Executive Copy
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STOCK PURCHASE AND CONTRIBUTION AGREEMENT
BY AND AMONG
EMARKETPLACE, INC.,
TOP TEAM, INC.,
ONCOURSE NETWORK, INC.
AND
KENT RHODES
Dated as of November 19, 1999
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TABLE OF CONTENTS
Page
ARTICLE I THE TRANSACTIONS AND RELATED MATTERS....................1
1.1 Purchase and Exchange...............................................1
1.2 Contribution........................................................1
1.3 Stock Certificates..................................................2
1.4 Stock Option and Other Plans........................................2
1.5 Tax Consequences....................................................2
1.6 Closing ........................................................3
1.7 Certificate of Incorporation of Top Team............................3
1.8 By-Laws of Top Team.................................................3
1.9 Directors and Officers of Top Team..................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
SELLERS INDIVIDUALLY...................................3
2.1 Authorization.......................................................3
2.2 Ownership of Stock..................................................3
2.3 Consents and Approvals..............................................4
2.4 Securities Matters..................................................4
2.5 Brokerage Fees......................................................5
2.6 Disclosure ........................................................5
ARTICLE III JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SELLERS..........................5
3.1 Due Organization, Good Standing and Corporate Power.................5
3.2 Authorization and Validity of Agreement.............................6
3.3 Capitalization......................................................6
3.4 Consents and Approvals; No Violations...............................7
3.5 Company Reports and Financial Statements............................8
3.6 Absence of Certain Changes..........................................8
3.7 Minute Books........................................................8
3.8 Title to Properties; Encumbrances...................................8
3.9 Compliance with Laws................................................9
3.10 Litigation ........................................................9
3.11 Employee Benefit Plans..............................................9
3.12 Employment Relations and Agreements................................11
3.13 Client Relations...................................................11
3.14 Taxes .......................................................12
3.15 Liabilities .......................................................12
3.16 Intellectual Properties............................................13
3.17 Material Contracts and Relationships...............................13
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3.18 Absence of Certain Business Practices..............................15
3.19 Transactions with Related Parties..................................15
3.20 Broker's or Finder's Fee...........................................16
3.21 Accounts Receivable................................................16
3.22 Inventories .......................................................16
3.23 Insurance .......................................................16
3.24 No Powers of Attorney or Suretyships...............................17
3.25 Banking Facilities.................................................17
3.26 Environmental Liabilities..........................................17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EMKT
AND TOP TEAM..........................................19
4.1 Due Organization; Good Standing and Corporate Power................19
4.2 Authorization and Validity of Agreement............................19
4.3 Consents and Approvals; No Violations..............................19
4.4 EMKT Reports and Financial Statements..............................20
4.5 Capitalization.....................................................20
4.6 Absence of Certain Changes.........................................20
4.7 Compliance with Laws...............................................20
4.8 Liabilities .......................................................20
4.9 Litigation .......................................................20
4.10 Tax Status .......................................................21
ARTICLE V ACTIONS PRIOR TO CLOSING DATE..........................21
5.1 Access to Information Concerning Properties and Records............21
5.2 Conduct of the Business of the Company Pending the Closing Date....21
5.3 Best Efforts.......................................................22
5.4 No Solicitation of Other Offers....................................23
ARTICLE VI CONDITIONS PRECEDENT TO TRANSACTIONS...................23
6.1 Conditions Precedent to Obligations of EMKT,
Top Team and the Company and the Sellers...........................23
6.2 Conditions Precedent to Obligations of EMKT and Top Team...........23
6.3 Conditions Precedent to Obligations of the Company and the Sellers.24
ARTICLE VII TERMINATION AND ABANDONMENT............................25
7.1 Termination .......................................................25
7.2 Effect of Termination..............................................25
ARTICLE VIII INDEMNIFICATION........................................25
8.1 Indemnification by Sellers.........................................25
8.2 Indemnification by Sellers Jointly and Severally...................26
8.3 Indemnification by EMKT and Top Team...............................27
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8.4 Indemnification by Sellers for Tax Liabilities.....................27
8.5 Claims for Indemnification.........................................28
8.6 Defense Claims.....................................................28
8.7 Manner of Indemnification..........................................29
8.8 Limitations on Indemnification.....................................29
ARTICLE IX MISCELLANEOUS..........................................29
9.1 Fees and Expenses..................................................29
9.2 Representations and Warranties.....................................29
9.3 Extension; Waiver..................................................29
9.4 Public Announcements...............................................30
9.5 Notices .......................................................30
9.6 Entire Agreement...................................................31
9.7 Binding Effect; Benefit; Assignment................................31
9.8 Amendment and Modification.........................................31
9.9 Further Actions....................................................31
9.10 Headings .......................................................31
9.11 Counterparts.......................................................32
9.12 Applicable Law.....................................................32
9.13 Severability.......................................................32
9.14 "Person" Defined...................................................32
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STOCK PURCHASE AND CONTRIBUTION AGREEMENT
This STOCK PURCHASE AND CONTRIBUTION AGREEMENT dated as of November 19,
1999 (this "AGREEMENT"), is by and among EMARKETPLACE INC., a Delaware
corporation ("EMKT"), TOP TEAM, INC. a Delaware corporation ("TOP TEAM"),
ONCOURSE NETWORK, INC., a Delaware corporation (the "COMPANY"), KENT RHODES
(together with the other Persons executing a Joinder Agreement as described
herein, the "SELLERS"), and is made with reference to the following facts:
A. The Sellers own of all of the issued and outstanding shares of
capital stock of the Company, consisting of common stock ("COMPANY STOCK") of
the Company.
B. EMKT wishes to acquire from the Sellers an aggregate of 238,000
shares of Company Stock, constituting in the aggregate 50 percent of the number
of outstanding shares of Company Stock (on a fully diluted basis), in exchange
for an aggregate of 38,000 shares of EMKT Common Stock, par value $0.001 per
share ("EMKT STOCK"). Immediately after such exchange, EMKT and the Sellers will
contribute all of their Company Stock to Top Team in exchange for an aggregate
of 220,000 shares of common stock, par value $0.001 per share, of Top Team ("TOP
TEAM COMMON STOCK").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
THE TRANSACTIONS AND RELATED MATTERS
1.1 PURCHASE AND EXCHANGE. On the Closing Date (as defined in Section
1.6), each of the Sellers shall sell to EMKT that number of shares of Company
Common Stock set forth opposite such Seller's name on Schedule 1.1 (the
"PURCHASED COMPANY STOCK"), constituting in the aggregate 50 percent of the
number of outstanding shares of Company Stock (on a fully diluted and converted
basis) (the "PURCHASE"), for a consideration equal to that number of EMKT shares
set forth opposite such Seller's name on Schedule 1.1 (the "PURCHASE
CONSIDERATION"). The Purchase Consideration shall be payable on the later of the
Closing Date and January 3, 2000.
1.2 CONTRIBUTION. On the Closing Date, immediately after the purchase
of the Purchased Company Stock as contemplated by Section 1.1, (i) EMKT shall
contribute the Purchased Company Stock to Top Team in exchange for 110,000
shares of Top Team Stock and (ii) each Seller shall contribute to Top Team all
of his, her or its remaining Company Stock, constituting in the aggregate the
remaining 50 percent of the outstanding shares of Company Stock (on a fully
diluted and converted basis) in exchange for that number of shares of Top Team
Stock set forth opposite such Seller's name on Schedule 1.1. The Sellers will
receive an aggregate of 110,000 shares of Top Team Stock. Such exchanges are
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referred to collectively herein as the "EXCHANGE." Such shares of Company Stock
contributed to Top Team are referred to herein as the "CONTRIBUTED STOCK." Such
shares of Top Team Stock received by the Sellers and EMKT in exchange for the
Contributed Stock are referred to herein as the "EXCHANGE CONSIDERATION."
1.3 STOCK CERTIFICATES. On the Closing Date, each Seller shall
deliver to EMKT certificates evidencing their respective shares of Contributed
Stock, which shall be Duly Endorsed. The term "DULY ENDORSED" means duly
endorsed by the person or persons in whose name a stock certificate is
registered in blank or accompanied by a duly executed stock assignment separate
from such certificate. Top Team will deliver to each Seller and EMKT on the
Closing Date duly issued and authenticated certificates evidencing the Exchange
Consideration issuable to such person pursuant to Section 1.2.
