method or methods of distribution
thereof as specified by the Holder (except if otherwise directed by the Holder),
and cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5) Business Days
prior to the filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holder
and its counsel, copies of all such documents proposed to be filed, which
documents (other than those incorporated by reference) will be subject to the
review of the Holder and its counsel, and (ii) at the request of the Holder
cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of counsel to such Holder, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holder shall reasonably object in writing
within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible to any comments received
from the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as possible
provide the Holder true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holder thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holder of Registrable Securities to be sold as promptly
as possible (and, in the case of (i)(A) below, not less than five (5) Business
Days prior to such filing) and (if requested by any such Person) confirm such
notice in writing no later than one (1) Business Day following the day: (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such Registration
Statement and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) any of the representations and warranties of the Company contained
in any agreement contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Holder, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment to the Registration Statement
such information as the Company reasonably agrees should be included therein and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as reasonably practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(f) Furnish to the Holder and its counsel, without charge, at least
one conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to the Holder and its counsel, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holder in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holder in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to a Registration Statement, which certificates shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any Holder may request within at least two (2)
Business Days after notice thereof.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi),
as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the OTC Bulletin Board and any
other securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then
listed.
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) Require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement, and the Company
may exclude from such registration the Registrable Securities of any such Holder
who fails to furnish such information within a reasonable time prior to the
filing of each Registration Statement, supplemented Prospectus and/or amended
Registration Statement. If the Registration Statement refers to any Holder by
name or otherwise as the holder of any securities of the Company, then such
Holder shall have the right to require (if such reference to such Holder by name
or otherwise is not required by the Securities Act or any similar federal
statute then in force) the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required. Each Holder
covenants and agrees that (i) it will not sell any Registrable Securities under
the Registration Statement until it has received copies of the Prospectus as
then amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it and
its officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
under the Registration Statement until such Holder's receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement contemplated
by Section 3(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company would be required to disclose
under the Registration Statement, then the Company may postpone or suspend
filing or effectiveness of a registration statement for a period not to exceed
20 consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12-month period (each, a "Blackout Period"); provided, however, that no such
postponement or suspension shall be permitted for consecutive 20-day periods,
arising out of the same set of facts, circumstances or transactions.
4. Registration Expenses. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not the Registration Statement is filed or becomes effective
and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the OTC Bulletin Board and each other securities
exchange or market on which Registrable Securities are required hereunder to be
listed, (B) with respect to filings required to be made with the Commission, (C)
with respect to filings required to be made under the OTC Bulletin Board and (D)
in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holder in connection with
Blue Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the Holder of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses incurred by the Company, (iv) Securities Act
liability insurance, if the Company so desires such insurance, and (v) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Company's independent public accountants (including the
expenses of any comfort letters or costs associated with the delivery by
independent public accountants of a comfort letter or comfort letters). In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange as required hereunder.
5. Indemnification.
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder and
each Holder's agents and brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely or in material
part upon information regarding such Holder furnished to the Company by such
Holder, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the
Registration Statement, such Prospectus or such form of prospectus or in any
amendment or supplement thereto. The Company shall notify the Holder promptly of
the institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of an Indemnified Party and shall survive the transfer of
the Registrable Securities by the Holder.
(b) Indemnification by Holder. The Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely or in material part out of or based solely or in
material part upon any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or arising
solely or in material part out of or based solely or in material part upon any
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in or omitted from any information so
furnished by such Holder to the Company and that such information was reasonably
relied upon by the Company for use in the Registration Statement, such
Prospectus or such form of prospectus or to the extent that such information
relates to such Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement, such Prospectus or
such form of prospectus. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable under this Section 5(b) for only that amount
as does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the
right to employ separate counsel in any such Proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party
has agreed in writing to pay such fees and expenses; or (2) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding. All fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten (10) Business Days of written notice thereof to
the Indemnifying Party (regardless of whether it is ultimately determined that
an Indemnified Party is not entitled to indemnification hereunder; provided,
that the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying, Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
Sections 5(a) and 5(b) was available to such party in accordance with its terms.
