AGREEMENT AND PLAN OF MERGER
Among
X-CEED, INC.
ZABIT & ASSOCIATES, INC.
and
THE SHAREHOLDERS NAMED HEREIN
September 2, 1998
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER...........................................1
1.1 The Merger...........................................1
1.2 Closing..............................................1
1.3 Effective Time.......................................1
1.4 Corporate Organization...............................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS.............................2
2.1 Conversion of Zabit Common Stock.....................2
2.2 Surrender and Payment................................3
2.3 Adjustments..........................................3
ARTICLE III THE SURVIVING CORPORATION............................3
3.1 Certificate of Incorporation.........................3
3.2 Bylaws...............................................3
3.3 Directors and Officers...............................3
3.4 Separate Division....................................4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ZABIT AND THE
ZABIT SHAREHOLDERS...................................4
4.1 Organization and Qualification.......................4
4.2 Capital Structure....................................4
4.3 Subsidiaries; Equity Investments.....................5
4.4 Authority............................................6
4.5 No Conflict with Other Instruments...................6
4.6 Governmental Consents................................6
4.7 Financial Statements.................................6
4.8 Absence of Changes...................................7
4.9 Properties...........................................8
4.10 Taxes................................................9
4.11 Employees...........................................10
4.12 Compliance with Law.................................11
4.13 Litigation..........................................11
4.14 Contracts...........................................11
4.15 No Default..........................................12
4.16 Proprietary Rights..................................12
4.17 Brokers or Finders..................................13
4.18 Related Parties.....................................13
4.19 Certain Advances....................................13
4.20 Underlying Documents................................13
4.21 No Misleading Statements............................13
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ZABIT
SHAREHOLDERS........................................13
5.1 Zabit Common Stock..................................13
5.2 Investment Representations..........................14
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF X-CEED............15
6.1 Organization and Qualification......................15
6.2 Capital Structure...................................16
6.3 Subsidiaries; Equity Investments....................17
6.4 Authority...........................................17
6.5 No Conflict with Other Instruments..................17
6.6 Governmental Consents...............................18
6.7 Reports and Financial Statements....................18
6.8 Absence of Changes..................................19
6.9 Properties..........................................20
6.10 Taxes...............................................21
6.11 Employees...........................................22
6.12 Compliance with Law.................................22
6.13 Litigation..........................................22
6.14 Contracts...........................................23
6.15 No Default..........................................23
6.16 Proprietary Rights..................................24
6.17 Brokers or Finders..................................24
6.18 Related Parties.....................................25
6.19 Certain Advances....................................25
6.20 Underlying Documents................................25
6.21 No Misleading Statements............................25
6.22 Shares of X-ceed Common Stock.......................25
ARTICLE VII CONDUCT PRIOR TO THE EFFECTIVE TIME.................25
7.1 Conduct of Business of Zabit and X-ceed.............25
7.2 No Solicitation.....................................27
ARTICLE VIII ADDITIONAL AGREEMENTS...............................28
8.1 Approval of Zabit Shareholders......................28
8.2 Access to Information; Interim Financial Information.28
8.3 Confidentiality.....................................28
8.4 Expenses............................................29
8.5 Public Disclosure...................................29
8.6 Efforts.............................................29
8.7 Conduct; Notification of Certain Matters............29
8.8 Tax-Free Reorganization.............................29
8.9 Blue Sky Laws.......................................30
8.10 Acquisition Plan....................................30
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8.11 Key Employee Retention..............................30
8.12 Key Employee Options................................30
8.13 Additional Documents and Further Assurances.........30
8.14 Listing of Additional Shares........................30
8.15 Registration Rights Agreement.......................30
8.16 Required Consents...................................30
ARTICLE IX CONDITIONS TO THE MERGER............................30
9.1 Conditions to Obligations of Each Party to Effect the
Merger..............................................30
9.2 Additional Conditions to Obligations of Zabit.......31
9.3 Additional Conditions to the Obligations of X-ceed..32
ARTICLE X INDEMNIFICATION.....................................33
10.1 Survival of Representations and Warranties..........33
10.2 Indemnification by the Zabit Shareholders...........33
10.3 Indemnification by X-ceed...........................34
10.4 Defense of Claims...................................34
ARTICLE XI TERMINATION, AMENDMENT, WAIVER, CLOSING.............35
11.1 Termination.........................................35
11.2 Effect of Termination...............................36
11.3 Amendment or Supplement.............................36
11.4 Extension of Time, Waiver...........................36
ARTICLE XII GENERAL.............................................37
12.1 Notices.............................................37
12.2 Headings............................................38
12.3 Counterparts........................................38
12.4 Entire Agreement; Assignment........................38
12.5 Severability........................................38
12.6 Other Remedies......................................38
12.7 Governing Law.......................................38
12.8 Arbitration.........................................39
12.9 Absence of Third-Party Beneficiary Rights...........39
Exhibit A Certificate of Merger (DE)
Exhibit B Agreement of Merger (CA)
Exhibit C Form of First Promissory Note
Exhibit D Form of Second Promissory Note
Exhibit E Form of William N. Zabit Employment Agreement
Exhibit F Zabit Acquisition Plan
Exhibit G Form of Bradley K. Nelson Employment Agreement
Exhibit H Key Zabit Employees
Exhibit I Form of Registration Rights Agreement
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Schedule 4.2 Addresses of Zabit Shareholders
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and entered
into as of the 2nd day of September, 1998, by and among X-CEED, INC., a Delaware
corporation ("X-ceed"), ZABIT & ASSOCIATES, INC., a California corporation
("Zabit"), and William N. Zabit, Joyce M. Wesolowski and Judith Cohen
(collectively, the "Zabit Shareholders"),
W I T N E S S E T H:
WHEREAS, the Boards of Directors of X-ceed and Zabit deem it advisable
and in the best interests of their respective companies and their respective
stockholders or shareholders, as the case may be, to effect the merger hereafter
provided for, in which Zabit would merge with and into X-ceed (the "Merger");
and
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
N O W, T H E R E F O R E, in consideration of the premises and of the
mutual agreements, provisions and covenants herein contained, X-ceed, Zabit and
the Zabit Shareholders hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3), upon
the terms and subject to the conditions of this Agreement, Zabit shall be merged
with and into X-ceed in accordance with the California General Corporation Law
(the "CGCL") and the Delaware General Corporation Law ("DGCL"), whereupon the
separate existence of Zabit shall cease, other than as provided for in Section
3.4, and X-ceed shall be the surviving corporation.
1.2 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Pillsbury Madison &
Sutro LLP, 235 Montgomery Street, San Francisco, as soon as practicable
following satisfaction or waiver of all of the conditions to the obligations of
the parties to consummate the transactions contemplated hereby in accordance
with this Agreement, or at such other time, place and date as is mutually agreed
to by the parties hereto. The date of the Closing is referred to in this
Agreement as the "Closing Date."
1.3 Effective Time. As soon as practicable after satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger, Zabit and
X-ceed shall file a Certificate of Merger, in the form attached hereto as
Exhibit A, with the Secretary of State of the State of Delaware, and an
Agreement of Merger, in the form attached hereto as Exhibit B, with the
Secretary of State of the State of California, and make all other filings or
recordings required by the CGCL and the DGCL in connection with the Merger. The
Merger shall become effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of the State of Delaware and the
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Agreement of Merger is duly filed with the Secretary of State of the State of
California (the "Effective Time").
1.4 Corporate Organization. At and after the Effective Time, X-ceed
shall possess all the rights, privileges, powers and franchises and be subject
to all of the restrictions, liabilities and duties of X-ceed and Zabit, all as
provided under the CGCL and the DGCL.
ARTICLE II
EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 Conversion of Zabit Common Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of any holder of common stock
of Zabit ("Zabit Common Stock"), the following shall occur:
(a) Each share of Zabit Common Stock held by Zabit as treasury stock
shall be canceled, and no payment shall be made with respect thereto.
(b) Each share of Zabit Common Stock outstanding immediately prior to
the Effective Time (except as otherwise provided in Section 2.1(a)) shall be
entitled to receive as consideration for the Merger either cash and/or shares of
X-ceed Common Stock $.01 par value ("X-ceed Common Stock") in exchange for their
shares of Zabit Common Stock as set forth below. William N. Zabit and Joyce M.
Wesolowski have elected to receive promissory notes from X-ceed, substantially
in the forms of Exhibits C and D attached hereto (the "X-ceed Notes"), payable
to such holders in an aggregate principal amount equal to six million seven
hundred thirty thousand two hundred eight dollars ($6,730,208) in exchange for
four hundred eight thousand thirteen (408,013) shares of Zabit Common Stock held
by such holders (William N. Zabit will receive a promissory note in the form of
Exhibit C in the principal amount of three million eight hundred forty thousand
dollars ($3,840,000) and a promissory note in the form of Exhibit D in the
principal amount of one million five hundred forty four thousand one hundred
sixty six dollars ($1,544,166) and Joyce M. Wesolowski will receive a promissory
note in the form of Exhibit C in the principal amount of nine hundred sixty
thousand dollars ($960,000) and a promissory note in the form of Exhibit D in
the principal amount of three hundred eighty six thousand forty two dollars
($386,042)). The consideration to be received by the issuance and delivery of
the X-ceed Notes shall be referred to herein as the "Cash Consideration". The
remaining shares of Zabit Common Stock, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to receive
that number of shares of X-ceed Common Stock equal to the Exchange Ratio, which
is the quotient (rounded to the nearest four decimal places) of two million two
hundred fifty eight thousand seven hundred twenty four (2,258,724) divided by a
number equal to the total number of shares of Zabit Common Stock outstanding
immediately prior to the Effective Time (less the four hundred eight thousand
thirteen (408,013) shares of Zabit Common Stock that were converted into the
right to receive the Cash Consideration) or 3.6550 shares of X-ceed Common Stock
per share of Zabit Common Stock (the "Share Consideration" and together with the
Cash Consideration, the "Merger Consideration").
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2.2 Surrender and Payment.
(a) Holders of shares of Zabit Common Stock that have been converted
into a right to receive any portion of the Merger Consideration, upon surrender
to X-ceed of a certificate or certificates representing such shares of Zabit
Common Stock, will be entitled to receive the Merger Consideration payable in
respect of such shares of Zabit Common Stock. Until so surrendered, each
certificate representing shares of Zabit Common Stock shall, after the Effective
Time, represent for all purposes only the right to receive such Merger
Consideration.
(b) Any amounts remaining unclaimed by holders of shares of Zabit Common
Stock three years after the Effective Time (or such earlier date prior to such
time as such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of X-ceed free and clear of any claims or interest of any person
previously entitled thereto.
(c) No dividends, interest or other distributions with respect to X-ceed
Common Stock constituting part of the Merger Consideration shall be paid to the
holder of any unsurrendered certificates representing shares of Zabit Common
Stock until such certificates are surrendered as provided in this Section 2.2.
Upon such surrender, there shall be paid, without interest, to the person in
whose name the certificates representing X-ceed Common Stock into which such
shares of Zabit Common Stock were converted are registered, all dividends,
interest and other distributions payable in respect of such shares of Zabit
Common Stock on a date subsequent to, and in respect of a record date after, the
Effective Time.
2.3 Adjustments. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of X-ceed shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the number of shares of X-ceed Common Stock constituting all or
part of the Merger Consideration shall be appropriately adjusted.
ARTICLE III
THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The certificate of incorporation of
X-ceed in effect at the Effective Time shall remain the certificate of
incorporation of X-ceed as the surviving corporation until amended in accordance
with applicable law.
3.2 Bylaws. The Bylaws of X-ceed in effect at the Effective Time shall
be the Bylaws of X-ceed as the surviving corporation until amended in accordance
with applicable law.
3.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, the directors of X-ceed at the Effective Time shall remain the
directors of X-ceed and the officers of X-ceed at the Effective Time shall be
the officers of X-ceed; provided, however, that at the Effective Time, William
N. Zabit shall
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be named President of X-ceed and shall enter into an Employment Agreement with
X-ceed in substantially the form as attached hereto as Exhibit E; and provided,
further, William N. Zabit shall also be appointed to the Board of Directors of
X-ceed (the "X-ceed Board").
3.4 Separate Division. From and after the Effective Time, the business
of Zabit will be conducted as "Zabit & Associates," a separate division of
X-ceed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ZABIT AND THE ZABIT SHAREHOLDERS
Except as otherwise specifically set forth on the disclosure schedule
delivered by Zabit to X-ceed prior to the execution of this Agreement (the
"Zabit Disclosure Schedule"), Zabit and the Zabit Shareholders, severally and
jointly, represent and warrant to X-ceed as follows:
4.1 Organization and Qualification. Zabit is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has all requisite power and
authority to own, lease and operate its respective properties and to carry on
its business as now being conducted.