1.4 STOCK OPTION AND OTHER PLANS.
(a) The Company shall, prior to the Closing Date, use its
commercially reasonable best efforts to accelerate the vesting or exercisability
of all outstanding employee stock options to purchase Company Common Stock,
whether set forth in any stock option plan or plans of the Company ("COMPANY
STOCK OPTION PLANS"), in an option agreement with the optionee or otherwise. On
the Closing Date, the Company shall use its commercially reasonable best efforts
to cause each such option (each, a "COMPANY OPTION") granted by the Company to
purchase shares of Company Common Stock that is outstanding and unexercised
immediately prior to Closing Date to be exercised, and the optionees thereunder
(the "OPTIONEES") shall be deemed to be Sellers for purposes of Articles I and
II of this Agreement. As required by Section 6.2(e) hereof, the Sellers shall
cause each Optionee to deliver prior to the Option Closing a joinder agreement
whereby each such Optionee agrees to be bound by the provisions of Articles I
and II of this Agreement as if he or she were a Seller hereunder (each, a
"JOINDER AGREEMENT").
(b) Any then outstanding stock appreciation rights or limited
stock appreciation rights shall be canceled as of immediately prior to the
Closing without any payment therefor. As provided herein, the Company Stock
Option Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any Subsidiary (collectively with the Company Stock Option Plans, the
"COMPANY STOCK INCENTIVE PLANS") shall terminate as of the Closing Date. The
Company will take all commercially reasonable steps to ensure that neither the
Company nor any of its Subsidiaries is or will be bound by any Company Options,
other options, warrants, rights or agreements which would entitle any Person,
other than EMKT, Top Team or either of their Affiliated Parties (as defined in
Section 8.1), to own any capital stock of the Company or any of its Subsidiaries
or to receive any payment in respect thereof. The Company will use its
commercially reasonable best efforts to obtain all necessary consents to ensure
that after the Closing Date, the only rights of the holders of Options to
purchase shares of Company Common Stock in respect of such Options will be to
receive the Purchase Consideration and the Exchange Consideration in
cancellation and settlement thereof.
1.5 TAX CONSEQUENCES. It is intended by the parties that the
contribution to Top Team of the Contributed Stock in exchange for the Exchange
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Consideration, together with (i) the contributions to be made in connection with
the Roll-Up (as defined in Section 4.5) and (ii) the capital contribution of
EMKT to Top Team referred to in Section 5.5, shall constitute a contribution of
capital under Section 351 of the Internal Revenue Code of 1986 (the "CODE").
1.6 CLOSING. The closing (the "CLOSING") of the purchase of the
Purchased Company Stock from the Sellers and the exchange by the Sellers and
EMKT of the Contributed Stock for the Exchange Consideration shall take place at
the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP, 1999 Avenue of the
Stars, 16th Floor, Los Angeles, California, as soon as practicable after the
last of the conditions set forth in Article VI are fulfilled or waived (subject
to applicable law) but in no event later than the fifth business day thereafter,
or at such other time and place and on such other date as EMKT, Top Team and the
Company shall mutually agree (the "CLOSING DATE").
1.7 CERTIFICATE OF INCORPORATION OF TOP TEAM. The Certificate of
Incorporation of Top Team, as in effect as of the Closing Date, shall be as set
forth in Schedule 1.7.
1.8 BY-LAWS OF TOP TEAM. The By-Laws of Top Team, as in effect as of
the Closing Date, shall be as set forth in Schedule 1.8.
1.9 DIRECTORS AND OFFICERS OF TOP TEAM. As of the Closing Date, the
directors of Top Team shall be Robert Wallace, Fred Walti, Brian Burns and such
additional directors as shall be designated by Top Team, each to hold office,
subject to the applicable provisions of the Certificate of Incorporation and
By-Laws of Top Team, until the next annual stockholders' meeting of Top Team and
until their respective successors shall be duly elected or appointed and
qualified, and the persons set forth on Schedule 1.9 shall hold the offices of
Top Team therein indicated until their respective successors shall be duly
elected or appointed and qualified.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLERS INDIVIDUALLY
Each Seller, severally and not jointly, hereby represents and warrants
to EMKT and Top Team that:
2.1 AUTHORIZATION. Such Seller has full power and authority to enter
into this Agreement and to perform his, her or its obligations under this
Agreement and to consummate the Purchase, the Exchange and the other
transactions contemplated hereby (collectively, the "TRANSACTIONS"). This
Agreement and all agreements or instruments herein contemplated to be executed
by such Seller are the valid and binding agreements of such Seller, enforceable
against such Seller in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights generally and to general principles of equity.
2.2 OWNERSHIP OF STOCK. Such Seller is the record owner of all of the
Company Stock set forth below such Seller's name on Schedule 1.1, free and clear
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of any liens, encumbrances, pledges, security interests, restrictions, prior
assignments and claims of any kind or nature whatsoever. Upon consummation of
the Exchange, Top Team shall be the owner, beneficially and of record, of all of
the outstanding shares of capital stock of the Company, free and clear of any
liens, encumbrances, pledges, security interests, restrictions, prior
assignments and claims of any kind or nature whatsoever, except as otherwise
created by EMKT or Top Team in connection with the Transactions.
2.3 CONSENTS AND APPROVALS. Neither the execution and delivery of this
Agreement by such Seller nor the consummation of the Purchase and Exchange by
such Seller will violate, result in a breach of any of the terms or provisions
of, constitute a default (or any event that, with the giving of notice or the
passage of time or both, would constitute a default) under, result in the
acceleration of an indebtedness under or result in any right of termination of,
increase any amounts payable under, or conflict with, the trust agreements, if
any, relating to such Seller or any other agreement, indenture or other
instrument to which such Seller is a party or by which any of its properties are
bound, or any judgment, decree, order or award of any court, governmental body
or arbitrator (domestic or foreign) applicable to such Seller. All consents,
approvals and authorizations of, and declarations, filings and registrations
with, and payments of all taxes, fees, fines, and penalties to, any governmental
or regulatory authority (domestic or foreign) or any other Person (either
governmental or private) required in connection with the execution and delivery
by such Seller of this Agreement or the consummation of the Transactions by such
Seller have been or prior to the Closing will have been obtained, made and
satisfied.
2.4 SECURITIES MATTERS. Such Seller acknowledges that the shares of
EMKT Stock that constitute the Purchase Consideration and the shares of Top Team
Stock that constitute the Exchange Consideration have not been and will not
(except with respect to certain registration rights to be granted to the Sellers
pursuant to the Registration Rights Agreement referred to in Section 6,3(e)) be
registered under (i) the Securities Act of 1933, as amended (the "SECURITIES
ACT") inasmuch as they are being issued pursuant to an exemption from
registration granted under Section 4(2) of the Securities Act and Regulation D
promulgated thereunder relating to transactions not involving any public
offering, (ii) the California Corporate Securities Laws of 1968 (the "CALIFORNIA
LAW") or (iii) any other applicable securities laws, and that EMKT and Top
Team's reliance on such exemption or related exemptions is predicated in part on
the following representations and agreements made to EMKT and Top Team by such
Seller:
(a) Such Seller is acquiring the Purchase Consideration and
the Exchange Consideration (together, the "CONSIDERATION") to be issued to such
Seller hereunder for investment for his or her own account and not with a view
to or for sale in connection with any distribution and resale thereof, with no
intention of distributing or reselling the same; and such Seller is not aware of
any particular occasion, event or circumstance upon the occurrence or happening
of which he or it intends to dispose of such shares;
(b) Such Seller is either (i) an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act, (ii) a "qualified
purchaser" within the meaning of Section 25102(n)(2) of the California Law or
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(iii) has such knowledge and experience in financial and business matters that
he or she is capable of evaluating the merits and risks of the Transactions;
such Seller is aware that the Merger Consideration constitutes "restricted,"
"letter" or "investment" securities and such Seller by reason of his business or
financial experience has the capacity to protect his own interest in connection
with the Transactions; and
(c) Such Seller agrees not to sell, transfer, assign, pledge,
hypothecate or otherwise dispose of his or its shares received in this
transaction without either (i) registration under the Securities Act and the
California Law, and any other applicable securities laws, or (ii) an opinion of
counsel reasonably satisfactory to EMKT and Top Team that the transaction by
which such shares are proposed to be disposed of is exempt from the Securities
Act, the California Law and any other applicable securities laws, and
acknowledges that EMKT and Top Team will place a legend on the certificates
representing such shares substantially to such effect concerning these
restrictions.