Notwithstanding anything to the contrary contained herein, the Holder shall be
liable or required to contribute under this Section 5(d) for only that amount as
does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Section 5(d) were determined by pro rata allocation or by any other method
of allocation that does not take into account the equitable considerations
referred to in the immediately preceding paragraph. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The indemnity and contribution
agreements contained in this Section are in addition to any liability that the
Indemnifying Parties may have to the Indemnified Parties.
6. Rule 144. As long as any Holder holds a Convertible Note or owns
Conversion Shares or Interest Payment Shares, the Company covenants to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly
furnish the Holder with true and complete copies of all such filings. As long as
any Holder holds a Convertible Note or owns Conversion Shares or Interest
Payment Shares, if the Company is not required to file reports pursuant to
Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Holder and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
such Person to sell Conversion Shares and Interest Payment Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including providing
any legal opinions of counsel to the Company referred to in the Agreement and
Plan of Merger. Upon the request of any Holder, the Company shall deliver to
such Holder a written certification of a duly authorized officer as to whether
it has complied with such requirements.
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holder in this Agreement or
otherwise conflicts with the provisions hereof except for registration rights
previously granted to the Holder.
(c) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering any issued or issuable Conversion
Shares or Interest Payment Shares, and the Company shall determine to prepare
and file with the Commission a registration statement relating to an offering
for its own account or the account of others under the Securities Act of any of
its equity securities, other than on Form S-4 or Form S-8 (each as promulgated
under the Securities Act) or its then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each Holder of Registrable Securities
written notice of such determination and, if within thirty (30) days after
receipt of such notice, any such Holder shall so request in writing (which
request shall specify the Registrable Securities intended to be disposed of by
such Holder), the Company will cause the registration under the Securities Act
of all Registrable Securities which the Company has been so requested to
register by the Holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(c) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holder, then (x) the number of Registrable Securities of the Holder included
in such registration statement shall be reduced pro-rata among such Holder
(based upon the number of Registrable Securities requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Registrable Securities, or (y) none of the
Registrable Securities of the Holder shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Registrable Securities; provided, however, that if
securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Registrable Securities intended to be offered by the Holder than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company).
(d) Specific Enforcement, Consent to Jurisdiction. The Company and the
Holder acknowledge and agree that irreparable damage would occur in the event
that any of the provisions of this Registration Rights Agreement, the Agreement
and Plan of Merger or the Convertible Note were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Registration Rights Agreement, the Agreement
and Plan of Merger or the Convertible Note and to enforce specifically the terms
and provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity. Each of the Company and the
Holder (i) hereby irrevocably submits to the jurisdiction of the United States
District Court sitting in the Commonwealth of Massachusetts for the purposes of
any suit, action or proceeding arising out of or relating to this Agreement or
the Agreement and Plan of Merger and (ii) hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Holder consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this Section 7(d) shall affect or limit any right
to serve process in any other manner permitted by law.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holder. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of a Holder and that does not directly or indirectly affect the
rights of other Holder may be given by the Holder to which such waiver or
consent relates; provided, however, that the provisions of this sentence may not
be amended, modified, or supplemented except in accordance with the provisions
of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective in accordance with the notice provision set forth in
the Agreement and Plan of Merger. The addresses for such communications with
respect to each party shall be the address(es) for such party that are set forth
in the Agreement and Plan of Merger (as the same may be modified from time to
time by such party in accordance with the terms of the Agreement and Plan of
Merger), or to such other address or addresses or facsimile number or numbers as
any such party may most recently have designated in writing to the other parties
hereto by such notice.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of the Holder and their respective successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the Holder.
Notwithstanding anything to the contrary in this Agreement, no Holder shall
assign its rights under this Agreement or otherwise transfer all or a portion of
the Convertible Note or the Registrable Securities to any competitor of the
Company, and in no event shall there be greater than three (3) Holder which are
not affiliates of the initial Holder during the term of this Agreement.