Zabit is qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which the
nature of its business requires such qualification, which states or
jurisdictions are listed on the Zabit Disclosure Schedule, except where the
failure to be so qualified or in good standing which, taken together with all
other such failures, would not have a material adverse effect on Zabit. As used
in this Agreement, any reference to any event, change or effect being "material"
or "materially adverse" or having a "material adverse effect" on or with respect
to an entity (or group of entities, taken as a whole) means such event, change
or effect is material or materially adverse, as the case may be, to the
business, condition (financial or otherwise), properties, assets, liabilities,
or results of operations of such entity (or, if with respect thereto, of such
group of entities taken as a whole).
Zabit has delivered or made available to X-ceed true, complete and
correct copies, with respect to Zabit, of its (i) Articles of Incorporation and
Bylaws (or other applicable charter documents), as amended to the date hereof,
(ii) minutes of all of directors' and shareholders' meetings (or other
applicable meetings), complete and accurate as of the date hereof, and (iii)
form of stock certificates, option agreements and rights to purchase shares of
its capital stock or other equity interests. Such Articles of Incorporation and
Bylaws and other applicable charter documents are in full force and effect.
4.2 Capital Structure.
(a) The authorized capital stock of Zabit consists of one hundred
million (100,000,000) shares of common stock, no par value ("Zabit Common
Stock"). As of the date of this Agreement, there were issued and outstanding one
million (1,000,000) shares of Zabit Common Stock.
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(b) As of the date of this Agreement, there were outstanding options
(the "Zabit Options") to acquire twenty six thousand (26,000) shares of Zabit
Common Stock. As of the date of this Agreement, there were an aggregate of
twenty six thousand (26,000) shares of Zabit Common Stock reserved for issuance
upon the exercise of outstanding Zabit Options.
(c) Other than as described paragraphs (a) and (b) above, there are no
other outstanding shares of capital stock or other equity securities of Zabit
and no other options, warrants, calls, conversion rights, commitments or
agreements of any character to which Zabit is a party or by which Zabit may be
bound that do or may obligate Zabit to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of Zabit's capital stock or
securities convertible into or exchangeable for Zabit's capital stock or that do
or may obligate Zabit to grant, extend or enter into any such option, warrant,
call, conversion right, commitment or agreement.
(d) Of the issued and outstanding Zabit Common Stock, no shares are
subject to repurchase or redemption. All outstanding shares of Zabit Common
Stock are, and any shares of Zabit Common Stock issued upon exercise of Zabit
Options (subject to receipt of the exercise prices as provided therein) will be,
validly issued, fully paid and nonassessable and not subject to preemptive
rights created by statute, Zabit's Articles of Incorporation or Bylaws or any
agreement to which Zabit is a party or by which Zabit may be bound. All
outstanding securities of Zabit have been issued in compliance with applicable
federal and state securities laws.
(e) Section 4.2 of the Zabit Disclosure Schedule ("Schedule 4.2")
contains complete and accurate lists of, and the number of shares owned of
record by, the holders of outstanding Zabit Common Stock, and the number of
shares subject to Zabit Options, and the holders of outstanding Zabit Options,
including in each case the addresses of such holders. Schedule 4.2 is complete
and accurate on the date hereof and, if required, an updated Schedule 4.2 to be
attached hereto will be complete and accurate as of the Closing Date. Such
Schedule 4.2 identifies the vesting schedule, applicable legends, and repurchase
rights or other risks of forfeiture of any outstanding security of Zabit.
(f) Schedule 4.2 contains a complete and accurate list of each stock
option plan, stock appreciation rights or other equity-related stock incentive
plan of Zabit.
(g) Except as set forth in the Zabit Disclosure Schedule and except for
any restrictions imposed by applicable federal and state securities laws, there
is no right of first refusal, co-sale right, right of participation, right of
first offer, option or other restriction on transfer applicable to any shares of
Zabit Common Stock.
(h) Zabit is not a party or subject to any agreement or understanding,
and there is no voting trust, proxy, or other agreement or understanding between
or among any persons that affects or relates to the voting or giving of written
consent with respect to any outstanding security of Zabit, the election of
directors, the appointment of officers or other actions of Zabit's Board of
Directors (the "Zabit Board") or the management of Zabit.
4.3 Subsidiaries; Equity Investments. Zabit does not have and has never
had any subsidiaries or companies controlled by Zabit and does not own and has
never owned any equity
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interest in, or controlled, directly or indirectly, any other corporation,
partnership, joint venture, trust, firm or other entity.
4.4 Authority. Zabit has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby. Subject to Article VIII, the
execution and delivery of this Agreement, the performance by Zabit of its
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Zabit, including approval of the Zabit Board and Zabit's
shareholders. This Agreement is a valid and binding obligation of Zabit.
4.5 No Conflict with Other Instruments. Subject to obtaining the
consents set forth in Section 4.5 of the Zabit Disclosure Schedule, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby (a) will not result in any violation of, conflict with,
constitute a breach, violation or default (with or without notice or lapse of
time, or both) under, give rise to a right of termination, cancellation,
forfeiture or acceleration of any obligation or loss of any benefit under, or
result in the creation or encumbrance on any of the properties or assets of
Zabit pursuant to (i) any provision of Zabit's Articles of Incorporation or
Bylaws or (ii) any agreement, contract, understanding, note, mortgage,
indenture, lease, franchise, license, permit or other instrument to which Zabit
is a party or by which the properties or assets of Zabit is bound, or (b) to the
knowledge of Zabit, conflict with or result in any breach or violation of any
statute, judgment, decree, order, rule or governmental regulation applicable to
Zabit or its properties or assets, except, in the case of clauses (a)(ii) and
(b) for any of the foregoing that would not, individually or in the aggregate,
have a material adverse effect on Zabit taken as a whole, or that could not
result in the creation of any material lien, charge or encumbrance upon any
assets of Zabit or that could not prevent, materially delay or materially burden
the transactions contemplated by this Agreement.
4.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign, is required
by or with respect to Zabit in connection with the execution, delivery and
performance of this Agreement by Zabit or the consummation by Zabit of the
transactions contemplated hereby, except for (a) the filing of the Certificate
of Merger with the Delaware Secretary of State and an Agreement of Merger with
the California Secretary of State and (b) such consents, approvals, orders,
authorizations, registrations, declarations, qualifications or filings as may be
required under federal or state securities laws in connection with the
transactions contemplated hereby.
4.7 Financial Statements. Zabit has previously furnished to X-ceed a
complete and accurate copy of the reviewed combined financial statements of
Zabit and Water Street Design Group, Inc. ("Water Street") for the fiscal years
ended December 31, 1996 and December 31, 1997 and the internal/unaudited
combined financial statements of Zabit and Water Street for the six month period
ended June 30, 1998 and the supplementary schedules thereto (the "Zabit
Financial Statements"). Zabit believes that the Zabit Financial Statements, as
they relate to Zabit, are complete and correct in all material respects (except
that the June 30, 1998 financial statements do not have footnotes thereto and
the Zabit Financial Statements have not been audited) and have been generally
prepared
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in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods indicated and are consistent with each
other. The Zabit Financial Statements accurately set out and describe the
financial condition and operating results of Zabit as of the dates, and for the
periods, indicated therein, subject to normal year-end adjustments. At the date
of the Zabit Financial Statements and as of the Closing Date, except as set
forth in the Zabit Disclosure Schedule, Zabit had and will have no liabilities
or obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise and whether or not required to be reflected on the balance sheet of
Zabit (the "Zabit Balance Sheet") under GAAP) not reflected in the Zabit
Financial Statements or the accompanying notes thereto except for liabilities
and obligations that have arisen in the ordinary course of business prior to the
date of the Zabit Financial Statements and which, under GAAP, would not have
been required to be reflected in the Zabit Financial Statements and except for
liabilities incurred in the ordinary course of business since the date of the
Zabit Financial Statements which are usual and normal in amount. Zabit maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
4.8 Absence of Changes. Since July 31, 1998, except as otherwise
contemplated by this Agreement or set forth in the Zabit Disclosure Schedule,
Zabit has conducted its respective business only in the ordinary and usual
course and, without limiting the generality of the foregoing:
(a) There have been no material changes in the condition (financial or
otherwise), business, assets, properties, employees, operations, obligations or
liabilities of Zabit, taken as a whole, which, in the aggregate, have had or may
be reasonably expected to have a material adverse effect on Zabit;
(b) Except as provided for in paragraph (e) below, Zabit has not issued,
or authorized for issuance, or entered into any commitment to issue, any equity
security, bond, note or other security;
(c) Zabit has not incurred additional debt for borrowed money, or
incurred any obligation or liability except in the ordinary course of business
consistent with past practice;
(d) Zabit has not paid any obligation or liability, or discharged,
settled or satisfied any claim, lien or encumbrance, except for current
liabilities in the ordinary course of business consistent with past practice;
(e) Zabit has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock, except that prior
to the Effective Time, Zabit will re-classify advances to shareholders as
distributions and will issue a promissory note, or notes, payable to the Zabit
Shareholders in the amount of one hundred fifty thousand dollars ($150,000) for
the payment of taxes resulting from 1998 corporate income with such promissory
note or notes due and payable no later than March 15, 1999;
(f) Zabit has not purchased, redeemed or otherwise acquired or committed
itself to acquire, directly or indirectly, any share or shares of its capital
stock;
(g) Zabit has not mortgaged, pledged, or otherwise encumbered any of its
assets or properties, except for liens for current taxes which are not yet
delinquent and purchase-money liens arising out of the purchase or sale of
services or products made in the ordinary course of business consistent with
past practice;
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(h) Zabit has not disposed of, or agreed to dispose of, by sale, lease,
license or otherwise, any asset or property, tangible or intangible, except in
the ordinary course of business consistent with past practice, and in each case
for a consideration believed to be at least equal to the fair value of such
asset or property;
(i) Zabit has not purchased or agreed to purchase or otherwise acquire
any securities of any corporation, partnership, joint venture, firm or other
entity;
(j) Zabit has not made any expenditure or commitment for the purchase,
acquisition, construction or improvement of a capital asset, except in the
ordinary course of business consistent with past practice;
(k) Zabit has not entered into any material transaction or contract, or
made any commitment to do the same;
(l) Except for the "Zabit & Associates" trademark, Zabit has not sold,
assigned, licensed, transferred or conveyed, or committed itself to sell,
assign, transfer or convey, any Zabit Proprietary Rights (as defined in Section
4.16);
(m) Zabit has not adopted or amended any bonus, incentive,
profit-sharing, stock option, stock purchase, pension, retirement,
deferred-compensation, severance, life insurance, medical or other benefit plan,
agreement, trust, fund or arrangement for the benefit of employees of any kind
whatsoever, nor entered into or amended any agreement relating to employment,
services as an independent contractor or consultant, or severance or termination
pay, nor agreed to do any of the foregoing;
(n) Zabit has not effected or agreed to effect any change in its
directors, officers or key employees; and
(o) Zabit has not effected or committed itself to effect any amendment
or modification in its Articles of Incorporation or Bylaws.
4.9 Properties.
(a) The Zabit Financial Statements reflect all of the real and personal
property owned or used by Zabit in its respective businesses or otherwise held
by Zabit, except for (i) property acquired or disposed of in the ordinary course
of business consistent with past practice of Zabit, since the date of the Zabit
Balance Sheet, and (ii) personal property not required under GAAP to be
reflected thereon. Zabit has good and marketable title to all assets and
properties listed in the Zabit Financial Statements or thereafter acquired, free
and clear of any imperfections of title, lien, claim, encumbrance, restriction,
charge or equity of any nature whatsoever, except for liens of current taxes not
yet delinquent. All of the fixed assets and properties reflected in the Zabit
Financial Statements or thereafter acquired are in good condition and repair for
the requirements of the business as presently conducted by Zabit.
(b) Section 4.9 of the Zabit Disclosure Schedule contains a complete and
accurate list of all real property leased by Zabit (the "Zabit Properties"), the
name of the lessor and the date of the
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lease. Zabit does not have any options to purchase any such Zabit Properties or
any other real property. The Zabit Properties are held under valid, existing and
enforceable leases. The Zabit Properties and the operations of Zabit thereon do
not violate any applicable material building code, zoning requirement or
classification, or pollution control ordinance or statute relating to the Zabit
Properties or to such operations.
4.10 Taxes.
(a) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes, including without limitation (i) any income, profits,
alternative or add-on minimum tax, gross receipts, sales, use, value-added, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, net worth, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or assessment or charge of any kind what soever, together with any interest
or any penalty, addition to tax or additional amount imposed by any governmental
entity responsible for the imposition of any such tax (domestic or foreign) (a
"Taxing Authority"), (ii) any liability for the payment of any amounts of the
type described in clause (i) above as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof, and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) above
as a result of any express or implied obligation to indemnify any other person.