2.5 BROKERAGE FEES. No Person is entitled to any brokerage or finder's
fee or other commission from such Seller in respect of this Agreement or the
Transactions.
2.6 DISCLOSURE. The information provided by such Seller in this
Agreement and in any other writing furnished pursuant hereto does not and will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated herein or therein or necessary to make the statements
and facts contained herein or therein, in light of the circumstances under which
they are made, not false or misleading. Copies of all documents heretofore or
hereafter delivered or made available by such Seller to EMKT or Top Team
pursuant hereto were or will be complete and accurate records of such documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND KENT RHODES
Each of the Company and Kent Rhodes hereby, jointly and severally,
represents and warrants to EMKT and Top Team as follows:
3.1 DUE ORGANIZATION, GOOD STANDING AND CORPORATE POWER. Schedule 3.1
sets forth the name, state of incorporation or formation and equity ownership of
the Company in each Subsidiary of the Company. (A "SUBSIDIARY" of a Person is a
corporation, partnership, joint venture, limited liability company and other
entity in which such Person owns all or a majority of the equity interest or is
required to be consolidated on such Person's balance sheet pursuant to GAAP.)
The Company and each of its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and each such corporation has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company and each of its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except in
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such jurisdictions where the failure to be so qualified or licensed and in good
standing would not have a material adverse effect on the business, properties,
assets, liabilities, operations, results of operations, condition (financial or
otherwise) or prospects (the "CONDITION") of the Company and its Subsidiaries
taken as a whole.
3.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. The Company has full
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the Transactions. The execution,
delivery and performance of this Agreement by the Company, and the consummation
by it of the Transactions, have been or prior to the Closing will be duly
authorized and approved by its Board of Directors and no other corporate action
on the part of the Company is necessary to authorize the execution, delivery and
performance of this Agreement by the Company and the consummation of the
Transactions (other than the approval of this Agreement by the holders of a
majority of the outstanding shares of Company Stock and any other classes of
capital stock entitled to vote thereon, as required by the Delaware General
Corporation Law). This Agreement has been duly executed and delivered by the
Company and is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
1,000,000 shares of common stock, par value $0.01 per share, constituting the
Company Common Stock, and 150,000 shares of preferred stock, par value $0.01 per
share. As of the date of this Agreement, (i) 476,000 shares of Company Common
Stock are issued and outstanding, (ii) no shares of preferred stock are
outstanding and (iii) no shares of Company Common Stock are reserved for
issuance pursuant to outstanding Company Options granted under the Stock
Incentive Plans. All issued and outstanding shares of Company Stock have been
validly issued and are fully paid and nonassessable, and are not subject to, nor
were they issued in violation of, any preemptive rights. Except as set forth in
this Section 3.3 or on Schedule 3.3, (i) there are no shares of capital stock of
the Company authorized, issued or outstanding and (ii) there are not as of the
date hereof, and on the Closing Date there will not be, any outstanding or
authorized options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to Company Stock or any other
shares of capital stock of the Company, pursuant to which the Company is or may
become obligated to issue shares of Common Stock, any other shares of its
capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of the
Company.
(b) All of the outstanding shares of capital stock of each of
the Company's Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to, nor were they issued in
violation of, any preemptive rights, and are owned, of record and beneficially,
by the Company, free and clear of all liens, encumbrances, options or claims
whatsoever. No shares of capital stock of any of the Company's Subsidiaries are
reserved for issuance and there are no outstanding or authorized options,
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warrants, rights, subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities, or other commitments,
contingent or otherwise, relating to the capital stock of any Subsidiary of the
Company, pursuant to which such Subsidiary is or may become obligated to issue
any shares of capital stock of such Subsidiary or any securities convertible
into, exchangeable for, or evidencing the right to subscribe for, any shares of
such Subsidiary. There are no restrictions of any kind that prevent the payment
of dividends by any of the Company's Subsidiaries. Except for the Subsidiaries
listed on Schedule 3.1, the Company does not own, directly or indirectly, any
capital stock or other equity interest in any Person or have any direct or
indirect equity or ownership interest in any Person and neither the Company nor
any of its Subsidiaries is subject to any obligation or requirement to provide
funds for or to make any investment (in the form of a loan, capital contribution
or otherwise) to or in any Person.
3.4 CONSENTS AND APPROVALS; NO VIOLATIONS. (a) The execution and
delivery of this Agreement by the Sellers and the Company and the consummation
by the Sellers and the Company of the Transactions will not: (1) violate any
provision of the Certificate of Incorporation, as amended, or By-Laws of the
Company or any of its Subsidiaries; (2) to the best knowledge of the Company and
the Sellers violate any statute, ordinance, rule, regulation, order or decree of
any court or of any governmental or regulatory body, agency or authority
applicable to the Company or such Seller or any of its Subsidiaries or by which
any of their respective properties or assets may be bound; (3) to the best
knowledge of the Company and the Sellers require any filing with, or permit,
consent or approval of, or the giving of any notice to, any governmental or
regulatory body, agency or authority; or (4) result in a violation or breach of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, cancellation, payment or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
of its Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party, or by which it or any of their respective
properties or assets may be bound, excluding from the foregoing clauses (3) and
(4) filings, notices, permits, consents and approvals the absence of which, and
violations, breaches, defaults, conflicts and liens which, in the aggregate,
would not have a material adverse effect on the Condition of the Company and its
Subsidiaries taken as a whole.
(b) Neither the Company nor any Subsidiary is in default or in
violation (and no event has occurred which would notice or the lapse of time or
both would constitute a default or violation) of any term, condition or
provision of (i) its Certification of Incorporation or By-Laws, (ii) any note,
bond, mortgage, indenture, license, agreement, contract, lease, commitment or
other obligation to which the Company or any of its Subsidiaries is a party or
by which they or any of their properties or assets may be bound, or (iii) to the
best knowledge of the Company and the Sellers any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company or any of its
Subsidiaries, except in the case of clauses (i) and (ii) above for defaults or
evaluations, which would not have a material adverse effect on the Condition of
the Company and the Subsidiaries taken as a whole.
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3.5 COMPANY REPORTS AND FINANCIAL STATEMENTS. Each of the consolidated
balance sheets as of the end of the fiscal year ended December 31, 1999 and the
ten-month period ended October 31, 1999 and the consolidated statements of
operations, consolidated statements of stockholders' equity and consolidated
statements of cash flow for the fiscal year ended December 31, 1999 and the
ten-month period ended October 31, 1999 previously delivered to EMKT, were
prepared in accordance with generally accepted accounting principles (as in
effect in the United States from time to time) applied on a consistent basis
("GAAP"), except as may be indicated therein or in the notes or schedules
thereto, and fairly present the consolidated financial position of the Company
and its consolidated Subsidiaries as of the dates thereof and the results of
their operations and cash flows for the periods then ended.
3.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3.6,
since October 31, 1999 (the "BALANCE SHEET DATE") (i) there has not been any
material adverse change in the Condition of the Company and its Subsidiaries
taken as a whole; (ii) the businesses of the Company and each of its
Subsidiaries have been conducted only in the ordinary course; (iii) neither the
Company nor any of its Subsidiaries has incurred any material liabilities
(direct, contingent or otherwise) or engaged in any material transaction or
entered into any material agreement outside the ordinary course of business;
(iv) the Company and its Subsidiaries have not increased the compensation of any
officer or granted any general salary or benefits increase to their employees
other than in the ordinary course of business; and (v) neither the Company nor
any of its Subsidiaries has taken any action referred to in Section 5.2 except
as permitted or required thereby.
3.7 MINUTE BOOKS. The minute books of the Company and its Subsidiaries,
as previously made available to EMKT and its representatives, contain accurate
records of all meetings of and corporate actions or written consents by the
stockholders and Boards of Directors of the Company and its Subsidiaries since
December 31, 1995.