(h) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any transferee of such Holder of all
or a portion of the Convertible Note or the Registrable Securities if: (i) the
Holder agrees in writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Agreement and Plan of Merger.
The rights to assignment shall apply to the Holder (and to subsequent)
successors and assigns.
(i) Lock-Up. Holder agrees not to sell, dispose of or otherwise
transfer Registrable Securities for the earlier of (i) 45 days after the
Effectiveness Date, or (ii) the conversion by Augustine Fund, L.P. of all of its
Convertible Note issued by the Company on March 23, 2000.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts, without regard
to principles of conflicts of law thereof.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of Holder of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holder of such required
percentage and shall not be counted as outstanding.
(p) Notice of Effectiveness. Within two (2) business days after the
Registration Statement which includes the Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable
Securities and to the Holder confirmation that the Registration Statement has
been declared effective by the Commission in the form attached hereto as Exhibit
A.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
SALES ONLINE DIRECT, INC.
By:
-------------------------------
Its:
-------------------------------
HOLDER:
-----------------------------------
Leslie Rotman
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
[NAME AND ADDRESS OF TRANSFER AGENT]
Attn:
-------------
[NAME OF INVESTOR]
[ADDRESS]
[ADDRESS]
Attn:
-------------
Re: SALES ONLINE DIRECT, INC.
Ladies and Gentlemen:
We are counsel to Sales Online Direct, Inc., a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Agreement and Plan of Merger (the "AGREEMENT AND PLAN OF MERGER"), dated as of
___________, 2001, between the Company and the Holder named therein (the
"HOLDER") pursuant to which the Company issued to the Holder a Convertible
Promissory Note convertible into shares of the Company's common stock, $.001 par
value per share (the "COMMON STOCK"). Pursuant to the Agreement and Plan of
Merger, the Company has also entered into a Registration Rights Agreement with
the Holder (the "REGISTRATION RIGHTS AGREEMENT"), dated of even date with the
Agreement and Plan of Merger, pursuant to which the Company agreed, among other
things, to register the Registrable Securities (as defined in the Registration
Rights Agreement), including the shares of Common Stock issuable upon conversion
of the Convertible Note, under the Securities Act of 1933, as amended (the "1933
ACT"). In connection with the Company's obligations under the Registration
Rights Agreement, on ____________________________ , 200__, the Company filed a
Registration Statement on Form ___ (File No. 333-__________) (the "REGISTRATION
STATEMENT") with the Securities and Exchange Commission (the "SEC") relating to
the resale of the Registrable Securities which names each Holder as a selling
stockholder thereunder. In connection with the foregoing, we advise you that a
member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
[ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
EXHIBIT C
FORM OF SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is entered into as of November 7, 2001 (this
"Security Agreement"), by and between Sales Online Direct, Inc., a Delaware
corporation (the "Debtor") and Leslie Rotman (the "Creditor").
RECITALS
Debtor and Creditor are parties to that certain Agreement and Plan of
Merger, dated October 23, 2001 (the "Agreement and Plan of Merger") pursuant to
which Creditor received a convertible promissory note as consideration for
certain assets (the "Note").
AGREEMENTS
In consideration of the covenants and provisions set forth herein, and for
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
SECTION 1. Grant of Security Interest; Perfection of Security Interest. As
security for Debtor's obligations under the Agreement and Plan of Merger (the
"Obligations"), Debtor hereby grants a security interest to Creditor, in and to
all of the personal property of Debtor, wherever located, and now owned or
hereafter acquired, including:
a. Accounts;
b. Chattel paper;
c. Inventory;
d. Equipment;
e. Instruments (including Promissory Notes);
f. Investment Property;
g. Documents;
h. Deposit Accounts;
i. Letter-of-Credit Rights
j. General intangibles (including Payment Intangibles);
k. Supporting Obligations; and
l. To the extent not listed above as original collateral, proceeds and
products of the foregoing (collectively, hereinafter referred to as the
"Collateral").