(b) All Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any Taxable period ending on or
before the Effective Time, by or on behalf of Zabit (collectively, the "Zabit
Returns"), have been or will be filed when due (including any extensions of such
due date), and all amounts shown to be due thereon on or before the Effective
Time have been or will be paid on or before such date. All the Zabit Returns are
true and correct in all material respects. Zabit has no liability for Taxes,
other than as shown on the Zabit Returns, except for positions taken in good
faith and for which adequate reserves have been established. The Zabit Financial
Statements fully accrue all actual and contingent liabilities for Taxes with
respect to all periods through the dates thereof. The Zabit Financial Statements
(i) fully accrue consistent with GAAP all actual and contingent liabilities for
Taxes with respect to all periods through the date of the Zabit Financial
Statements and (ii) properly accrue consistent with GAAP all liabilities for
Taxes payable after the date of the Zabit Balance Sheet with respect to all
transactions and events occurring on or prior to such date. All information set
forth in the notes to the Zabit Financial Statements relating to Tax matters is
true, complete and accurate in all material respects.
(c) No Tax liability has been incurred since the date of the Zabit
Financial Statements other than in the ordinary course of business and adequate
provision has been made for all Taxes since that date on at least a quarterly
or, with respect to employment taxes, monthly basis. Zabit has withheld and paid
to the applicable financial institution or Taxing Authority all amounts required
to be withheld by it. Copies of all Zabit Returns filed with respect to federal
income tax returns for Taxable years of Zabit ending prior to the date hereof
have been provided to X-ceed. Zabit has not been granted any extension or waiver
of the limitation period applicable to any Zabit Return.
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(d) There is no claim, audit, action, suit, proceeding or investigation
now pending or threatened against or with respect to Zabit in respect of any Tax
or assessment. There are no liabili ties for Taxes with respect to any notice of
deficiency or similar document of any Tax Authority received by Zabit which have
not been satisfied in full (including liabilities for interest, additions to tax
and penalties thereon and related expenses). Neither Zabit, nor any person on
behalf of Zabit has entered into or will enter into any agreement or consent
pursuant to Section 341(f) of the Code. There are no liens for Taxes upon the
assets of Zabit except liens for current Taxes not yet due. Except as may be
required as a result of the Merger or as otherwise disclosed to Zabit, Zabit has
not been nor will it be required to include any adjustment in Taxable income for
any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Effective Time.
(e) There is no contract, agreement, plan or arrangement, including
without limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of Zabit
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the Code
(as determined without regard to Section 280G(b)(4)). Other than pursuant to
this Agreement, Zabit is not a party to or bound by (nor will it prior to the
Effective Time become a party to or bound by) any tax indemnity, tax sharing or
tax allocation agreement (whether written, unwritten or arising under operation
of federal law as a result of being a member of a group filing consolidated tax
returns, under operation of certain state laws as a result of being a member of
a unitary group, or under comparable laws of other states or foreign
jurisdictions) which includes a party other than Zabit. None of the assets of
Zabit (i) is property that Zabit is required to treat as owned by any other
person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code, (ii) directly or indirectly secures any debt the
interest on which is tax exempt under Section 103(a) of the Code, or (iii) is
"tax exempt use property" within the meaning of Section 168(h) of the Code.
Zabit has not participated in (and prior to the Effective Time Zabit will not
participate in) an international boycott within the meaning of Section 999 of
the Code. Zabit has previously provided or made available to X-ceed complete and
accurate copies of all Zabit Returns, and, as reasonably requested by X-ceed,
prior to or following the date hereof, presently existing information
statements, reports, work papers, Tax opinions and memoranda and other Tax data
and documents.
4.11 Employees. Zabit has provided X-ceed with a complete and accurate
list setting forth all employees and consultants of Zabit as of the date hereof,
together with their titles or positions, dates of hire, regular work location
and current compensation. Except as set forth in the Zabit Disclosure Schedule,
Zabit does not have any employment contract with any officer or employee or any
other consultant or person which is not terminable by it at will without
liability, except as the right of Zabit to terminate its employees at will may
be limited by applicable federal, state or foreign law. Except as set forth in
the Zabit Disclosure Schedule, Zabit does not have any deferred compensation,
pension, health, profit sharing, bonus, stock purchase, stock option,
hospitalization, insurance, severance, workers' compensation, supplemental
unemployment benefits, vacation benefits, disability benefits, or any other
employee pension benefit (as defined in the Employee Retirement Income Security
Act of 1974 ("ERISA") or otherwise) or welfare benefit plan or obligation
covering any of its officers or employees ("Employee Plans") or any informal
understanding with respect to the foregoing. Each of Zabit's Employee Plans has
been maintained
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in material compliance with its terms and all applicable ERISA and other
requirements as to the filing of reports, documents and notices with
governmental agencies and the finishing of documents to participants or
beneficiaries have been satisfied. Zabit does not maintain or has ever
maintained or contributed to any Employee Plan subject to Title IV of ERISA
(relating to defined benefit plans).
There are no controversies or labor disputes or union organization
activities pending or threatened between Zabit and any of its employees. None of
the employees of Zabit belongs to any union or collective bargaining unit. Zabit
has complied with all applicable foreign, state and federal equal employment
opportunity and other laws and regulations related to employment or working
conditions.
4.12 Compliance with Law. All material licenses, franchises, permits,
clearances, consents, certificates and other evidences of authority of Zabit
which are necessary to the conduct of Zabit's business ("Zabit Permits") are in
full force and effect and Zabit is not in violation of any Zabit Permit in any
material respect. Except for exceptions which would not have a material adverse
effect on Zabit, the business of Zabit has been conducted in accordance with all
applicable laws, regula tions, orders and other requirements of governmental
authorities.
4.13 Litigation. Except as set forth in the Zabit Disclosure Schedule,
to the best of the Zabit Shareholders' knowledge, there is no claim, dispute,
action, proceeding, notice, order, suit, appeal or investigation, at law or in
equity, pending or, to the knowledge of the Zabit Shareholders, threatened,
against Zabit or any of its directors, officers, employees or agents, or
involving any of their respective assets or properties used in or related to the
business of Zabit, before any court, agency, authority, arbitration panel or
other tribunal. Except as set forth in the Zabit Disclosure Schedule, the Zabit
Shareholders are not aware of any facts which, if known to the Zabit
Shareholders, would result in any such claim (other than customary and normal
returns of product in the ordinary course of business consistent with past
practice), dispute, action, proceeding, suit or appeal or investigation. Zabit
is not subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal, nor is Zabit in default with
respect to any notice, order, writ, injunction or decree, any of which would
have a material adverse effect on Zabit.
4.14 Contracts. Section 4.14 of the Zabit Disclosure Schedule contains a
complete and accurate list of each executory contract and agreement in the
following categories to which Zabit is a party, or by which Zabit is bound in
any respect: (a) agreements for the purchase, sale, lease or other disposition
of equipment, goods, materials, supplies, or capital assets, or for the
performance of services which are not terminable without penalty on thirty (30)
days' notice, in any case involving more than twenty-five thousand dollars
($25,000); (b) contracts or agreements for the joint per formance of work or
services, and all other joint venture, collaboration, research, or other
agreements, and grant requests or proposals for research and development
contracts in excess of fifty thousand dollars ($50,000) each; (c) management or
employment contracts, consulting contracts, collective bargaining contracts,
termination and severance agreements; (d) notes, mortgages, deeds of trust, loan
agreements, security agreement, guarantees, debentures, indentures, credit
agreements and other evidences of indebtedness; (e) each Employee Plan
(including, without limitation, any contracts or agreements with trustees,
insurance companies or others relating to any such employee benefit plan or
arrangement); (f) warrants, repurchase or other contracts or agreements relating
to the issuance of capital stock or other equity interests of Zabit; (g)
contracts or agreements with agents, brokers, consignees, sale representatives
or distributors; (h) contracts or agreements with any
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director, officer, employee, consultant or stockholder; (i) powers of attorney
or similar authorizations granted by Zabit to third parties; (j) patents,
licenses, sublicenses, royalty agreements and other contracts or agreements to
which Zabit is a party, or otherwise subject, relating to technical assistance
or to Zabit Proprietary Rights; (k) personal property or capital equipment
leases and other rental, use or service arrangements of Zabit involving payment
obligations in excess of fifty thousand dollars ($50,000) and which cannot be
terminated without penalty on thirty (30) days' notice; and (l) other material
contracts.
Zabit has not, nor, to the knowledge of the Zabit Shareholders, has any
of its employees entered into any contract or agreement containing covenants
limiting the right of Zabit to compete in any business or with any person. As
used in this Agreement, the terms "contract" and "agreement" include every
contract, agreement, commitment, understanding and promise, whether written or
oral.
4.15 No Default.
(a) Each of the contracts, agreements or other instruments referred to
in Section 4.14 is a legal, binding and enforceable obligation by or against
Zabit subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting the
rights of creditors and the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies. No party
with whom Zabit has an agreement or contract is in default thereunder or has
breached any term or provision thereof where such default or breach would have a
material adverse effect on the business of Zabit.
(b) Except as set forth in the Zabit Disclosure Schedule, Zabit has
performed, or is now performing, the obligations of, and Zabit is not in
material default (or would by the lapse of time and/or the giving of notice be
in material default) in respect of, any contract, agreement or commitment
binding upon it or its assets or properties and material to the conduct of its
business. Except as set forth in the Zabit Disclosure Schedule, no third party
has notified Zabit of any claim, dispute or controversy with respect to any of
the executory contracts of Zabit nor has Zabit received notice or warning of
alleged nonperformance, delay in delivery or other noncompliance by Zabit with
respect to its obligations under any of those contracts, where such alleged
nonperformance, delay in delivery or other noncompliance would have a material
adverse effect on Zabit, nor are there any facts which exist indicating that any
of those contracts may be totally or partially terminated or suspended by the
other parties thereto.
4.16 Proprietary Rights.
(a) Section 4.16 of the Zabit Disclosure Schedule sets forth a complete
and accurate list (Schedule 4.16) of all intangible and intellectual property
used in or related to the business conducted by Zabit (collectively, the "Zabit
Proprietary Rights"), including (a) all trademarks, service marks, trade names,
trade styles, copyrights and all registrations or applications therefor, (b) all
patents, inventions and all registrations or applications therefor, and (c) all
licenses, sublicenses and other agreements to which Zabit is a party, either as
licensee or licensor or otherwise, related to any of the Zabit Proprietary
Rights. Zabit has not engaged in any conduct or omitted to perform any necessary
act, the result of which would invalidate, abandon or otherwise render Zabit's
rights to any Zabit Proprietary Rights unenforceable. Except as set forth in
Schedule 4.16, Zabit is not required to pay
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any royalty, license, fee or other similar compensation with respect to the
Zabit Proprietary Rights in connection with the current or prior conduct of the
business conducted by Zabit. As used in the business of Zabit as currently
conducted, none of the Zabit Proprietary Rights infringes or misappropriates or
otherwise violates or has been alleged to infringe, misappropriate or otherwise
violate any proprietary rights of any other person or entity, nor is Zabit
otherwise in the conduct of its business infringing upon, or alleged to be
infringing upon, any proprietary rights of any other person or entity. To the
knowledge of the Zabit Shareholders, no person or entity is engaged in any
activity which would constitute infringement of Zabit's rights in the Zabit
Proprietary Rights. Zabit is not a party to any agreement to indemnify any other
person or entity against any charge of infringement of any proprietary right
except customary vendor provisions contained in software contracts.
4.17 Brokers or Finders. Zabit is being represented in connection with
transactions contemplated by this Agreement by Wit Capital Corporation, and
Zabit will be responsible for the payment of all fees and expenses in connection
with such representation.
4.18 Related Parties. Except as set forth in the Zabit Disclosure
Schedule, no officer or director of Zabit, or any affiliate of Zabit or any such
person, has, either directly or indirectly, (a) an interest in any corporation,
partnership, firm or other person or entity which furnishes or sells services or
products which are similar to those furnished or sold by Zabit, or (b) a
beneficial interest in any contract or agreement to which Zabit is a party or by
which Zabit may be bound.
4.19 Certain Advances. Except as set forth in the Zabit Disclosure
Schedule and Section 4.8(e), there are no receivables of Zabit owing from
directors, officers, employees, consultants or shareholders of Zabit or owing by
any affiliate of any director or officer of Zabit, other than advances in the
ordinary course of business consistent with past practice to officers and
employees for reimbursable business expenses which are not in excess of
twenty-five thousand dollars ($25,000) for any one individual.
4.20 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to X-ceed pursuant to this Agreement have
been furnished to X-ceed. All such documents furnished to X-ceed are true and
correct copies, and there are no amendments or modifi cations thereto that have
not been disclosed in writing to X-ceed.