3.8 TITLE TO PROPERTIES; ENCUMBRANCES. Except as disclosed in Schedule
3.8, the Company and each of its Subsidiaries has good, valid and marketable
title, or a valid leasehold interest in, to (i) all its material tangible
properties and assets (real and personal), including, without limitation, all
the properties and assets reflected in the consolidated balance sheet as of
December 31, 1998 delivered pursuant to Section 3.5 (the "BALANCE SHEET") except
as indicated in the notes thereto and except for properties and assets reflected
in the Balance Sheet that have been sold or otherwise disposed of in the
ordinary course of business, and (ii) all the tangible properties and assets
purchased by the Company and any of its Subsidiaries since the Balance Sheet
Date except for such properties and assets which have been sold or otherwise
disposed of in the ordinary course of business; in each case subject to no
encumbrance, lien, charge or other restriction of any kind or character, except
for (1) liens reflected in the Balance Sheet, (2) liens consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of real property or irregularities in title thereto which do not
materially detract from the value of, or impair the use of, such property by the
Company or any of its Subsidiaries in the operation of its respective business
and (3) liens for current taxes, assessments or governmental charges or levies
on property not yet due and delinquent.
8
3.9 COMPLIANCE WITH LAWS. The Company and each of its Subsidiaries are
in compliance with all applicable laws, regulations, orders, judgments and
decrees except where the failure to so comply would not have a material adverse
effect on the Condition of the Company and its Subsidiaries taken as a whole.
3.10 LITIGATION. Except as set forth in Schedule 3.10, there is no
action, suit, proceeding at law or in equity, or any arbitration or any
administrative or other proceeding by or before (or to the best knowledge,
information and belief of the Company any investigation by) any governmental or
other instrumentality or agency, pending, or, to the best knowledge, information
and belief of the Company, threatened, against or affecting the Company or any
of its Subsidiaries, or any of their properties or rights which could have a
material adverse effect on the Condition of the Company and its Subsidiaries
taken as a whole. There are no such suits, actions, claims, proceedings or
investigations pending or, to the best knowledge, information and belief of the
Company, threatened, seeking to prevent or challenging the Transactions. Except
as disclosed in Schedule 3.10, to the best knowledge of the Company and the
Sellers, neither the Company nor any of its Subsidiaries is subject to any
judgment, order or decree entered in any lawsuit or proceeding which could have
a material adverse effect on the Condition of the Company and its Subsidiaries
taken as a whole or on the ability of the Company or any Subsidiary to conduct
its business as presently conducted.
3.11 EMPLOYEE BENEFIT PLANS.
(a) LIST OF PLANS. Set forth in Schedule 3.11 is an accurate
and complete list of all employee benefit plans ("EMPLOYEE BENEFIT PLANS")
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether or not any such Employee Benefit
Plans are otherwise exempt from the provisions of ERISA, established, maintained
or contributed to by the Company or any of its Subsidiaries (including, for this
purpose and for the purpose of all of the representations in this Section 3.11,
all employers (whether or not incorporated) which by reason of common control
are treated together with the Company as a single employer within the meaning of
Section 414 of the Code.
(b) STATUS OF PLANS. Neither the Company nor any of its
Subsidiaries maintains or contributes to any Employee Benefit Plan subject to
ERISA that is not in substantial compliance with ERISA or which has incurred any
accumulated funding deficiency within the meaning of Section 412 or 418B of the
Code, or that has applied for or obtained a waiver from the Internal Revenue
Service of any minimum funding requirement under Section 412 of the Code.
Neither the Company nor any of its Subsidiaries has incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") in connection with any
Employee Benefit Plan covering any employees of the Company or any of its
Subsidiaries or ceased operations at any facility or withdrawn from any Employee
Benefit Plan in a manner which could subject it to liability under Section 4062,
4063 or 4064 of ERISA, and the Company knows of no facts or circumstances which
might give rise to any liability of the Company or any of its Subsidiaries to
the PBGC under Title IV of ERISA that could reasonably be anticipated to result
in any claims being made against the Company by the PBGC. Neither the Company
nor any of its Subsidiaries has incurred any withdrawal liability (including any
contingent or secondary withdrawal liability) within the meaning of Sections
9
4201 and 4204 of ERISA, to any Employee Benefit Plan that is a Multiemployer
Plan (as defined in Section 4001(a)(3) of ERISA), and no event has occurred, and
there exists no condition or set of circumstances, that presents a material risk
of the occurrence of any withdrawal from or the partition, termination,
reorganization or insolvency of any Multiemployer Plan which could result in any
liability to a Multiemployer Plan.
(c) CONTRIBUTIONS. Full payment has been made of all amounts
which the Company or any of its Subsidiaries is required, under applicable law
or under any Employee Benefit Plan or any agreement relating to any Employee
Benefit Plan to which the Company or any of its Subsidiaries is a party, to have
paid as contributions thereto as of the last day of the most recent fiscal year
of such Employee Benefit Plan ended prior to the date hereof. The Company has
made adequate provision for reserves to meet contributions that have not been
made because they are not yet due under the terms of any Employee Benefit Plan
or related agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of which
documents have been provided to EMKT and Top Team.
(d) RELATIONSHIP OF ACCRUED BENEFITS TO PENSION PLAN ASSETS.
As of the Balance Sheet Date, (1) the aggregate current value of all accrued
benefits (based upon actuarial assumptions which have been furnished to and
relied upon by EMKT, Top Team and Sub) under all Employee Benefit Plans which
are subject to Title IV of ERISA and which are Single Employer Plans (as defined
in Section 4001(a)(15) of ERISA) did not exceed the aggregate current value of
all assets of such Single Employer Plans allocable to such accrued benefits, and
since the Balance Sheet Date, there has been (A) no material adverse change in
the financial condition of any Single Employer Plan, (B) no change in the
actuarial assumptions with respect to any Single Employer Plan and (C) no
increase in benefits under any Single Employer Plan as a result of plan
amendments, change in applicable law or otherwise, which individually or in the
aggregate, would create any such excess; and (2) using actuarial assumptions and
computation methods consistent with subpart 1 of subtitle E of Title IV of
ERISA, the aggregate liabilities of the Company and its Subsidiaries to all such
Employee Benefit Plans which are Multiemployer Plans in the event of a complete
withdrawal therefrom, as of the close of the most recent fiscal year of each
Multiemployer Plan ended prior to the date hereof, would not exceed $50,000.
There has been no material change in the financial condition of any
Multiemployer Plan or in any such actuarial assumption or computation method or
in benefits under any Multiemployer Plan as a result of collective bargaining or
otherwise since the close of each such fiscal year which, individually or in the
aggregate, would materially increase such liability.
(e) TAX QUALIFICATION. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be so
qualified by the Internal Revenue Service and nothing has occurred since the
date of the last such determination which resulted or is likely to result in the
revocation of such determination.
(f) TRANSACTIONS. No Reportable Event (as defined in Section
4043 of ERISA) for which the 30-day notice requirement has not been waived by
the PBGC has occurred with respect to any Employee Benefit Plan and neither the
10
Company nor any of its Subsidiaries has engaged in any transaction with respect
to the Employee Benefit Plans which would subject it to a tax, penalty or
liability for prohibited transactions under ERISA or the Code nor has any of
their respective directors, officers or employees to the extent they or any of
them are fiduciaries with respect to such Plans, breached any of their
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA
or would result in any claim being made under or by or on behalf of any such
Plans by any party with standing to make such claim.
(g) OTHER PLANS. Neither the Company nor any of its
Subsidiaries currently maintains any employee or non-employee benefit plans or
any other foreign pension, welfare or retirement benefit plans other than those
listed in Schedule 3.11.
(h) DOCUMENTS. The Company has delivered or caused to be
delivered to EMKT, Top Team and their counsel true and complete copies of (1)
all Employee Benefit Plans as in effect, together with all amendments thereto
which will become effective at a later date, as well as the latest Internal
Revenue Service determination letter obtained with respect to any such Employee
Benefit Plan qualified under Section 401 or 501 of the Code and (2) Form 5500
for the most recently completed fiscal year for each Employee Benefit Plan
required to file such form.