Creditor acknowledges that, except as provided below, Augustine Fund, L.P. shall
have a first priority lien ahead of Creditor on (i) all assets of Debtor except
the Movie Posters, which Movie Posters shall be subject to a Collateral Agency
Agreement of even date herewith between Creditor and Augustine Fund, L.P. and
(ii) all proceeds from the sale of Movie Posters. Augustine Fund L.P. does not
have a security interest in the following assets of the Debtor: (a) a copy of
the software and source code for the eCMS program and realized pricing program;
(b) a copy of the software program of "Treasures in Your Home" video archives;
(c) a copy of the software program of the Collecting Channel's news stories and
articles; (d) a copy of the software program of the print and electronic
information in Maloney's Online catalog; (e) the name "Rotman Auction" and
variations on such words; and (f) the following computer equipment: 1 monitor
and key board, 1 Cybex console switch, 1 ATL powerstore L500 tape back up, 2
Dell power edge 2300's, 1 Cisco Pix 520, 1 Cisco 3640 router, and 1 Sun E450.
Any term used in the Massachusetts Uniform Commercial Code and not defined in
this Security Agreement has the meaning given to the term in the UCC. Debtor
authorizes Creditor to file a financing statement describing the Collateral.
SECTION 2. State of Incorporation and Legal Name. Debtor is a Delaware
corporation. Its legal name is "Sales Online Direct, Inc."
SECTION 3. Covenants. Debtor hereby covenants and agrees with Creditor that
so long as this Security Agreement shall remain in effect:
a. All of the Collateral is, or when acquired will be, and will
continue to be, the sole property of Debtor (except that Inventory may be
sold in the ordinary course of business) and shall not be subject to any
liens, charges, senior security interests, conflicting security interests,
or any other rights in favor of any third party except with respect to any
liens in favor of Augustine Fund, L.P.;
b. Debtor will not make any bulk transfer of all or any part of the
Collateral;
c. Debtor shall promptly notify Creditor in writing of any event which
occurs that would have a material adverse affect upon all or part of the
Collateral;
d. Debtor shall not voluntarily or involuntarily exchange, sell,
transfer or otherwise dispose of any right, title or interest in the
Collateral, other than in good faith in the ordinary course of business,
until Debtor has obtained the written consent of Creditor and in the event
of such transfer Debtor agrees, simultaneously with such transfer, to
execute and deliver to Creditor instruments, certificates and documents,
including without limitation, such financing statements and mortgages,
which Creditor deems necessary to maintain or perfect the rights granted or
intended to be granted in this Security Agreement;
e. Debtor agrees to promptly give written notice to Creditor of any
levy or attachment, execution or other process against any of the
Collateral;
f. Debtor shall take any and all actions reasonably necessary or
desirable to defend the Collateral against the claims and demands of all
persons other than Creditor;
g. Debtor shall keep all tangible Collateral properly insured and in
good order and repair and notify Creditor of any event causing any material
loss, damage or depreciation in value of the Collateral and of the extent
of such loss, damage or depreciation;
h. Debtor shall, upon request from Creditor and upon reasonable
notice, provide Creditor with access to Debtor's books and records and to
the Collateral, and Creditor shall have the right to inspect such books and
records and the Collateral;
i. Debtor shall not change the jurisdiction of the state in which it
is organized, whether by merger or otherwise, or its legal name, without 60
days prior written notice to Creditor;
j. Debtor shall not amend or terminate any contract or other document
or instrument constituting part of the Collateral, except for transactions
in the ordinary course of business; make any compromise, settlement,
discharge or adjustment or grant any extension of time for payment with
respect to any Account or any lien, guaranty or remedy pertaining thereto,
except for transactions in the ordinary course of business; or change its
name or use any fictitious or trade name; and
k. Debtor agrees to execute and deliver to Creditor such instruments,
certificates and documents as Creditor deems necessary, and to do such
other acts as may from time to time be requested by Creditor in order to
effect the provisions of, or more fully perfect the rights granted or
intended to be granted by, this Security Agreement.