4.21 No Misleading Statements. No representation or warranty made
herein, in the Zabit Disclosure Schedule or in the Appendices, Schedules and
Exhibits attached hereto or any written statement or certificate furnished or to
be furnished to X-ceed pursuant hereto or in connection with the transactions
contemplated hereby (when read together) contains any untrue statement of a
material fact or omits a material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
are made, not misleading. Zabit has disclosed to X-ceed all material information
of which it is aware relating specifically to the operations and business of
Zabit as of the date of this Agreement or relating to the transactions
contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE ZABIT SHAREHOLDERS
Each of the Zabit Shareholders represents, warrants and covenants to
X-ceed as follows:
5.1 Zabit Common Stock. Except as set forth on the Zabit Disclosure
Schedule, such Zabit Shareholder holds of record and owns beneficially the
shares of Zabit Common Stock set forth opposite his name on Schedule 4.2 free
and clear of any restrictions on transfer (other than any restrictions under the
Securities Act of 1933, as amended (the "Securities Act") and state securities
laws), claims, Taxes, liens, pledges, options, warrants, rights, contracts,
calls, commitments, equities and demands. Except as set forth on the Zabit
Disclosure Schedule, such Zabit Shareholder is not a party to any option,
warrant, right, contract, call, put, or other agreement providing for the
disposition of any capital stock of Zabit (other than pursuant to this
Agreement). Such Zabit Shareholder is not a party to any voting trust, proxy, or
other agreement or understanding with respect to any capital stock of Zabit.
5.2 Investment Representations.
(a) Such Zabit Shareholder understands that the shares of X-ceed Common
Stock issued as the Share Consideration are "restricted securities" under the
federal securities laws inasmuch as they are being acquired from X-ceed in a
transaction not involving a public offering and that under such laws and
applicable regulations the X-ceed Common Stock may be resold without
registration under the Securities Act only in certain limited circumstances.
Such Zabit Stockholder is familiar with Rule 144 as promulgated under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
(b) Except as set forth on the Zabit Disclosure Schedule, such Zabit
Stockholder is acquiring the X-ceed Common Stock solely for his or her own
account for investment and not with a view to the resale or distribution of any
part thereof within the meaning of the Securities Act or any applicable state or
foreign securities laws, and has no present intention of selling, granting any
participation in, or otherwise distributing the X-ceed Common Stock. Except as
set forth on the Zabit Disclosure Schedule, such Zabit Shareholder does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to the X-ceed Common Stock.
(c) By reason of his or her business or financial experience, such Zabit
Shareholder is capable of evaluating the merits and risks of an investment in
the X-ceed Common Stock pursuant to the terms of this Agreement and related
documents, and is able to protect his or her own interest in connection with the
transactions contemplated by this Agreement. Such Zabit Shareholder is
financially able to bear the economic risk of an investment in the X-ceed Common
Stock.
(d) Such Zabit Shareholder has received all information that he or she
deems necessary or advisable in order to make an informed decision on whether to
acquire the X-ceed Common Stock. Without limiting the foregoing, such Zabit
Shareholder has received and reviewed this Agreement, including all Schedules
and Exhibits hereto, and has had the opportunity to ask questions and receive
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answers with respect to X-ceed, its business, operations and financial
condition, and the terms and conditions of the offering of the X-ceed Common
Stock in connection with the transactions contemplated by this Agreement. With
respect to tax and other economic considerations involved in this investment,
such Zabit Shareholder has relied on his or its own counsel for advice and has
expressly not relied on X-ceed.
(e) Such Zabit Shareholder understands that the shares of X-ceed Common
Stock are not registered under the Securities Act and that the sale provided for
in this Agreement and X-ceed's issuance of the X-ceed Common Stock hereunder
will be made in reliance upon an exemption from registration under Section 4(2)
of the Securities Act or pursuant to Regulation D promulgated thereunder, and in
reliance upon exemptions from registration contained in the securities laws of
the various states and that, in such case, X-ceed's reliance on such exemptions
will be at least partially based on such Zabit Shareholder's representations as
set forth herein.
(f) Such Zabit Shareholder understands that, to the extent applicable,
each certificate or other document evidencing any of the shares of X-ceed Common
Stock may bear the following legend and covenants that, except to the extent
such restrictions are waived by X-ceed, such Zabit Shareholder will not transfer
the shares of X-ceed Common Stock represented by any such certificate without
complying with the restrictions on transfer described in the legend endorsed on
such certificate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH SECURITIES ACT OR IF X-CEED, INC. IS PROVIDED AN OPINION OF COUNSEL
SATISFACTORY TO X-CEED, INC. THAT SUCH REGISTRATION AND QUALIFICATION
UNDER FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO RULE 144 OF SUCH SECURITIES ACT."
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF X-CEED
Except as otherwise specifically set forth on the disclosure schedule
delivered by X-ceed to Zabit prior to the execution of this Agreement (the
"X-ceed Disclosure Schedule"), X-ceed represents and warrants to Zabit as
follows:
6.1 Organization and Qualification. X-ceed, and each of its
Subsidiaries, is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization and
has all requisite power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted. As used in this
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Agreement, "Subsidiary" means a corporation, partnership or other entity in
which X-ceed owns directly or indirectly fifty percent (50%) or more of the
voting stock, profits, equity or beneficial interest, is a partner of, or
otherwise controls the management of.
X-ceed and each of its Subsidiaries is qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which the nature of its business requires such
qualification, which states or jurisdictions are listed on the X-ceed Disclosure
Schedule, except where the failure to be so qualified or in good standing which,
taken together with all other such failures, would not have a material adverse
effect on X-ceed and its Subsidiaries, taken as a whole.
X-ceed has delivered or made available to Zabit true, complete and
correct copies, with respect to X-ceed and each of its Subsidiaries, of its (i)
Certificate of Incorporation and Bylaws (or other applicable charter documents),
as amended to the date hereof, (ii) minutes of all of directors' and
stockholders' meetings (or other applicable meetings) since July 2, 1996,
complete and accurate as of the date hereof, (iii) list of current shareholders,
and (iv) form of stock certificates, option agreements and rights to purchase
shares of its capital stock or other equity interests. Each such Certificate of
Incorporation and Bylaws and other applicable charter documents is in full force
and effect.
6.2 Capital Structure.
(a) The authorized capital stock of X-ceed consists of thirty million
(30,000,000) shares of X-ceed Common Stock, $0.01 par value and one million
(1,000,000) shares of blank check preferred stock $0.05 par value (X-ceed
Preferred Stock"). As of the date of this Agreement, there were issued and
outstanding eleven million three hundred fifty thousand three hundred
seventy-two (11,350,372) shares of X-ceed Common Stock and no shares of X-ceed
Preferred Stock. X-ceed Common Stock and X-ceed Preferred Stock are referred to
herein collectively as "X-ceed Stock." The rights, preferences and privileges of
X-ceed Common Stock and X-ceed Preferred Stock are as set forth in X-ceed's
Certificate of Incorporation.
(b) As of the date of this Agreement, there were outstanding options to
acquire three million thirty-six thousand six hundred eleven (3,036,011) shares
of X-ceed Common Stock (the "X-ceed Options") and warrants to acquire one
million nine hundred sixty five three hundred ninety eight (1,965,398) shares of
X-ceed Common Stock (the "X-ceed Warrants"). As of the date of this Agreement,
there were an aggregate of three million thirty-six thousand six hundred eleven
(3,036,011) shares of X-ceed Common Stock reserved for issuance upon the
exercise of outstanding X-ceed Options and one million nine hundred sixty five
three hundred ninety eight (1,965,398) shares of X-ceed Common Stock reserved
for issuance on exercise of the outstanding X-ceed Warrants.
(c) Of the issued and outstanding X-ceed Stock, no shares are subject to
repurchase or redemption. All outstanding shares of X-ceed Stock are, and any
shares of X-ceed Stock issued upon exercise of X-ceed Options and the X-ceed
Warrants (subject to receipt of the exercise prices as provided therein) will
be, validly issued, fully paid and nonassessable and not subject to preemptive
rights created by statute, X-ceed's Certificate of Incorporation or Bylaws or
any agreement to which
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X-ceed is a party or by which X-ceed may be bound. All outstanding securities of
X-ceed have been issued in compliance with applicable federal and state
securities laws.
(d) Section 6.2 of the X-ceed Disclosure Schedule ("Schedule 6.2")
contains complete and accurate lists of, and the number of shares owned of
record by, the holders of outstanding X-ceed Common Stock, and the number of
shares subject to X-ceed Options and X-ceed Warrants, and the holders of
outstanding X-ceed Options and the X-ceed Warrants, including in each case the
addresses of such holders. Schedule 6.2 is complete and accurate on the date
hereof and, if required, an updated Schedule 6.2 to be attached hereto will be
complete and accurate as of the Closing Date. Such Schedule 6.2 identifies the
vesting schedule, applicable legends, and repurchase rights or other risks of
forfeiture of any outstanding security of X-ceed.
(e) Schedule 6.2 contains a complete and accurate list of each stock
option plan, stock appreciation rights or other equity-related stock incentive
plan of X-ceed and each Subsidiary.
(f) Except as set forth in the X-ceed Disclosure Schedule and except for
any restrictions imposed by applicable federal and state securities laws, there
is no right of first refusal, co-sale right, right of participation, right of
first offer, option or other restriction on transfer applicable to any shares of
X-ceed Common Stock.
(g) Except for any agreements with Scott Mednick regarding his
employment with X-ceed, X-ceed is not a party or subject to any agreement or
understanding, and there is no voting trust, proxy, or other agreement or
understanding between or among any persons that affects or relates to the voting
or giving of written consent with respect to any outstanding security of X-ceed,
the election of directors, the appointment of officers or other actions of the
X-ceed Board or the management of X-ceed.
6.3 Subsidiaries; Equity Investments. Section 6.3 of the Disclosure
Schedule ("Schedule 6.3") contains a complete and accurate list of all of
X-ceed's Subsidiaries. Except as set forth in Schedule 6.3, X-ceed does not have
and has never had any other subsidiaries or companies controlled by X-ceed and
does not own and has never owned any equity interest in, or controlled, directly
or indirectly, any other corporation, partnership, joint venture, trust, firm or
other entity. Except as set forth in Schedule 6.3, X-ceed owns all of the
outstanding capital stock of the Subsidiaries listed on Schedule 6.3, free and
clear of any claims, liens or encumbrances, and no options, warrants or other
rights to acquire shares of capital stock of any Subsidiary are outstanding.
6.4 Authority. X-ceed has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby, including the issuance of the
Share Consideration (the "Share Issuance"). No vote of the holders of any class
or series of X-ceed capital stock is necessary to approve the transactions
contemplated by the Merger Agreement, including the Merger and the Share
Issuance. Subject to the receipt by the X-ceed Board of a fairness opinion from
X-ceed's financial adviser, the execution and delivery of this Agreement, the
performance by X-ceed of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of X-ceed, including approval of the
X-ceed Board. This Agreement is a valid and binding obligation of X-ceed.
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6.5 No Conflict with Other Instruments. Except for X-ceed's
noncompliance with the minimum net worth covenant of that certain loan agreement
between X-ceed and European American Bank ("EAB") dated November 18, 1997 and
the receipt by X-ceed of a waiver and consent from EAB with respect to such
noncompliance and the transactions contemplated by this Agreement, the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby (a) will not result in any violation of, conflict with,
constitute a breach, violation or default (with or without notice or lapse of
time, or both) under, give rise to a right of termination, cancellation,
forfeiture or acceleration of any obligation or loss of any benefit under, or
result in the creation or encumbrance on any of the properties or assets of
X-ceed or any Subsidiary pursuant to (i) any provision of X-ceed's Certificate
of Incorporation or Bylaws, or the charter or organizational documents of any
Subsidiary, as the case may be, or (ii) any agreement, contract, understanding,
note, mortgage, indenture, lease, franchise, license, permit or other instrument
to which X-ceed or any Subsidiary is a party or by which the properties or
assets of X-ceed or any Subsidiary is bound, or (b) to the knowledge of X-ceed,
conflict with or result in any breach or violation of any statute, judgment,
decree, order, rule or governmental regulation applicable to X-ceed or any
Subsidiary or their respective properties or assets, except, in the case of
clauses (a)(ii) and (b) for any of the foregoing that would not, individually or
in the aggregate, have a material adverse effect on X-ceed and its Subsidiaries,
taken as a whole, or that could not result in the creation of any material lien,
charge or encumbrance upon any assets of X-ceed or any Subsidiary or that could
not prevent, materially delay or materially burden the transactions contemplated
by this Agreement.
6.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign, is required
by or with respect to X-ceed or any Subsidiary in connection with the execution,
delivery and performance of this Agreement by X-ceed or the consummation by
X-ceed of the transactions contemplated hereby, except for (a) the filing of the
Certificate of Merger with the Delaware Secretary of State and an Agreement of
Merger with the California Secretary of State and (b) such consents, approvals,
orders, authorizations, registrations, declarations, qualifications or filings
as may be required under federal or state securities laws in connection with the
transactions contemplated hereby.