3.12 EMPLOYMENT RELATIONS AND AGREEMENTS. (i) Except as set forth on
Schedule 3.12, to the best knowledge of the Company and the Sellers, each of the
Company and its Subsidiaries is in substantial compliance with all federal,
state or other applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and has not and is not
engaged in any unfair labor practice; (ii) no unfair labor practice complaint
against the Company or any of its Subsidiaries is pending before the National
Labor Relations Board; (iii) there is no labor strike, dispute, slowdown or
stoppage actually pending or to the best knowledge of the Company and the
Sellers threatened against or involving the Company or any of its Subsidiaries;
(iv) to the best knowledge of the Company and the Sellers no representation
question exists respecting the employees of the Company or any of its
Subsidiaries; (v) to the best knowledge of the Company and the Sellers no
grievance which might have a material adverse effect on the Condition of the
Company and its Subsidiaries as a whole or the conduct of their respective
businesses exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted; (vi) no collective bargaining agreement is currently being negotiated
by the Company or any of its Subsidiaries; and (vii) neither the Company nor any
of its Subsidiaries has experienced any material labor difficulty during the
last three years. There has not been, and to the best knowledge of the Company,
there will not be any change in relations with employees of the Company or any
of its Subsidiaries as a result of the Transactions that could have a material
adverse effect on the Condition of the Company and its Subsidiaries taken as a
whole. Except as disclosed in Schedule 3.12, there exist no employment,
consulting, severance or indemnification agreements between the Company and any
director, officer or employee of the Company or any agreement that would give
any Person the right to receive any payment from the Company as a result of the
Purchase or Exchange.
3.13 CLIENT RELATIONS. Except as set forth on Schedule 3.13, there has
not been, and to the best knowledge, information and belief of the Company and
11
the Sellers, there will not be, any change in relations with franchisees,
customers or clients of the Company or any of its Subsidiaries as a result of
the Transactions that could have a material adverse effect on the Condition of
the Company and its Subsidiaries taken as a whole.
3.14 TAXES. The Company has filed or caused to be filed, within the
times and in the manner prescribed by law, all federal, state, local and foreign
Tax Returns and tax reports that are required to be filed by, or with respect
to, the Company or any of its Subsidiaries prior to the Closing Date. Such
returns and reports are true, correct and complete in all material respects and
reflect accurately all liability for Taxes of the Company and its Subsidiaries
for the periods covered thereby. All federal, state, local and foreign Taxes
(including interest and penalties) payable by, or due from, the Company or any
of its Subsidiaries or reports due prior to the Closing Date have been fully
paid or adequately disclosed. Tax liabilities for the period ending on the
Closing Date have been adequately disclosed and fully provided for in the books
and financial statements of the Company and its Subsidiaries. All deficiencies
assessed as a result of any examination of such Tax Returns by federal, state,
local or foreign tax authorities have been paid, and deficiencies for all taxes
that have been proposed or asserted against the Company or any Subsidiary do not
exceed $10,000 in the aggregate for all periods. To the best knowledge of the
Company and the Sellers, no issue has been raised during the past five years by
any federal, state, local or foreign taxing authority that, if raised with
respect to any other period not so examined, could reasonably be expected to
result in a proposed deficiency for any other period not so examined. The
federal income tax liability of the Company and its Subsidiaries has been
finally determined for all fiscal years to and including the fiscal year ended
December 31, 1998. To the best knowledge of the Company and the Sellers, no
examination of any Tax Return of the Company or any of its Subsidiaries is
currently in progress. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Return of the Company
or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is
party to any agreement, contract or arrangement that would result, separately or
in the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. The Company and each of its Subsidiaries
have complied (and until the Closing will comply) in all material respects with
all applicable laws, rules and regulations relating to the payment and
withholding of taxes (including, without limitation, withholding of taxes
pursuant to Sections 1441 and 1442 of the Code or similar provisions under any
foreign laws) and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under all
applicable laws. For purposes of this Section 3.14, the term "TAXES" means all
taxes, charges, fees, levies or other assessments, including without limitation
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto; and "TAX RETURN" means
any report, return or other information or document required to be supplied to a
taxing authority in connection with taxes.
3.15 LIABILITIES. Except as set forth on Schedule 3.15, neither the
Company nor any of its Subsidiaries has any outstanding claims, liabilities or
indebtedness, whether absolute, accrued, condensed, contingent or otherwise,
12
except as set forth in the Balance Sheet or referred to in the footnotes
thereto, other than liabilities incurred subsequent to the Balance Sheet Date in
the ordinary course of business not involving borrowings by the Company. Neither
the Company nor any of its Subsidiaries is in default in respect of the material
terms and conditions of any indebtedness or other agreement.
3.16 INTELLECTUAL PROPERTIES. In the operation of its business the
Company and its Subsidiaries have used, and currently use, domestic and foreign
patents, patent applications, patent licenses, software licenses, knowhow
licenses, trade names, trademarks, copyrights, unpatented inventions, service
marks, trademark registrations and applications, service mark registrations and
applications, copyright registrations and applications, trade secrets and other
confidential proprietary information (collectively the "INTELLECTUAL PROPERTY").
Schedule 3.16 contains an accurate and complete list of all Intellectual
Property (other than trade secrets and other confidential information) which is
of material importance to the operation of the business of the Company or any of
its Subsidiaries. Unless otherwise indicated in Schedule 3.16 the Company (or
the Subsidiary indicated) owns the entire right, title and interest in and to
the Intellectual Property listed on Schedule 3.16 used in the operation of its
business (including, without limitation, the exclusive right to use and license
the same) and each item constituting part of the Intellectual Property which is
owned by the Company or a Subsidiary and listed on Schedule 3.16 has been, to
the extent indicated in Schedule 3.16, duly registered with, filed in or issued
by, as the case may be, the United States Patent and Trademark Office or such
other government entities, domestic or foreign, as are indicated in Schedule
3.16 and such registrations, filings and issuances remain in full force and
effect. To the best knowledge of the Company and the Sellers, except as stated
in such Schedule 3.16, there are no pending or threatened proceedings or
litigation or other adverse claims affecting or with respect to the Intellectual
Property. Schedule 3.16 lists all notices or claims currently pending or
received by the Company or any of its Subsidiaries during the past two years
which claim infringement, contributory infringement, inducement to infringe,
misappropriation or breach by the Company or any of its Subsidiaries of any
domestic or foreign patents, patent applications, patent licenses and know-how
licenses, trade names, trademark registrations and applications, service marks,
copyrights, copyright registrations or applications, trade secrets or other
confidential proprietary information. Except as set forth in Schedule 3.16
hereto, there is, to the best knowledge, information and belief of the Company,
no reasonable basis upon which a claim may be asserted against the Company or
any of its Subsidiaries, for infringement, contributory infringement, inducement
to infringe, misappropriation or breach of any domestic or foreign patents,
patent applications, patent licenses, know-how licenses, trade names, trademark
registrations and applications, common law trademarks, service marks,
copyrights, copyright registrations or applications, trade secrets or other
confidential proprietary information. To the best knowledge of the Company,
except as indicated on Schedule 3.16, no Person is infringing the Intellectual
Property.
3.17 MATERIAL CONTRACTS AND RELATIONSHIPS.
(a) Except for agreements specifically identified on other
Schedules, Schedule 3.17 sets forth a complete and correct list of the
following:
13
(i) All agreements (or groups of agreements with one
or more related entities) between the Company or any of its
Subsidiaries and any customer or supplier in excess of $25,000 and all
agreements extending beyond twelve months;
(ii) All agreements that relate to the borrowing or
lending by the Company (or any of its Subsidiaries) of any money or
that create or continue any material claim, lien, charge or encumbrance
against, or right of any third party with respect to, any asset of the
Company or any of its Subsidiaries;
(iii) All agreements by which the Company or any of
its Subsidiaries leases any real property, has the right to lease any
real property or leases capital equipment and all other leases
involving the Company or any of its Subsidiaries as lessee or lessor;
(iv) All agreements to which the Company or any of
its Subsidiaries is a party not in the ordinary course of business;
(v) All agreements to which the Company or any of its
Subsidiaries, on the one hand, and any of Sellers or any of their
respective Affiliates (as defined in Section 3.19) or Related Parties
(as defined in Section 3.19), on the other hand, are parties or by
which they are bound;
(vi) All contracts or commitments relating to the
employment of any Person or any commission or finder's fee arrangements
with others;
(vii) All material license agreements, whether as
licensor or licensee;
(viii) All other agreements to which the Company or
any of its Subsidiaries is a party or by which it is bound and that
involve $25,000 or more or that extend for a period of one year or
more; and
(ix) All other agreements to which the Company or any
of its Subsidiaries is a party or by which it is bound and that are or
may be material to the Condition of the Company or any of its
Subsidiaries.