SECTION 4. Events of Default. Each of the following shall constitute an
"Event of Default" hereunder:
a. The occurrence of any "Event of Default" under the Agreement and
Plan of Merger or under any agreement with Augustine Fund, L.P.;
b. Failure of Debtor to comply with any of the covenants and
agreements set forth in this Security Agreement which failure shall
continue unremedied for ten (10) days after written notice thereof shall be
given by Creditor to Debtor.
c. Creditor ceases, other than as contemplated by this Security
Agreement, to have a valid and perfected security interest in any of the
Collateral; or
d. Any provision of this Security Agreement shall for any reason cease
to be valid and binding on Debtor.
SECTION 5. Remedies Upon an Event of Default. In addition all other rights
legally available to Creditor, Creditor shall have the following rights:
a. Debtor hereby irrevocably appoints Creditor and any of Creditor's
designees (the "Attorney-in-Fact") as its attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise, from time to time: (i) upon the occurrence and during the
continuance of an Event of Default, or an event which, with the giving of
notice or lapse of time or both would become an Event of Default, in the
Attorney-in-Fact's discretion, to take any action and to execute any
instrument which the Attorney-in-Fact may deem necessary or advisable to
accomplish the purposes of this Security Agreement, including without
limitation (A) to obtain, adjust, receive, endorse or collect insurance
required to be paid to Creditor, and (B) to file any claims or take any
action or institute any proceedings which the Attorney-in-Fact may deem
necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of Creditor with respect to any of the
Collateral; and (ii) to execute and deliver on behalf of Debtor, without
the signature of Debtor where permitted by applicable law, such financing
statements and other documents as the Attorney-in-Fact may deem necessary
to perfect or continue perfected the rights in the Collateral granted
herein. In addition, Debtor will reimburse Creditor for all expenses of
perfecting or continuing perfection of the rights in the Collateral granted
herein;
b. If Debtor fails to perform any agreement contained herein, Creditor
may perform, or cause performance of, such agreement, and the expenses of
Creditor incurred in connection therewith shall be payable by Debtor,
together with interest at the interest rate (as defined in the Agreement
and Plan of Merger), on demand;
c. If any Event of Default shall have occurred and be continuing,
Creditor may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the UCC
(whether or not the UCC applies to the affected Collateral) and also may
(i) require Debtor to, and Debtor hereby agrees that it will at its expense
and upon request of Creditor forthwith, assemble all or part of the
Collateral as directed by Creditor and make it available to Creditor at a
place to be designated by Creditor which is reasonably convenient to both
parties, (ii) upon reasonable advance written notice to Debtor, enter upon
the property of Debtor to take possession of and remove the Collateral, and
(iii) upon reasonable advance written notice to Debtor, sell, transfer, or
otherwise deal with the Collateral or any part thereof in its own name or
that of Debtor, and may sell the Collateral in one or more parcels at
public or private sale, for cash, on credit or for future delivery, and at
such price or prices and upon such other terms as Creditor may deem
commercially reasonable. Debtor agrees that to the extent notice of sale
shall be required by law, at least five days notice of the time and
location at which such sale is to take place shall constitute reasonable
notification. Creditor shall not be obligated to make any sale of
Collateral after a notice of sale has been given. Creditor may adjourn any
public or private sale from time to time by announcement at the time and
place fixed thereof, and such sale may, without further notice, be made at
the time and place to which it is so adjourned;
d. To the extent not prohibited by the UCC, Debtor waives demand,
presentment, notice of dishonor, protest, notice of acceptance of this
Security Agreement, notice of Collateral received or delivered or other
action taken in reliance hereon and all other demands and notices of any
description. Creditor shall have no duty as to the collection or protection
of the Collateral beyond the safe custody thereof, nor as to the
preservation of rights against prior parties. All rights and remedies of
Creditor, whether evidenced hereby or by any other instrument or papers
shall be cumulative and may be exercised singularly or concurrently.