6.7 Reports and Financial Statements. (a) X-ceed has filed all required
forms, reports, registration statements, prospectuses and other documents
required to be filed with the Securities and Exchange Commission (the "SEC")
since January 1, 1997. No Subsidiary of X-ceed is required to file any form,
report, registration statement, prospectus or other document with the SEC.
X-ceed has furnished to Zabit complete and accurate copies of X-ceed's Annual
Report on Form 10-K SB for the fiscal year ended August 31, 1997, Quarterly
Reports on Form 10-Q for the fiscal quarters ended February 28, 1998 and May 31,
1998, Proxy Statement for its Annual Meeting of Stockholders held on February
20, 1998 and Current Report on Form 8-K dated August 14, 1998 (the "X-ceed SEC
Filings"), all filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As of their respective filing dates, the X-ceed
SEC Filings complied in all material respects with the requirements of the
Exchange Act and, as of their respective filing dates, the X-ceed SEC Filings
did not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
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(b) Each of the financial statements (including the related notes) of
X-ceed included in or incorporated by reference into the X-ceed SEC Filings (the
"X-ceed Financial Statements") comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC. The X-ceed Financial Statements are complete and correct in all
material respects and have been prepared in accordance with GAAP (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis throughout the periods indicated and are consistent with each
other. The X-ceed Financial Statements accurately set out and describe the
financial condition and operating results of X-ceed as of the dates, and for the
periods, indicated therein, subject, in the case of unaudited financial
statements, to normal year-end audit adjustments. At the date of the X-ceed
Financial Statements and as of the Closing Date, except as set forth in the
X-ceed Disclosure Schedule, X-ceed had and will have no liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise and whether or not required to be reflected on the balance sheet of
X-ceed (the "X-ceed Balance Sheet") under GAAP) not reflected in the X-ceed
Financial Statements or the accompanying notes thereto except for liabilities
and obligations that have arisen in the ordinary course of business prior to the
date of the X-ceed Financial Statements and which, under GAAP, would not have
been required to be reflected in the X-ceed Financial Statements and except for
liabilities incurred in the ordinary course of business since the date of the
X-ceed Financial Statements which are usual and normal in amount. X-ceed
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP.
6.8 Absence of Changes. Except for liabilities incurred in connection
with this Agreement or the transactions contemplated hereby, except as disclosed
in the X-ceed SEC Filings or the X-ceed Disclosure Schedule, except for the
contemplated acquisition of Mercury 7 by X-ceed (the"Mercury 7 Transaction"),
and except as permitted by Section 7.1 since August 14, 1998, or as set forth in
the X-ceed Disclosure Schedule, X-ceed and each Subsidiary has conducted its
respective business only in the ordinary and usual course and, without limiting
the generality of the foregoing:
(a) There have been no changes in the condition (financial or
otherwise), business, assets, properties, employees, operations, obligations or
liabilities of X-ceed and its Subsidiaries, taken as a whole, which, in the
aggregate, have had or may be reasonably expected to have a material adverse
effect on X-ceed and its Subsidiaries;
(b) X-ceed has not, nor has any Subsidiary, issued, or authorized for
issuance, or entered into any commitment to issue, any equity security, bond,
note or other security;
(c) X-ceed has not, nor has any Subsidiary, incurred additional debt for
borrowed money, or incurred any obligation or liability except in the ordinary
course of business consistent with past practice;
(d) X-ceed has not, nor has any Subsidiary, paid any obligation or
liability, or discharged, settled or satisfied any claim, lien or encumbrance,
except for current liabilities in the ordinary course of business consistent
with past practice;
(e) X-ceed has not, nor has any Subsidiary, declared or made any
dividend, payment or other distribution on or with respect to any share of
capital stock other than, in the case of any Subsidiary, to X-ceed;
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(f) X-ceed has not, nor has any Subsidiary, purchased, redeemed or
otherwise acquired or committed itself to acquire, directly or indirectly, any
share or shares of its capital stock;
(g) X-ceed has not, nor has any Subsidiary, mortgaged, pledged, or
otherwise encumbered any of its assets or properties, except for liens for
current taxes which are not yet delinquent and purchase-money liens arising out
of the purchase or sale of services or products made in the ordinary course of
business consistent with past practice;
(h) X-ceed has not, nor has any Subsidiary, disposed of, or agreed to
dispose of, by sale, lease, license or otherwise, any asset or property,
tangible or intangible, except in the ordinary course of business consistent
with past practice, and in each case for a consideration believed to be at least
equal to the fair value of such asset or property;
(i) X-ceed has not, nor has any Subsidiary, purchased or agreed to
purchase or otherwise acquire any securities of any corporation, partnership,
joint venture, firm or other entity;
(j) X-ceed has not, nor has any Subsidiary, made any expenditure or
commitment for the purchase, acquisition, construction or improvement of a
capital asset, except in the ordinary course of business consistent with past
practice;
(k) X-ceed has not, nor has any Subsidiary, entered into any material
transaction or contract, or made any commitment to do the same;
(l) X-ceed has not, nor has any Subsidiary, sold, assigned, licensed,
transferred or conveyed, or committed itself to sell, assign, transfer or
convey, any X-ceed Proprietary Rights (as defined in Section 6.16);
(m) X-ceed has not, nor has any Subsidiary, adopted or amended any
bonus, incentive, profit-sharing, stock option, stock purchase, pension,
retirement, deferred-compensation, severance, life insurance, medical or other
benefit plan, agreement, trust, fund or arrangement for the benefit of employees
of any kind whatsoever, nor entered into or amended any agreement relating to
employment, services as an independent contractor or consultant, or severance or
termination pay, nor agreed to do any of the foregoing;
(n) X-ceed has not, nor has any Subsidiary, effected or agreed to effect
any change in its directors, officers or key employees; and
(o) X-ceed has not effected or committed itself to effect any amendment
or modification in its Certificate of Incorporation or Bylaws.
6.9 Properties.
(a) The X-ceed Financial Statements reflect all of the real and personal
property owned or used by X-ceed and its Subsidiaries in their respective
businesses or otherwise held by X-ceed and its Subsidiaries, except for (i)
property acquired or disposed of in the ordinary course of business consistent
with past practice of X-ceed and its Subsidiaries, taken as a whole, since the
date of the X-ceed Balance Sheet, and (ii) personal property not required under
GAAP to be reflected thereon.
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X-ceed and its Subsidiaries have good and marketable title to all assets and
properties listed in the X-ceed Financial Statements or thereafter acquired,
free and clear of any imperfections of title, lien, claim, encumbrance,
restriction, charge or equity of any nature whatsoever, except for liens of
current taxes not yet delinquent. All of the fixed assets and properties
reflected in the X-ceed Financial Statements or thereafter acquired are in good
condition and repair for the requirements of the business as presently conducted
by X-ceed and its Subsidiaries.
(b) Except as set forth in the X-ceed SEC Filings, X-ceed does not, nor
does any Subsidiary, have any options to purchase any real property leased by it
or its Subsidiaries (the "X-ceed Properties") or any other real property. The
X-ceed Properties are held under valid, existing and enforceable leases. The
X-ceed Properties and the operations thereon of X-ceed or its Subsidiaries, as
the case may be, do not violate any applicable material building code, zoning
requirement or classification, or pollution control ordinance or statute
relating to the X-ceed Properties or to such operations.
6.10 Taxes.
(a) Except for the failure of X-ceed to timely file its Form 5500 Annual
Report for the years ended 1994, 1995 and 1996, all Tax returns, statements,
reports and forms (including estimated Tax returns and reports and information
returns and reports) required to be filed with any Taxing Authority with respect
to any Taxable period ending on or before the Effective Time, by or on behalf of
X-ceed or any Subsidiary (collectively, the "X-ceed Returns"), have been or will
be filed when due (including any extensions of such due date), and all amounts
shown to be due thereon on or before the Effective Time have been or will be
paid on or before such date. All the X-ceed Returns are true and correct in all
material respects. X-ceed has no liability for Taxes, other than as shown on the
X-ceed Returns, except for positions taken in good faith and for which adequate
reserves have been established. The X-ceed Financial Statements fully accrue all
actual and contingent liabilities for Taxes with respect to all periods through
the dates thereof. The X-ceed Financial Statements (i) fully accrue consistent
with GAAP all actual and contingent liabilities for Taxes with respect to all
periods through the date of the X-ceed Financial Statements and (ii) properly
accrue consistent with GAAP all liabilities for Taxes payable after the Balance
Sheet Date with respect to all transactions and events occurring on or prior to
such date. All information set forth in the notes to the X-ceed Financial
Statements relating to Tax matters is true, complete and accurate in all
material respects.
(b) No Tax liability has been incurred since the date of the X-ceed
Financial Statements other than in the ordinary course of business and adequate
provision has been made for all Taxes since that date on at least a quarterly
or, with respect to employment taxes, monthly basis. X-ceed and each Subsidiary
have withheld and paid to the applicable financial institution or Taxing
Authority all amounts required to be withheld by it. Copies of all X-ceed
Returns filed with respect to federal income tax returns for Taxable years of
X-ceed and each Subsidiary ending prior to the date hereof have been provided to
Zabit. X-ceed has not, nor has any Subsidiary, been granted any extension or
waiver of the limitation period applicable to any X-ceed Return.
(c) Except for the receipt by X-ceed of a notification of audit from the
Internal Revenue Service with respect to the period beginning July 3, 1996 up to
and including August 31, 1996, there is no claim, audit, action, suit,
proceeding or investigation now pending or threatened against or with
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respect to X-ceed or any Subsidiary in respect of any Tax or assessment. There
are no liabilities for Taxes with respect to any notice of deficiency or similar
document of any Tax Authority received by X-ceed or any Subsidiary which have
not been satisfied in full (including liabilities for interest, additions to tax
and penalties thereon and related expenses). Neither X-ceed, any Subsidiary nor
any person on behalf of X-ceed has entered into or will enter into any agreement
or consent pursuant to Section 341(f) of the Code. There are no liens for Taxes
upon the assets of X-ceed except liens for current Taxes not yet due. Except as
may be required as a result of the Merger or as otherwise disclosed to Zabit,
X-ceed has not been nor will it be, nor has or will any Subsidiary, required to
include any adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Effective Time.
(d) There is no contract, agreement, plan or arrangement, including
without limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of X-ceed or
any Subsidiary that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to Section 280G or
Section 162 of the Code (as determined without regard to Section 280G(b)(4)).
Other than pursuant to this Agreement, X-ceed is not, nor is any Subsidiary, a
party to or bound by (nor will they prior to the Effective Time become a party
to or bound by) any tax indemnity, tax sharing or tax allocation agreement
(whether written, unwritten or arising under operation of federal law as a
result of being a member of a group filing consolidated tax returns, under
operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions) which
includes a party other than X-ceed or any Subsidiary. None of the assets of
X-ceed or any Subsidiary (i) is property that X-ceed or any Subsidiary is
required to treat as owned by any other person pursuant to the so-called "safe
harbor lease" provisions of former Section 168(f)(8) of the Code, (ii) directly
or indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code, or (iii) is "tax exempt use property" within the meaning of
Section 168(h) of the Code. X-ceed has not, nor has any Subsidiary, participated
in (and prior to the Effective Time X-ceed will not, nor will any Subsidiary
participate in) an international boycott within the meaning of Section 999 of
the Code. X-ceed has previously provided or made available to Zabit complete and
accurate copies of all X-ceed Returns, and, as reasonably requested by Zabit,
prior to or following the date hereof, presently existing information
statements, reports, work papers, Tax opinions and memoranda and other Tax data
and documents.
6.11 Employees. Except as set forth in the X-ceed SEC Filings, and
except for the employment agreements for Scott Mednick and the principal
shareholders of each of Reset, Inc. and Mercury 7, X-ceed does not, nor does any
Subsidiary have, any employment contracts with any officer or employee or any
other consultant or person which is not terminable by it at will without
liability, except as the right of X-ceed or such Subsidiary to terminate its
employees at will may be limited by applicable federal, state or foreign law.
Except as set forth in the X-ceed SEC Filings, X-ceed does not have, nor does
any Subsidiary have, any ERISA, Employee Plans or any informal understanding
with respect to the foregoing. X-ceed does not, nor does any Subsidiary,
maintain or have ever maintained or contributed to any Employee Plan subject to
Title IV of ERISA (relating to defined benefit plans).
There are no controversies or labor disputes or union organization
activities pending or threatened between X-ceed or a Subsidiary and any of its
employees. None of the employees of
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X-ceed or a Subsidiary belongs to any union or collective bargaining unit.
X-ceed and each Subsidiary have complied with all applicable foreign, state and
federal equal employment opportunity and other laws and regulations related to
employment or working conditions.