As used in this Section 3.17 the word "AGREEMENT" includes both oral and written
contracts, leases, understandings, arrangements and all other agreements; and
the term "MATERIAL CONTRACTS" means the agreements of the Company or any of its
Subsidiaries required to be disclosed on Schedule 3.17, including agreements
specifically identified in other Schedules.
(b) All of the Material Contracts are in full force and
effect, are valid and binding and are enforceable in accordance with their terms
in favor of each of the Company and its Subsidiaries. To the best knowledge of
the Company and the Sellers, there are no material liabilities of any party to
any Material Contract arising from any breach or default of any provision
14
thereof and no event has occurred that, with the passage of time or the giving
of notice or both, would constitute a breach or default by any party thereto.
(c) The Company and each of its Subsidiaries has fulfilled all
material obligations required pursuant to each Material Contract to have been
performed by the Company or its Subsidiaries prior to the date hereof, and to
the knowledge of the Sellers and the Company, the Company and each of its
Subsidiaries will be able to fulfill, when due, all of its obligations under
each of the Material Contracts that remain to be performed after the date
hereof.
(d) Schedules 3.17(c) sets forth a complete and correct list
of each (i) customer (or related group of customers) with whom the Company or
any of its Subsidiaries did $25,000 or more of business during the last fiscal
year, (ii) supplier (or related group of suppliers) with whom the Company or any
of its Subsidiaries did $25,000 or more of business during the last fiscal year,
and (iii) agent (or related group of agents) or representative (or related group
of representatives) who was paid $25,000 or more by the Company and its
Subsidiaries during the last fiscal year, respectively, which lists itemize the
actual dollar amounts.
(e) To the best knowledge of the Company and the Sellers, the
Company and each of its Subsidiaries has maintained and continues to maintain
good relations with its customers, suppliers and agents.
3.18 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as set forth on
Schedule 3.18, neither the Company nor any of its Subsidiaries nor any employee,
agent or other person acting on the Company's or any of its Subsidiaries'
behalf, including, but not limited to, any Seller, has, directly or indirectly,
given or agreed to give any gift or similar benefit to any customer, supplier,
competitor or governmental employee or official (domestic or foreign) (i) that
would subject the Company or its any of its Subsidiaries to any damage or
penalty in any civil, criminal or governmental litigation or proceeding or (ii)
that, if not given in the past, would have had a material adverse effect on the
Condition of the Company or any of its Subsidiaries.
3.19 TRANSACTIONS WITH RELATED PARTIES. Except as set forth on Schedule
3.19, there have been no transactions, including purchases or sales of assets or
entities, by or between the Company (or any of its Subsidiaries) and any Seller
or Related Party since January 1, 1994 and there are no agreements or
understandings now in effect between the Company and any Seller or Related
Party. Schedule 3.19 also (i) states the amounts due from the Company (or any of
its Subsidiaries) to any Seller or Related Party and the amounts due from any
Seller or Related Party to the Company or any of its Subsidiaries, (ii)
describes the transactions out of which such amounts due arose and (iii)
describes any interest of any Seller or Related Party in any supplier or
customer of, or any other entity that has had business dealings with, the
Company or any of its Subsidiaries since January 1, 1994. After the Closing,
there will be no obligations or other liabilities between each of the Company
and any of its Subsidiaries, on the one hand, and any Seller or Related Party,
on the other hand, other than pursuant to this Agreement and the Transactions
contemplated hereby. "RELATED PARTY" means the Company and each of its
Subsidiaries and Affiliates, including but not limited to each of the Sellers
15
and any member of the immediate family of any of the Sellers; and "AFFILIATE"
means, in respect of any specified Person, any other Person that, directly or
indirectly, controls, is controlled by, or is under common control with, such
specified Person or if such specified Person bears a familial relationship with
such other Person.
3.20 BROKER'S OR FINDER'S FEE. No agent, broker, Person or firm acting
on behalf of the Company is, or will be, entitled to any fee, commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by, or under common control with any of the parties
hereto, in connection with this Agreement or any of the Transactions.
3.21 ACCOUNTS RECEIVABLE. Except as set forth on Schedule 3.21, the
accounts receivable of the Company as reflected in the Balance Sheet, to the
extent uncollected on the date of this Agreement, and the accounts receivable
reflected on the books of the Company are, on the basis of existing facts, valid
and existing and fully collectible (except for a reserve of $25,000) within one
year from the Closing Date, represent monies due for goods sold and delivered or
services rendered, and (subject to the aforesaid reserve) are subject to no
refunds or other adjustments (except discounts for prompt payment given in the
ordinary course of business) and to no defenses, rights of setoff, assignments,
restrictions, encumbrances or conditions enforceable by third parties on or
affecting any thereof. The Company has never factored any of its accounts
receivable.
3.22 INVENTORIES. The inventories reflected in the Balance Sheet were,
and those reflected on the books of the Company since such date have been,
determined and valued in accordance with generally accepted accounting
principles applied on a consistent basis as reflected in the consolidated
balance sheet, and existed on the respective dates. The inventories of the
Company consist of items which are good and merchantable, and are of a quality
and quantity presently usable or salable in the ordinary course of business.
3.23 INSURANCE. Schedule 3.23 sets forth a complete and correct list of
all insurance policies and of all claims made by each of the Company or any of
its Subsidiaries on any liability or other insurance policies during the past
five years (other than worker's compensation claims). The Company (together with
its Subsidiaries) has to the best knowledge of the Company and the Sellers
adequate liability and other insurance policies insuring it against the risks of
loss arising out of or related to its assets and business. Without limitation,
as to the tangible real and personal property of the Company and its
Subsidiaries, the Company reasonably believes that such insurance is adequate to
cover the full replacement cost, less deductible amounts, of such tangible real
and personal property. Schedule 3.23 is a complete and correct list of all
insurance currently in place and accurately sets forth the coverages, deductible
amounts, carriers and expiration dates thereof. Schedule 3.23 is a complete and
correct list of all insurance with respect to which the policy period has
expired, but for which certain of the coverage years are still subject to audit
or retrospective adjustment by the carrier, and accurately sets forth such
coverage years and the coverages, deductible amounts, carriers and expiration
dates thereof. To the best knowledge of the Company and the Sellers there are no
outstanding requirements or recommendations by any insurance company that issued
any policy of insurance to the Company or any of its Subsidiaries or by any
board of or by any governmental authority exercising similar functions that
require or recommend any changes in the conduct of the business of the Company
16
or its Subsidiaries or any repairs or other work to be done on or with respect
to any of the Company's or any of its Subsidiaries' assets. Except as set forth
on Schedule 3.23, no notice or other communication has been received by the
Company or its Subsidiaries from any insurance company within the five years
preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of its insurance
policies, and, to the knowledge of the Sellers and the Company, no such
cancellation, amendment or increase of premiums is threatened.
3.24 NO POWERS OF ATTORNEY OR SURETYSHIPS. Except as set forth on
Schedule 3.24, (a) the Company (together with its Subsidiaries) has not granted
any general or special powers of attorney and (b) the Company (together with its
Subsidiaries) does not have any obligation or liability (whether actual,
contingent or otherwise) as guarantor, surety, co-signer, endorser, co-maker,
indemnitor, obligor on an asset or income maintenance agreement or otherwise in
respect of the obligation of any Person.
3.25 BANKING FACILITIES. Schedule 3.25 sets forth a complete and
correct list of: (a) each bank, savings and loan or similar financial
institution in which the Company or any of its Subsidiaries has an account or
safety deposit box and the numbers of such accounts or safety deposit boxes
maintained thereat; and (b) the names of all persons authorized to draw on each
such account or to have access to any such safety deposit box, together with a
description of the authority (and conditions thereto, if any) of each person
with respect thereto.
3.26 ENVIRONMENTAL LIABILITIES.
(a) Except as set forth on Schedule 3.26 hereto, to the best
knowledge of the Company and the Sellers, neither the Company nor any of its
Subsidiaries has used, stored, treated, transported, manufactured, refined,
handled, produced or disposed of any Hazardous Materials on, under, at, from, or
in any way affecting, any of their properties or assets, or otherwise, in any
manner which at the time of the action in question violated any Environmental
Law, governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of Hazardous Materials and to the
best of the Company's and the Sellers' knowledge, no prior owner of such
property or asset or any tenant, subtenant, prior tenant or prior subtenant
thereof has used Hazardous Materials on or affecting such property or asset, or
otherwise in any manner which at the time of the action in question violated any
Environmental Law governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials. "ENVIRONMENTAL LAWS" means any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any governmental authority regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Material or
environmental protection or health and safety, as now or may at any time
hereafter be in effect, including without limitation, the Clean Water Act also
known as the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. ss. 1251
et seq., the Clean Air Act ("CAA"), 42 U.S.C. ss.ss. 7401 et seq., the Federal
Insecticide, Fungicide and Rodenticide AcT ("FIFRA"), 7 U.S.C. ss.ss. 136 et
seq., the Surface Mining Control and Reclamation Act ("SMCRA"), 30 U.S.C. ss.ss.