e. All proceeds from the sale of Collateral and from the use of
Collateral pursuant to the license granted under subsection (c) above shall
be applied as follows:
(1) First, to the payment of any and all fees, costs and expenses
incurred by Creditor in connection with such sale, including but not
limited to the reasonable expenses of advertising the Collateral to be
sold, and the repayment of all advances made by Creditor hereunder for
the account of Debtor; and
(2) Second, to the payment in full of the Obligations, with any
surplus to be paid to Debtor, or as a court of competent jurisdiction
shall direct.
SECTION 6. Further Assurances. Debtor agrees to do such further things, to
execute, acknowledge, deliver (including delivery of certificates of deposits or
receipts therefor) and cause to be duly filed all such further instruments and
documents and take all such actions as Creditor may from time to time reasonably
request for the better assuring and preserving of the security interests and the
rights and remedies created hereby, including the execution and delivery of such
additional conveyances, assignments, licenses, agreements and the execution,
filing and recordation of any financing statements (including fixture filings),
filing, registration and recordation of any trademark and copyright assignments
or other documents as Creditor may deem reasonably necessary or desirable for
the perfection of the security interests granted hereunder, and Debtor hereby
grants to Creditor an irrevocable power of attorney to execute in the name of
Debtor any and all such documents. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note
or other instrument, such note or instrument shall be immediately pledged and
delivered to Creditor, duly endorsed in a manner satisfactory to Creditor. If at
any time Debtor shall take and perfect a security interest in any property to
secure payment and performance of an Account, Debtor, upon the request of
Creditor, shall promptly assign such security interest to Creditor. If at any
time Debtor shall register any of its Intellectual Property, Debtor shall
promptly notify Creditor and upon Creditor's request shall promptly execute any
trademark, patent or copyright assignments as Creditor may request. The Debtor's
obligations with respect to this Section 6 shall be subject to Debtor's
obligations with respect to any perfected security interest in favor of
Augustine Fund, L.P.
SECTION 7. Effectiveness. This Security Agreement shall take effect
immediately upon execution by Debtor and Creditor. This Security Agreement shall
continue in full force and effect, and the security interest in the Collateral
granted to Creditor hereunder shall continue in full force and effect until all
the Obligations have been fully discharged and performed.
SECTION 8. Notices. Any notice hereunder shall be conclusively deemed to
have been received by a party hereto and be effective in the manner set forth in
the Agreement and Plan of Merger.
SECTION 9. Successors and Assigns. This Security Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns; provided, however, that Debtor may not assign any of its
rights or obligations hereunder without the prior written consent of Creditor.
SECTION 10. Applicable Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Massachusetts,
without giving effect to Massachusetts choice of law doctrine, except to the
extent that the UCC provides for the application of the law of the Debtor's
state of formation.
SECTION 11. Waivers. No failure or delay of Creditor in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of Creditor hereunder are cumulative and not exclusive of any
rights or remedies that it would otherwise have. Any waiver of any provision of
this Security Agreement or consent to any departure by Debtor therefrom shall be
effective only in the specific instance and for the purpose for which given.
SECTION 12. Amendments. Neither this Security Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by Debtor and Creditor.
SECTION 13. Severability. In the event any one or more of the provisions
contained in this Security Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby.
SECTION 14. Counterparts. This Security Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one contract, and shall become
effective when copies hereof which, when taken together, bear the signatures of
each of the parties hereto shall be delivered or mailed to Creditor.
SECTION 15. Headings. Section headings used herein are for convenience of
reference only and are not to affect the construction of, or to be taken into
consideration in interpreting, this Security Agreement.
IN WITNESS WHEREOF, Debtor and Creditor have executed this Security
Agreement as of the date first above written.
DEBTOR:
SALES ONLINE DIRECT, INC.
By:
---------------------------------
Its:
--------------------------------
CREDITOR:
------------------------------------
Leslie Rotman