6.12 Compliance with Law. All material licenses, franchises, permits,
clearances, consents, certificates and other evidences of authority of X-ceed
and its Subsidiaries which are necessary to the conduct of X-ceed's and its
Subsidiaries' respective businesses (the "X-ceed Permits") are in full force and
effect and X-ceed is not, nor is any Subsidiary, in violation of any X-ceed
Permit in any material respect. Except for exceptions which would not have a
material adverse effect on X-ceed and its Subsidiaries, taken as a whole, the
businesses of X-ceed and its Subsidiaries have been conducted in accordance with
all applicable laws, regulations, orders and other requirements of governmental
authorities.
6.13 Litigation. To the best of X-ceed's knowledge, there is no claim,
dispute, action, proceeding, notice, order, suit, appeal or investigation, at
law or in equity, pending or, to the knowledge of X-ceed, threatened, against
X-ceed or its Subsidiaries or any of their respective directors, officers,
employees or agents, or involving any of their respective assets or properties
used in or related to the business of X-ceed, before any court, agency,
authority, arbitration panel or other tribunal. X-ceed is not aware of any facts
which, if known to stockholders, customers, suppliers, governmental authorities
or other persons, would result in any such claim (other than customary and
normal returns of product in the ordinary course of business consistent with
past practice), dispute, action, proceeding, suit or appeal or investigation.
X-ceed is not, nor is any Subsidiary, subject to any order, writ, injunction or
decree of any court, agency, authority, arbitration panel or other tribunal, nor
is X-ceed or any Subsidiary in default with respect to any notice, order, writ,
injunction or decree, any of which would have a material adverse effect on
X-ceed or its Subsidiaries taken as a whole.
6.14 Contracts. Except as set forth in the X-ceed SEC Filings and except
for the agreements in connection with the Mercury 7 transaction, neither X-ceed
nor any Subsidiary has any material contracts in the following categories to
which X-ceed or a Subsidiary is a party, or by which X-ceed or a Subsidiary is
bound in any respect: (a) agreements for the purchase, sale, lease or other
disposition of equipment, goods, materials, supplies, or capital assets, or for
the performance of services which are not terminable without penalty on thirty
(30) days' notice, in any case involving more than fifty thousand dollars
($50,000); (b) contracts or agreements for the joint performance of work or
services, and all other joint venture, collaboration, research, or other
agreements, and grant requests or proposals for research and development
contracts in excess of one hundred thousand dollars ($100,000) each; (c)
management or employment contracts, consulting contracts, collective bargaining
contracts, termination and severance agreements; (d) notes, mortgages, deeds of
trust, loan agreements, security agreement, guarantees, debentures, indentures,
credit agreements and other evidences of indebtedness; (e) each Employee Plan
(including, without limitation, any contracts or agreements with trustees,
insurance companies or others relating to any such employee benefit plan or
arrangement); (f) warrants, repurchase or other contracts or agreements relating
to the issuance of capital stock or other equity interests of X-ceed or a
Subsidiary; (g) contracts or agreements with agents, brokers, consignees, sale
representatives or distributors; (h) contracts or agreements with any director,
officer, employee, consultant or stockholder; (i) powers of attorney or similar
authorizations granted by X-ceed or a Subsidiary to third parties; (j) patents,
licenses, sublicenses, royalty agreements and other contracts or agreements to
which X-ceed or a Subsidiary is a party, or
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otherwise subject, relating to technical assistance or to X-ceed Proprietary
Rights; (k) personal property or capital equipment leases and other rental, use
or service arrangements of X-ceed and its Subsidiaries involving payment
obligations in excess of fifty thousand dollars ($50,000) and which cannot be
terminated without penalty on thirty (30) days' notice; and (l) other material
contracts.
X-ceed has not, nor has any Subsidiary, nor, to the knowledge of X-ceed,
has any of their respective employees entered into any contract or agreement
containing covenants limiting the right of X-ceed or any Subsidiary to compete
in any business or with any person. As used in this Agreement, the terms
"contract" and "agreement" include every contract, agreement, commitment,
understanding and promise, whether written or oral.
6.15 No Default.
(a) Each of the contracts, agreements or other instruments referred to
in Section 6.14 is a legal, binding and enforceable obligation by or against
X-ceed or a Subsidiary, as the case may be, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar federal or
state laws affecting the rights of creditors and the effect or availability of
rules of law governing specific performance, injunctive relief or other
equitable remedies. No party with whom X-ceed or a Subsidiary has an agreement
or contract is in default thereunder or has breached any term or provision
thereof where such default or breach would have a material adverse effect on the
business of X-ceed and its Subsidiaries, taken as a whole.
(b) Except as set forth in the X-ceed Disclosure Schedule, X-ceed and
each Subsidiary has performed, or is now performing, the obligations of, and
X-ceed is not, nor is any Subsidiary, in material default (or would by the lapse
of time and/or the giving of notice be in material default) in respect of, any
contract, agreement or commitment binding upon it or its assets or properties
and material to the conduct of its business. No third party has notified X-ceed
or any Subsidiary of any claim, dispute or controversy with respect to any of
the executory contracts of X-ceed or such Subsidiary, as the case may be, nor
has X-ceed or any Subsidiary received notice or warning of alleged
nonperformance, delay in delivery or other noncompliance by X-ceed or such
Subsidiary, as the case may be, with respect to their respective obligations
under any of those contracts, where such alleged nonperformance, delay in
delivery or other noncompliance would have a material adverse effect on X-ceed,
nor are there any facts which exist indicating that any of those contracts may
be totally or partially terminated or suspended by the other parties thereto.
6.16 Proprietary Rights.
(a) Except as set forth in the X-ceed SEC Filings, X-ceed and each of
its Subsidiaries owns, or is licensed to use (in each case free and clear of any
liens) all intangible and intellectual property used in or related to the
business conducted by X-ceed and its Subsidiaries (collectively, the "X-ceed
Proprietary Rights"), including (a) all trademarks, service marks, trade names,
trade styles, copyrights and all registrations or applications therefor and (b)
all patents, inventions and all registrations or applications therefor. X-ceed
and its Subsidiaries have not engaged in any conduct or omitted to perform any
necessary act, the result of which would invalidate, abandon or otherwise render
X-ceed's or any Subsidiary's rights to any X-ceed Proprietary Rights
unenforceable. Except as set forth in the X-ceed SEC Filings, X-ceed is not, nor
is any Subsidiary, required to pay any royalty, license, fee or other similar
compensation with respect to the X-ceed Proprietary Rights in
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connection with the current or prior conduct of the business conducted by X-ceed
and its Subsidiaries. As used in the business of X-ceed and its Subsidiaries as
currently conducted, none of the X-ceed Proprietary Rights infringes or
misappropriates or otherwise violates or has been alleged to infringe,
misappropriate or otherwise violate any proprietary rights of any other person
or entity, nor is X-ceed or any Subsidiary otherwise in the conduct of its
business infringing upon, or alleged to be infringing upon, any proprietary
rights of any other person or entity. To the knowledge of X-ceed, no person or
entity is engaged in any activity which would constitute infringement of
X-ceed's or any Subsidiary's rights in the X-ceed Proprietary Rights. X-ceed is
not, nor is any Subsidiary, a party to any agreement to indemnify any other
person or entity against any charge of infringement of any proprietary right
except customary vendor provisions contained in software contracts.
6.17 Brokers or Finders. Neither X-ceed nor its Subsidiaries, nor any of
their officers, directors or employees, have employed any broker or finder or
incurred any liability for any brokerage, finder's or similar fees or
commissions in connection with this Agreement or the transactions contemplated
hereby.
6.18 Related Parties. No officer or director of X-ceed, or any affiliate
of X-ceed or any such person, has, either directly or indirectly, (a) an
interest in any corporation, partnership, firm or other person or entity which
furnishes or sells services or products which are similar to those furnished or
sold by X-ceed or a Subsidiary, or (b) a beneficial interest in any contract or
agreement to which X-ceed or a Subsidiary is a party or by which X-ceed or a
Subsidiary may be bound.
6.19 Certain Advances. Except as set forth in the X-Ceed SEC Filings,
there are no receivables of X-ceed or a Subsidiary owing from directors,
officers, employees, consultants or shareholders of X-ceed or such Subsidiary or
owing by any affiliate of any director or officer of X-ceed or such Subsidiary,
as the case may be, other than a personal loan in the principal amount of
approximately one million two hundred thousand dollars ($1,200,000) to Werner
Haase, and other than advances in the ordinary course of business consistent
with past practice to officers and employees for reimbursable business expenses
which are not in excess of twenty-five thousand dollars ($25,000) for any one
individual.
6.20 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to Zabit pursuant to this Agreement have been
furnished to Zabit. All such documents furnished to Zabit are true and correct
copies, and there are no amendments or modifi cations thereto that have not been
disclosed in writing to Zabit.
6.21 No Misleading Statements. No representation or warranty made
herein, in the X-ceed Disclosure Schedule or in the Appendices, Schedules and
Exhibits attached hereto or any written statement or certificate furnished or to
be furnished to Zabit pursuant hereto or in connection with the transactions
contemplated hereby (when read together) contains any untrue statement of a
material fact or omits a material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which they
are made, not misleading. X-ceed has disclosed to Zabit all material information
of which it is aware relating specifically to the operations and business of
X-ceed as of the date of this Agreement or relating to the transactions
contemplated by this Agreement.
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6.22 Shares of X-ceed Common Stock. The shares of X-ceed Common Stock to
be issued pursuant to the Merger will, when issued and delivered to the holders
of Zabit Common Stock, be duly authorized, validly issued, fully paid and
nonassessable.
ARTICLE VII
CONDUCT PRIOR TO THE EFFECTIVE TIME
7.1 Conduct of Business of Zabit and X-ceed. During the period from the
execution date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Zabit and X-ceed agree
(except as contemplated by this Agreement or to the extent that Zabit or X-ceed
shall otherwise consent in writing) to carry on their business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay their debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, to use
all commercially reasonable efforts consistent with past practice and policies
to preserve intact their present business organization, keep available the
services of their present officers and key employees and preserve their
relationships with customers, suppliers, licensors, licensees, and others having
business dealings with them, all with the goal of preserving unimpaired their
goodwill and ongoing businesses at the Effective Time and, in the case of
X-ceed, to cause any Subsidiaries to do the same. Notwithstanding the foregoing,
nothing in this Section 7.1 shall be considered to prohibit X-ceed from
consummating transactions announced or previously disclosed to Zabit, including
the Mercury 7 Transaction, prior to the date of this Agreement or disclosed in
the X-ceed SEC Filings or in the X-ceed Disclosure Schedule.
Following the date of this Agreement, Zabit and X-ceed shall promptly
notify the other party of any materially adverse event related to such party
and, in the case of X-ceed, its Subsidiaries or the business of such party and,
in the case of X-ceed, its Subsidiaries. Without limiting the foregoing, except
as expressly contemplated by this Agreement, neither Zabit nor X-ceed shall,
nor, in the case of X-ceed, permit any Subsidiary to, without the prior written
consent of the other party:
(a) Enter into any material commitment or transaction not in the
ordinary course of business consistent with past practice;
(b) Transfer to any person or entity any rights to the Zabit Proprietary
Rights or X-ceed Proprietary Rights, respectively;
(c) Amend or otherwise modify, except in the ordinary course of business
consistent with past practice, or violate the material terms of, any of the
agreements set forth or described in the Zabit Disclosure Schedule, in the
X-ceed SEC Filings or the X-ceed Disclosure Schedule;
(d) Commence a lawsuit other than (i) for the routine collection of
bills or (ii) in such cases where Zabit or X-ceed, as the case may be, in good
faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business provided that it consult with
the other party prior to the filing of such suit;
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(e) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or other equity interests, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
its capital stock (or options, warrants or other rights exercisable therefor),
other than amounts authorized by Section 4.8(e);
(f) Issue, grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any shares
of its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities;
(g) Cause or permit any amendments to its respective Articles or
Certificate of Incorporation or Bylaws, as the case may be (or other charter
documents);
(h) Acquire by merging or consolidating with, or by purchasing any
assets or equity securities of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets;
(i) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business consistent with past
practice;
(j) Except as may be necessary for X-ceed to fulfill its obligations
under this Agreement, incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any of its debt securities or guarantee any
debt securities of others;
(k) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee other than pursuant to the existing
agreements of Zabit or X-ceed and its Subsidiaries;
(l) Adopt or amend any employee benefit plan, or enter into any
employment contract (other than, in the case of X-ceed, an employment contract
with Scott Mednick and the three (3) principal shareholders of Mercury 7),
extend employment offers to any person whose aggregate annual base salary would
exceed twenty-five thousand dollars ($25,000), pay or agree to pay any special
bonus or special remuneration to any director or employee other than in
connection with normal annual bonus and salary adjustments for all non-officers
and directors upon consultation with the other party, or increase the salaries
or wage rates of its other employees, except as consistent with the ordinary
course of business consistent with past practice;
(m) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable, other than
in the ordinary course of business consistent with past practice;
(n) Pay, discharge or satisfy, in an amount in excess of ten thousand
dollars ($10,000) (in any one case) or twenty-five thousand dollars ($25,000)
(in the aggregate), any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the Zabit Balance Sheet or the X-ceed Balance
Sheet, as the case may be, or that
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arose in the ordinary course of business subsequent to July 31, 1998 or unless
payment of such claim, liability or obligation is due in accordance with its
terms or expenses consistent with the provisions of this Agreement incurred in
connection with the transactions contemplated hereby and is not in excess of
twenty-five thousand dollars ($25,000);
(o) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(p) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 7.1(a) through 7.1(o) above, or any other action that
would prevent Zabit or X-ceed from performing or cause Zabit or X-ceed not to
perform its covenants hereunder.