1201 et seq., the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. ss. 9601 et seq., the Superfund Amendment
17
and Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat. 1613, the
Emergency Planning and Community Right to Know Act ("EPCRKA"), 42 U.S.C. ss.
11001 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
ss. 6901 et seq., the Occupational Safety and Health Act as amended ("OSHA"), 29
U.S.C. ss. 655 and ss. 657, together, in each case, with any amendment thereto,
and the regulations adopted and the official publications promulgated thereunder
and all substitutions thereof. "HAZARDOUS MATERIALS" means any flammable
materials, explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or similar materials defined in any
Environmental Law.
(b) To the best of the Company's and Sellers' knowledge (i)
neither the Company nor any of its Subsidiaries has any obligations or
liabilities, known or unknown, matured or not matured, absolute or contingent,
assessed or unassessed, where such would reasonably be expected to have a
materially adverse effect on the business or condition (financial or otherwise)
of the Company or any of its Subsidiaries, and (ii) no claims have been made
against the Company or any of its Subsidiaries during the past five years and no
presently outstanding citations or notices have been issued against the Company
or any of its Subsidiaries, where such could reasonably be expected to have a
materially adverse effect on the Condition of the Company or any of its
Subsidiaries, which in either case have been or are imposed by reason of or
based upon any provision of any Environmental Law, including, without
limitation, any such obligations or liabilities relating to or arising out of or
attributable, in whole or in part, to the manufacture, processing, distribution,
use, treatment, storage, disposal, transportation or handling of any Hazardous
Materials by the Company or any of its Subsidiaries, or any of their employees,
agents, representatives or predecessors in interest in connection with or in any
way arising from or relating to the Company or any of its Subsidiaries or any of
their respective properties, or relating to or arising from or attributable, in
whole or in part, to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation or handling of any such substance, by any
other Person at or on or under any of the real properties owned or used by the
Company or any of its Subsidiaries or any other location where such could have a
materially adverse effect on the business or condition (financial or otherwise)
of the Company (or any of its Subsidiaries).
3.27 MACHINERY, EQUIPMENT AND OTHER PERSONAL PROPERTY, ETC. Except as
set forth on Schedule 3.27, the Company (together with its consolidated
Subsidiaries) owns or leases all of the machinery, equipment, vehicles,
furniture, fixtures, leasehold improvements, repair parts, tools and other
property (collectively, the "PERSONAL PROPERTY") used by or relating to the
Company or its Subsidiaries. All such Personal Property is in good operating
condition and sufficient to carry on the business of the Company and its
Subsidiaries in the normal course as it is presently conducted and is free from
defects, whether patent or latent. Except as set forth in Schedule 3.27, it is
not necessary for the Company or any of its Subsidiaries to acquire or obtain
the use of any additional personal property to carry on its business as
presently and foreseeably to be conducted.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF EMKT AND TOP TEAM
Each of EMKT and Top Team represents and warrants to the Company and
the Sellers as follows:
4.1 DUE ORGANIZATION; GOOD STANDING AND CORPORATE POWER. Each of EMKT
and Top Team is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Each of EMKT and Top Team
has full corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the Transactions. The
execution, delivery and performance of this Agreement by EMKT and Top Team, and
the consummation by each of them of the Transactions, have been duly authorized
by the Boards of Directors of EMKT and Top Team. No other corporate action on
the part of either of EMKT or Top Team is necessary to authorize the execution,
delivery and performance of this Agreement by each of EMKT and Top Team and the
consummation of the Transactions. This Agreement has been duly executed and
delivered by each of EMKT and Top Team and is a valid and binding obligation of
each of EMKT and Top Team, enforceable against each of EMKT and Top Team in
accordance with its terms, except that such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and general equitable principles.
4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution and delivery
of this Agreement by EMKT and Top Team and the consummation by EMKT and Top Team
of the Transactions will not: (1) violate any provision of the Certificate of
Incorporation or By-Laws of EMKT or Top Team; (2) violate any statute,
ordinance, rule, regulation, order or decree of any court or of any governmental
or regulatory body, agency or authority applicable to EMKT or Top Team or by
which either of their respective properties or assets may be bound; (3) require
any filing with, or permit, consent or approval of, or the giving of any notice
to any governmental or regulatory body, agency or authority; or (4) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
EMKT or Top Team or any of their Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease or other instrument or obligation to which
EMKT or Top Team or any of their Subsidiaries is a party, or by which they or
their respective properties or assets may be bound, excluding from the foregoing
clauses (3) and (4) filings, notices, permits, consents and approvals the
absence of which, and violations, breaches, defaults, conflicts and liens which,
in the aggregate, would not have a material adverse effect on the business,
properties, assets, liabilities, operations, results of operations, conditions
(financial or otherwise) or prospects of EMKT and its Subsidiaries taken as a
whole.
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4.4 EMKT REPORTS AND FINANCIAL STATEMENTS. The consolidated balance
sheet as of the end of the fiscal year ended June 30, 1999 as set forth in
EMKT's annual report on Form 10-K, as filed with the Securities and Exchange
Commission, and the consolidated statements of operations, consolidated
statements of stockholders' equity and consolidated statements of cash flow for
the fiscal year then ended, were prepared in accordance with GAAP, except as may
be indicated therein or in the notes or schedules thereto, and fairly present
the consolidated financial position of EMKT and its consolidated subsidiaries as
of the date thereof and the results of their operations and cash flows for the
fiscal year then ended.
4.5 CAPITALIZATION. The authorized capital stock of Top Team consists
of 30,000,000 shares of common stock, par value $0.001 per share, and 1,000,000
shares of Series A Preferred Stock, par value $0.001 per share ("PREFERRED
STOCK"). As of the date of this Agreement, (i) 100 shares of Top Team Stock and
no shares of Preferred Stock have been issued, options to purchase 2,200,000
shares of Top Team Stock have been reserved for issuance pursuant to options
that have been or are to be granted under Top Team stock incentive plans, and
rights to purchase 3,600,000 shares of Top Team Stock at $7.50 per share have
been issued.
4.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 4.6,
since June 30, 1999 there has not been any material adverse change in the
Condition of EMKT and its Subsidiaries taken as a whole.
4.7 COMPLIANCE WITH LAWS. To the best knowledge of EMKT, EMKT and each
of its Subsidiaries are in compliance with all applicable laws, regulations,
orders, judgments and decrees except where the failure to so comply would not
have a material adverse effect on the Condition of the Company and its
Subsidiaries taken as a whole.
4.8 LIABILITIES. Neither EMKT nor any of its Subsidiaries has any
outstanding claims, liabilities or indebtedness, whether absolute, accrued,
condensed, contingent or otherwise, except as set forth in its balance sheet for
the fiscal year ended June 30, 1999 or referred to in the footnotes thereto,
other than liabilities incurred subsequent to such date in the ordinary course
of business not involving borrowings by the EMKT. Neither EMKT nor any of its
Subsidiaries is in default in respect of the material terms and conditions of
any indebtedness or other agreement.
4.9 LITIGATION. Except as set forth in the EMKT's Form 10-K for the
fiscal year ended June 30, 1999, there is no action, suit, proceeding, at law or
in equity, or any arbitration or any administrative or other proceeding by or
before (or to the best knowledge, information and belief of EMKT, any
investigation by or before) any governmental or other instrumentality or agency,
pending or, to the best of knowledge, information and belief of EMKT, threatened
against or affecting EMKT or any of its Subsidiaries or any of their properties
or rights which could have a material adverse effect on Condition of EMKT and
its Subsidiaries taken as a whole. There are no such suits, actions, claims,
proceedings or investigations pending, or to the best knowledge, information and
belief of the Company, threatened, seeking to prevent or challenge the
Transactions. Except as disclosed in such Form 10-K, neither EMKT nor any of its
Subsidiaries, is subject to any judgment, order or decree in any lawsuit or
20
proceeding which could have a material adverse effect on the Condition of EMKT
and its Subsidiaries, taken as a whole, or on the ability of EMKT or any
Subsidiary to conduct its business as presently conducted.