7.2 No Solicitation. Except as set forth in the X-ceed SEC Filings or
with respect to the possible acquisition of Mercury 7 by X-ceed, until the
earlier of September 3, 1998, or the date of termination of this Agreement,
Zabit and X-ceed agree that neither shall, nor authorize or permit any
Subsidiary or any of its Subsidiaries' officers, directors, agents,
representatives or affiliates to, directly or indirectly, take any of the
following actions with any party other than the other party to this Agreement
and its designees: solicit, initiate, facilitate or encourage (including by way
of furnishing or disclosing non-public information) any inquiries or the making
of any proposal with respect to any merger, consolidation or other business
combination involving Zabit or X-ceed or any of its Subsidiaries or acquisition
of any kind of material portion of the capital stock or assets of Zabit or
X-ceed or any of its Subsidiaries. Zabit and X-ceed further agree that neither
they nor any of its directors, officers, employees, agents and representatives
(including, without limitation, any financial advisor, attorney or accountant)
will, nor authorize or permit any Subsidiary or any of its Subsidiaries'
officers, directors, agents, representatives or affiliates to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer with respect to (i) a merger,
acquisition, consolidation, recapitalization, liquidation, asset sale or similar
acquisition involving the purchase, sale or other disposition of all or any
significant portion of the assets of Zabit or X-ceed or any of its Subsidiaries,
(ii) the issuance, sale or other transfer of any of the shares of the capital
stock of Zabit or X-ceed or any of its Subsidiaries (or any securities
convertible into or exchangeable or exercisable for such capital stock), or
(iii) any agreement, arrangement, contract, license or understanding that could
reasonably be expected to obstruct or delay the transactions contemplated herein
(an "Acquisition Transaction") or negotiate, explore or otherwise communicate in
any way with any third party with respect to any Acquisition Transaction or
enter into any agreement, arrangement or understanding with respect to an
Acquisition Transaction or requiring it to abandon, terminate, or fail to
consummate the Merger or any other transactions contemplated by this Agreement,
or make or authorize any statement, recommendation or solicitation in support of
any Acquisition Transaction with any third party other than X-ceed and its
Subsidiaries or Zabit. Zabit and X-ceed agree to notify each other immediately
if any such inquiries or proposals regarding any such alternative proposal are
received. If the parties cannot in good faith negotiate mutually agreeable
definitive documentation before September 3, 1998, then Zabit and X-ceed shall
be permitted to commence negotiations with other potential purchasers.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Approval of Zabit Shareholders. Zabit has received written consents
from its shareholders approving this Agreement. The signatures of the Zabit
Shareholders on this Agreement shall constitute their approval to the Merger
under California law.
8.2 Access to Information; Interim Financial Information. Subject to any
applicable contractual confidentiality obligations (which Zabit and X-ceed shall
use all commercially reasonable efforts to cause to be waived) each of Zabit and
X-ceed shall afford the other party and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of the other party financial
information, properties, books, contracts, agreements and records, and (ii) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of Zabit or X-ceed as the other party
may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 8.2 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
8.3 Confidentiality. Each party shall, and shall cause all of its
employees, representatives and professional advisors to, keep confidential and
not disclose to any other person or entity any information relating to the other
party which it obtains in the course of its due diligence investigation in
connection with the Merger, and to destroy or return to the other party all
copies of such confidential information and extracts therefrom so requested by
the other party hereto.
8.4 Expenses. All fees and expenses incurred in connection with the
Merger including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses.
8.5 Public Disclosure. Unless otherwise required by law (including,
without limitation, securities laws) and, as to X-ceed, by the rules and
regulations of Nasdaq, prior to the Effective Time, no disclosure (whether or
not in response to an inquiry) of the discussions or subject matter of this
Agreement shall be made by any party hereto unless approved by X-ceed and Zabit
in writing prior to release, provided that such approval shall not be
unreasonably withheld.
8.6 Efforts. Subject to the terms and conditions of this Agreement, each
of the parties hereto shall use its commercially reasonable efforts to take
promptly, or cause to be taken promptly, all actions, and to do promptly, or
cause to be done promptly all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that neither Zabit nor X-ceed shall be required to
agree to any divestiture by
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X-ceed or Zabit, as may be applicable, or any of X-ceed's or Zabit's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or properties of X-ceed or its affiliates or Zabit, its subsidiaries or its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct its businesses or to own or exercise control of such assets,
properties and stock.
8.7 Conduct; Notification of Certain Matters. Each of X-ceed and Zabit
shall use all commercially reasonable efforts to not take, or fail to take, any
action that from the date hereof through the Closing would cause or constitute a
breach of any of its respective representations, warranties, agreements and
covenants set forth in this Agreement. Zabit shall give prompt written notice to
X-ceed, and X-ceed shall give prompt written notice to Zabit, of (a) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which causes or is likely to cause any representation or warranty of Zabit or
X-ceed or Zabit, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (b) any
failure of Zabit or X-ceed or Zabit, as the case may be, to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 8.7 shall not limit or otherwise affect
the other party's right to rely on the representations and warranties herein or
any the other remedies available to the party receiving such notice.
8.8 Tax-Free Reorganization. X-ceed and Zabit shall each use its
commercially reasonable efforts to cause the Merger to be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
8.9 Blue Sky Laws. X-ceed shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the shares of X-ceed Common Stock pursuant hereto.
Zabit shall use all commercially reasonable efforts to assist X-ceed as may be
reasonably necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of the shares
of X-ceed Common Stock pursuant hereto.
8.10 Acquisition Plan. X-ceed shall make a good faith effort to approve
and fund Zabit's acquisition plan as described on Exhibit F attached hereto, so
long as such plan is consistent with the then current financial condition and
the strategic operating plan of X-ceed.
8.11 Key Employee Retention. Bradley K. Nelson will enter into a three
(3) year employment agreement with X-ceed, plus benefit and option plans, in
substantially the form of Exhibit G attached hereto.
8.12 Key Employee Options. As soon as practicable, X-ceed will adopt a
new stock option plan and the employees of Zabit set forth on Exhibit H shall be
entitled to participate in such stock option plan, on the same terms and
conditions as X-ceed's key employees.
8.13 Additional Documents and Further Assurances. Each party hereto, at
the reasonable request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
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8.14 Listing of Additional Shares. No later than fifteen (15) calendar
days prior to the issuance of the shares of Common Stock issued as Merger
Consideration, or as otherwise required by Nasdaq, X-ceed shall file with the
Nasdaq Small Cap Market, or, if the X-ceed Common Stock is then listed on the
Nasdaq National Market, the Nasdaq National Market, any required Notification
Form for Listing of Additional Shares.
8.15 Registration Rights Agreement. X-ceed and the Zabit Shareholders
shall enter into the Registration Rights Agreement attached hereto as Exhibit I.
8.16 Required Consents. Zabit shall use its commercially reasonable
efforts to obtain all required third party consents to the Merger.
ARTICLE IX
CONDITIONS TO THE MERGER
9.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the Zabit Shareholders.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(c) Fairness Opinion. Prior to the Closing Date, the X-ceed Board shall
have received an opinion from an independent investment banking firm or
financial advisor, in a form reasonably satisfactory to the X-ceed Board, to the
effect that the Merger and the transactions contemplated by this Agreement are
fair to X-ceed and its stockholders from a financial point of view, and a copy
of such fairness opinion shall have been made available to Zabit.
9.2 Additional Conditions to Obligations of Zabit. The obligations of
Zabit to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived in writing
exclusively by Zabit:
(a) Representations and Warranties. The representations and warranties
of X-ceed contained in this Agreement shall be true and correct on the date
hereof and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date), except for
changes contemplated by this Agreement and except for such inaccuracies that,
considered collectively, have not had and would not reasonably be expected to
have a material adverse effect on X-ceed (it being understood that, for purposes
of determining the accuracy of such representations and warranties,
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all "material adverse effect" and other materiality qualifications contained in
such representations and warranties shall be disregarded).
(b) Agreements and Covenants. X-ceed shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time.
(c) Officer's Certificate. X-ceed shall have furnished Zabit with a
certificate dated the Closing Date signed on behalf of it by an executive
officer to the effect that the conditions set forth in Sections 9.2(a) and (b)
have been satisfied.
(d) Due Diligence. Zabit shall have completed, to its reasonable
satisfaction, its due diligence investigation of the assets, business, financial
affairs and operational strategies of X-ceed and its Subsidiaries.
(e) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any material adverse change in the business, financial
condition or results of operations of X-ceed or its Subsidiaries, taken as a
whole.
(f) Registration Rights Agreement. X-ceed and the Zabit Shareholders
shall have entered into the Registration Rights Agreement substantially into
from attached hereto as Exhibit I.
(g) Private Placement Exemption. The issuance of shares of X-ceed Common
Stock is intended to be exempt from registration requirements of Section 5 of
the Securities Act pursuant to an appropriate exemption available under Section
4(2) or Regulation D promulgated thereunder.
(h) Employment Agreement. William N. Zabit and X-ceed shall have entered
into an employment agreement in substantially the form as attached hereto as
Exhibit E.
(i) Third Party Consents. Zabit shall have been furnished with evidence
reasonably satisfactory to it that X-ceed has obtained,or is in the process of
obtaining, the consents, approvals, assignments and waivers set forth in the
X-ceed Disclosure Schedule subject to no term, condition or restriction
unacceptable to Zabit in its sole discretion.
9.3 Additional Conditions to the Obligations of X-ceed. The obligations
of X-ceed to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived in writing
exclusively by X-ceed:
(a) Representations and Warranties. The representations and warranties
of Zabit contained in this Agreement shall be true and correct on the date
hereof and on and as of the Closing Date, as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date), except for
changes contemplated by this Agreement, including the dividends paid pursuant to
Section 4.8(e), and except for such inaccuracies that, considered collectively,
have not had and would not reasonably be expected to have a material adverse
effect on Zabit (it being understood that, for purposes of
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determining the accuracy of such representations and warranties, all "material
adverse effect" and other materiality qualifications contained in such
representations and warranties shall be disregarded).
(b) Agreements and Covenants. Zabit shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time.
(c) Officer's Certificate. Zabit shall have furnished X-ceed with a
certificate dated the Closing Date signed on behalf of it by an executive
officer to the effect that the conditions set forth in Sections 9.3(a) and (b)
have been satisfied.
(d) Due Diligence. X-ceed shall have completed, to its reasonable
satisfaction, its due diligence investigation of the assets, business, financial
affairs and operational strategies of Zabit.
(e) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any material adverse change in the business, financial
condition or results of operations of Zabit.
(f) Third Party Consents. X-ceed shall have been furnished with evidence
reasonably satisfactory to it that Zabit has obtained,or is in the process of
obtaining, the consents, approvals, assignments and waivers set forth in the
Zabit Disclosure Schedule subject to no term, condition or restriction
unacceptable to X-ceed in its sole discretion.
(g) Private Placement Exemption. The issuance of shares of X-ceed Common
Stock is intended to be exempt from registration requirements of Section 5 of
Securities Act pursuant to an appropriate exemption available under Section 4(2)
or Regulation D promulgated thereunder.
ARTICLE X
INDEMNIFICATION
10.1 Survival of Representations and Warranties.
(a) All of the representations and warranties made by Zabit in this
Agreement or in any instrument by Zabit delivered pursuant to this Agreement
shall survive the Merger and continue until 5:00 p.m., California time on the
date which is sixteen (16) months after the Closing Date and shall not be
affected by any investigation conducted for or on behalf of X-ceed with respect
thereto or any knowledge acquired by X-ceed or its officers, directors,
employees, shareholders or agents as to the accuracy or inaccuracy of any such
representation or warranty.
(b) All of the representations and warranties made by X-ceed in this
Agreement or in any instrument by X-ceed delivered pursuant to this Agreement
shall survive the Merger and continue until 5:00 p.m. California time on the
date which is sixteen (16) months after the Closing Date and shall not be
affected by any investigation conducted for or on behalf of Zabit with respect
thereto or any knowledge acquired by Zabit or its officers, directors,
employees, shareholders or agents as to the accuracy or inaccuracy of any such
representation or warranty.
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(c) The waiver of any condition based on the accuracy of any
representation or warranty, or the performance or compliance of any covenant or
obligation, will not affect the right to indemnification set forth in this
Article X.
10.2 Indemnification by the Zabit Shareholders. Subject to the
limitations set forth herein, by approval and adoption of this Agreement, the
Zabit Shareholders agree to indemnify X-ceed severally for such Zabit
Shareholder's pro rata portion (based upon the number of shares of Zabit Common
Stock held by such Zabit Shareholder immediately prior to the Effective Time
relative to the total number of shares of Zabit Common Stock outstanding
immediately prior to the Effective Time) of claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses, and expenses of investigation and defense (calculated after
deduction for insurance proceeds recovered or recoverable) incurred by X-ceed
directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of Zabit or its shareholders contained herein
(hereinafter individually a "X-ceed Loss" and collectively "X-ceed Losses"). The
right of X-ceed after the Effective Time to assert indemnification claims and
receive indemnification payments from the Zabit Shareholders pursuant to this
Article X shall be the sole and exclusive right and remedy exercisable by such
parties with respect to any unintentional inaccuracy or breach in any
representation, warranty, or covenant contained in this Agreement or in any
instrument delivered pursuant to this Agreement or in connection with the
transactions contemplated hereby; provided, however, this section shall not
apply to any misrepresentation or breach or warranty of which the Zabit
Shareholders had actual knowledge or any intentional failure to perform or
comply with any agreement to which intentional acts and knowing
misrepresentations the Zabit Shareholders shall be liable for all X-ceed Losses
with respect thereto. X-ceed may not receive any indemnification from Zabit or
its shareholders unless and until a Claim Notice (as defined in Section 10.4
below) identifying X-ceed Losses, the aggregate cumulative amount of which
exceed five hundred thousand dollars ($500,000), have been delivered to the
Zabit Shareholders as provided in Section 10.4; in such case, X-ceed may recover
from the Zabit Shareholders the entire amount of the cumulative X-ceed Losses.
Any payment for indemnification from any Zabit Shareholder shall be paid by the
forfeiture and return of shares of X-ceed Common Stock received as such Zabit
Shareholder's pro rata portion of the Merger Consideration. The obligations of
the Zabit Shareholders to indemnify and hold harmless X-ceed shall also apply to
any action, claim or suit which arises from the operations of Zabit prior to the
Closing Date, to the extent that the aggregate cumulative amount of Zabit's
liability thereunder is in excess of five hundred thousand dollars ($500,000)
and is not covered by insurance and to the extent that such action, claim, suit
or matter is not disclosed in this Agreement or the Schedules attached hereto.
The Zabit Shareholders shall not be obligated to indemnify X-ceed for any claim
asserted more than sixteen (16) months after the Closing Date. In the event of
any such third party claim, the procedure set forth in Section 10.4 below shall
apply, except that no settlement shall be effective without the Zabit
Shareholders' consent and approval.
10.3 Indemnification by X-ceed. Subject to the limitations set forth
herein, by approval and adoption of this Agreement, X-ceed agrees to indemnify
the Zabit Shareholders for such Zabit Shareholder's pro rata portion (based upon
the number of shares of Zabit Common Stock held by such Zabit Shareholder
immediately prior to the Effective Time relative to the total number of shares
of Zabit Common Stock outstanding immediately prior to the Effective Time) of
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of investigation
and defense (calculated after deduction for insurance proceeds recovered or
recoverable) incurred by Zabit or the Zabit Shareholders directly or indirectly
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as a result of (a) any inaccuracy or breach of a representation or warranty of
X-ceed contained herein or in any instrument delivered pursuant to this
Agreement or any failure by X-ceed to perform or comply with any covenant
contained herein or (b) as a result of any claim or action made by THINK New
Ideas, Inc. ("THINK") against X-ceed, Zabit, the Zabit Shareholders or Scott
Mednick in connection with any discussions regarding a proposed acquisition of
Zabit by THINK (hereinafter individually a "Zabit Loss" and collectively "Zabit
Losses"). The right of Zabit or the Zabit Shareholders after the Effective Time
to assert indemnification claims and receive indemnification payments from
X-ceed pursuant to this Article X shall be the sole and exclusive right and
remedy exercisable by Zabit or the Zabit Shareholders with respect to any
unintentional inaccuracy or breach in any representation, warranty, or covenant
contained in this Agreement or in any instrument delivered pursuant to this
Agreement or in connection with the transactions contemplated hereby; provided,
however, this section shall not apply to any misrepresentation or breach or
warranty of which X-ceed had actual knowledge or any intentional failure to
perform or comply with any agreement to which intentional acts and knowing
misrepresentations X-ceed shall be liable for all Zabit Losses with respect
thereto. The Zabit Shareholders may not receive any indemnification from X-ceed
unless and until a Claim Notice (as defined in Section 10.4 below) identifying
Zabit Losses, the aggregate cumulative amount of which exceed five hundred
thousand dollars ($500,000), have been delivered to X-ceed as provided in
Section 10.4; in such case, the Zabit Shareholders may recover from X-ceed the
entire amount of the cumulative Zabit Losses.
10.4 Defense of Claims. No right to indemnification under this Article X
shall be available to any party otherwise entitled to indemnification (the
"Indemnified Party"), unless such Indemnified Party gives to the party obligated
to provide indemnification to such Indemnified Party (the "Indemnitor") a notice
(a "Claim Notice") describing in reasonable detail the facts giving rise to any
claim for indemnification hereunder promptly after the receipt of knowledge of
the facts upon which such claim is based (but in no event later than ten (10)
days prior to the time any response to the asserted claim is required); except
that the failure of any Indemnified Party to so notify the Indemnitor will not
relieve the Indemnitor from any liability it may have if and to the extent the
Indemnitor is not prejudiced by such omission. Upon receipt by the Indemnitor of
a Claim Notice from an Indemnified Party with respect to any claim of a third
party, such Indemnitor may control negotiations towards the resolution of any
such claim without the necessity for litigation, and, if litigation ensues,
assume the defense thereof at such Indemnitor's cost and with counsel reasonably
satisfactory to the Indemnified Party, and the Indemnified Party will extend
reasonable cooperation in the defense or prosecution thereof and will furnish
such records, information and testimony and attend all such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably
requested in connection therewith. The Indemnified Party will have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel will be at the expense of the Indemnified Party unless (i) the
Indemnitor does not promptly employ counsel reasonably satisfactory to such
Indemnified Party to take charge of the defense of such action or (ii) such
Indemnified Party reasonably concludes, based upon the opinion of its outside
legal counsel, that there may be one or more legal defenses available to it, or
to any other Indemnified Party who has submitted a Claim Notice to the
Indemnitor, which are different from or additional to those available to the
Indemnitor, in either of which events such reasonable fees and expenses will be
borne by the Indemnitor (but in no event will the Indemnitor be required to pay
the fees and expenses of more than one counsel employed by more than one
Indemnified Party with respect to any claim) and the Indemnitor will not have
the right to direct the defense of any such action on behalf of the Indemnified
Party. The Indemnitor will have the right, in its sole discretion, to settle any
claim for monetary damages for
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which indemnification has been sought and is available hereunder, except that
neither Indemnitor nor the Indemnified Party will settle, compromise or make any
disposition of any claim under this Article X which would or may result in
liability to the Indemnified Party or Indemnitor, respectively, without the
written consent of Indemnitee or Indemnitor, respectively.
ARTICLE XI
TERMINATION, AMENDMENT, WAIVER, CLOSING
11.1 Termination. Except as provided in Section 11.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) By mutual consent of Zabit and X-ceed;
(b) By X-ceed or Zabit if: (i) the Effective Time has not occurred by
September 3, 1998 (provided that the right to terminate this Agreement under
this clause (i) shall not be available to any party whose willful failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date); (ii) there shall
be a final non-appealable order, decree or ruling of a court of competent
jurisdiction in effect preventing consummation of the Merger; or (iii) there
shall be any statute, rule, regulation or non-appealable order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
entity that would make consummation of the Merger illegal;
(c) By X-ceed if it is not in material breach of its representations,
warranties or obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Zabit or if any representation or warranty of Zabit
shall have become materially untrue, in either case such that the conditions set
forth in Section 9.3 would not be satisfied; provided, however, if such breach
or breaches are capable of being cured prior to the Effective Time, such
breaches shall not have been cured within thirty (30) days of delivery to Zabit
of written notice of such breach or breaches (but no such cure period shall be
required if such breach by its nature cannot be cured);
(d) By Zabit if it is not in material breach of its representations,
warranties or obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of X-ceed or if any representation or warranty of X-ceed
shall have become materially untrue, in either case such that the conditions set
forth in Section 9.2 would not be satisfied; provided, however, if such breach
or breaches are capable of being cured prior to the Effective Time, such
breaches shall not have been cured within thirty (30) days of delivery to X-ceed
of written notice of such breach or breaches (but no such cure period shall be
required if such breach by its nature cannot be cured);
(e) By Zabit if the trailing five (5) day weighted average price of
shares of X-ceed Common Stock on the Nasdaq Small Cap Market or the Nasdaq
National Market, as the case may be, is less than six dollars ($6) at the close
of the business day preceding the Closing Date.
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Where action is taken to terminate this Agreement pursuant to this
Section 11.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
11.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 11.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of X-ceed or
Zabit, or its respective subsidiaries, officers, directors or shareholders,
provided that, the provisions of Sections 8.3, 8.4, 8.5 and 8.13 of this
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
11.3 Amendment or Supplement. This Agreement, the X-ceed Notes, the
Second Note, the Registration Rights Agreement and all other agreements,
documents, instruments and certificates contemplated by, and executed and
delivered pursuant to, this Agreement (the "Transaction Documents") may be
amended or supplemented at any time before or after approval of this Agreement
and any action contemplated by this Agreement or any of the Transaction
Documents may be taken by a majority in interest of the Zabit Shareholders to
the extent permitted under the CGCL and the DGCL. No amendment or supplement to
this Agreement shall be effective unless in writing and signed by each of X-ceed
and Zabit.
11.4 Extension of Time, Waiver. At any time prior to the Effective Time,
X-ceed and Zabit may, to the extent legally allowed:
(a) Extend the time for the performance of any of the obligations
or other acts of the other party hereto,
(b) Waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered
pursuant hereto, or
(c) Waive compliance with any of the agreements or conditions for
the benefit of such party contained herein; provided, that no failure or
delay by any party hereto in exercising any right hereunder shall
operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise
of any other right hereunder.
Any agreement on the part of any party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE XII
GENERAL
12.1 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy (with receipt
confirmed and promptly confirmed by personal delivery, U.S. first class mail, or
courier), or by courier service, as follows:
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(a) If to X-ceed to:
X-ceed, Inc.
488 Madison Avenue
New York, New York 10022
Attn: Werner Haase
Facsimile: (212) 308-0646
with a copy to:
McLaughlin & Stern LLP
260 Madison Avenue
New York, New York 10016
Attn: Richard Blumberg
Facsimile: (212) 448-0066
(b) If to Zabit to:
Zabit and Associates
565 Bridgeway
Sausalito, CA 94965
Attention: William N. Zabit
Facsimile: (415) 331-4610
with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Attn: Gregg Vignos
Facsimile: (415) 983-1200
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
12.2 Headings. The headings of the several sections of this Agreement
are inserted for convenience of reference only and are not intended to affect
the meaning or interpretation of this Agreement.
12.3 Counterparts. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
12.4 Entire Agreement; Assignment. This Agreement, the Schedules and
Exhibits hereto (including the Disclosure Schedule), and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings,
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both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder (except as provided in Section 12.9 below); and (c), except
as contemplated by Section 11.3, shall not be assigned by operation of law or
otherwise except as mutually agreed in writing between the parties
12.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
12.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
12.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served them in any manner
authorized by the laws of the State of Delaware for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
12.8 Arbitration. All disputes arising in connection with or relating to
this Agreement, or the breach thereof, shall be finally settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association by one or more arbitrators appointed in accordance with said Rules.
The site of such arbitration shall be San Francisco, California. The award of
the arbitrator shall be final and binding and may be enforced in any and all
courts having jurisdiction over the party against which the award is rendered.
The prevailing party in any legal or arbitration action brought by one party
against the other shall be entitled, in addition to any other rights and
remedies it may have, to reimbursement for its expenses incurred thereby,
including the costs of investigation, consultant fees, court costs and
reasonable attorney's fees.
12.9 Absence of Third-Party Beneficiary Rights. No provision of this
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner or
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any party hereto or any other person or entity, and all provisions hereof will
be personal solely between the parties to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, all as of the date first above written.
X-CEED, INC.
By /s/ Werner Haase
Title Chief Executive Officer
ZABIT & ASSOCIATES, INC.
By /s/ William N. Zabit
Title Chairman/C.E.O.
ZABIT SHAREHOLDERS:
/s/ William N. Zabit
William N. Zabit
/s/ Joyce M. Wesolowski
Joyce M. Wesolowski
/s/ Judith Cohen
Judith Cohen
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