4.10 TAX STATUS. Neither EMKT nor Top Team has taken any action that
would cause the Purchase not to qualify as an installment sale for federal
income tax purposes or to cause the Exchange not to qualify as a tax-free
contribution to capital under Section 351 of the Code.
ARTICLE V
ACTIONS PRIOR TO CLOSING DATE
5.1 ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS. During the
period commencing on the date hereof and ending on the Closing Date, the Company
shall, and shall cause each of its Subsidiaries to, upon reasonable notice,
afford EMKT and Top Team, and their respective counsel, accountants and other
authorized representatives, full access during normal business hours to the
properties, books and records of the Company and its Subsidiaries in order that
they may have the opportunity to make such investigations as they shall desire
of the affairs of the Company and its Subsidiaries; such investigation shall
not, however, affect the representations and warranties made by the Company in
this Agreement. The Company acknowledges and agrees that Top Team's auditors
will be performing an audit of the Company's financial statements (the "AUDIT"),
and will provide all information and documents and cooperate in any way so as to
permit the Audit to be completed promptly. The Company agrees to cause its
officers and employees to furnish such additional financial and operating data
and other information and respond to such inquiries as EMKT and Top Team shall
from time to time request.
5.2 CONDUCT OF THE BUSINESS OF THE COMPANY PENDING THE CLOSING DATE.
The Company agrees that, except as permitted, required or specifically
contemplated by, or otherwise described in, this Agreement or Schedule 5.2 or
otherwise consented to or approved in writing by EMKT (which consent shall not
be unreasonably withheld, delayed or conditioned), during the period commencing
on the date hereof and ending on the Closing Date:
(a) The Company and each of its Subsidiaries will conduct
their respective operations only according to their ordinary and usual course of
business and will use their best efforts to preserve intact their respective
business organization, keep available the services of their officers and
employees and maintain satisfactory relationships with licensers, suppliers,
distributors, clients and others having business relationships with them;
(b) Neither the Company nor any of its Subsidiaries shall (i)
make any change in or amendment to its Certificate of Incorporation or By-Laws
(or comparable governing documents); (ii) issue or sell any shares of its
capital stock (other than in connection with the exercise of Company Options
outstanding on the date hereof) or any of its other securities, or issue any
securities convertible into, or options, warrants or rights to purchase or
subscribe to, or enter into any arrangement or contract with respect to the
issuance or sale of, any shares of its capital stock or any of its other
securities, or make any other changes in its capital structure; (iii) declare,
21
pay or make any dividend or other distribution or payment with respect to, or
split, redeem or reclassify, any shares of its capital stock; (iv) enter into
any contract or commitment, except for contracts in the ordinary course of
business, including without limitation, any acquisition of a material amount of
assets or securities, any disposition of a material amount of assets or
securities or release or relinquish any material contract rights; (v) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently, or otherwise) for the obligations of any other Person other than a
Subsidiary in the ordinary course of business and consistent with past practice;
(vi) incur, assume or prepay any indebtedness or other material liabilities
other than in the ordinary course of business and consistent with past
practices, except that the Company may prepay its legal fees in connection with
the Transactions to the extent they do not exceed the amount set forth in
Section 9.1(a); (vii) make any loans, advances or capital contributions to, or
investments in, any other Person, other than to Subsidiaries; (viii) authorize
capital expenditures in excess of the amount currently budgeted therefor; (ix)
permit any insurance policy naming the Company or any Subsidiary as a
beneficiary or a loss payee to be cancelled or terminated other than in the
ordinary course of business; (x) amend any employee or nonemployee benefit plan
or program, employment agreement, license agreement or retirement agreement, or
pay any bonus or contingent compensation, except in each case in the ordinary
course of business consistent with past practice prior to the date of this
Agreement; (xi) agree, in writing or otherwise, to take any of the foregoing
actions; or (xii) agree to the settlement of any litigation;
(c) The Company shall not, and shall not permit any of its
Subsidiaries to (i) take any action, engage in any transaction or enter into any
agreement which would cause any of the representations or warranties set forth
in Article III to be untrue as of the Closing Date, or (ii) purchase or acquire,
or offer to purchase or acquire, any shares of capital stock of the Company and
the Company shall not sell or pledge or agree to sell or pledge any stock owned
by it in any of the Subsidiaries, or allow any Subsidiary to pledge or agree to
sell or pledge any stock owned by it in any other Subsidiary.
(d) The Company will use its commercially reasonable best
efforts to deliver to EMKT prior to the Closing a consolidated balance sheet as
of the end of the fiscal year ended July 31, 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for the fiscal
year then ended, prepared in accordance with GAAP and on a basis consistent with
that of the statements delivered pursuant to Section 3.5.
5.3 BEST EFFORTS. Each of the Company, EMKT and Top Team shall, and the
Company shall cause each of its Subsidiaries to, cooperate and use their
respective commercially reasonable best efforts to take, or cause to be taken,
all appropriate action, and to make, or cause to be made, all filings necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the Transactions, including, without limitation, their respective best
efforts to obtain, prior to the Closing Date, all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its Subsidiaries as are necessary
for consummation of the Transactions and to fulfill the conditions to the
Transactions; provided, however, that no loan agreement or contract for borrowed
money shall be repaid except as currently required by its terms, in whole or in
22
part, and no contract shall be amended to increase the amount payable thereunder
or otherwise to be more burdensome to the Company or any of its Subsidiaries in
order to obtain any such consent, approval or authorization without first
obtaining the written approval of EMKT and Top Team (which shall not be
unreasonably withheld or delayed).
5.4 NO SOLICITATION OF OTHER OFFERS. Neither the Company nor any of its
Subsidiaries, shall, directly or indirectly, take (and the Company shall not
authorize or permit its or its Subsidiaries, officers, directors, employees,
representatives, investment bankers, attorneys, accountants or other agents or
affiliates, to so take) any action to encourage, solicit, initiate or, subject
to the fiduciary duties of the Board of Directors under applicable law as
advised in writing by counsel, participate in any way in discussions or
negotiations with, or furnish any information to, any Person (other than EMKT,
Top Team or their respective officers, directors, representatives, agents,
affiliates or associates) in connection with any possible or proposed merger or
other business combination, sale or other disposition of assets, sale of shares
of capital stock or similar transactions involving the Company or any Subsidiary
or division of the Company. The Company will promptly communicate to EMKT and
Top Team the terms of any proposal or inquiry that it may receive in respect of
any such transaction, or of any such information requested from it or of any
such negotiations or discussions being sought to be initiated with the Company.
ARTICLE VI
CONDITIONS PRECEDENT TO TRANSACTIONS
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF EMKT, TOP TEAM AND THE
COMPANY AND THE SELLERS. The respective obligations of EMKT and Top Team, on the
one hand, and the Company and the Sellers, on the other hand, to effect the
Transactions are subject to the satisfaction or waiver (subject to applicable
law) on or prior to the Closing Date of each of the following conditions:
(a) INJUNCTION. No preliminary or permanent injunction or
other order shall have been issued by any court or by any governmental or
regulatory agency, body or authority which prohibits the consummation of the
Transactions and which is in effect on the Closing Date; and
(b) STATUTES. No statute, rule, regulation, executive order,
decree or order of any kind shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits the consummation
of the Transactions or has the effect of making the purchase of the Company
Stock illegal.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF EMKT AND TOP TEAM. The
obligations of EMKT and Top Team to effect the Transactions are also subject to
the satisfaction or waiver, on or prior to the Closing Date, of each of the
following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the Company contained herein shall be true and
correct in all material respects as of
23
the date hereof and at and as of the Closing, with the same force and effect as
though made on and as of the Closing Date;
(b) PERFORMANCE BY COMPANY. The Company shall have performed
in all material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this Agreement
to be performed or complied with by it prior to the Closing Date;
(c) EMPLOYMENT AGREEMENTS. Kent Rhodes, Ph.D. and Todd
Knowlton shall each have entered into an employment agreement with Top Team in
form and substance reasonably satisfactory to Top Team;
(d) JOINDER AGREEMENTS. Each Seller other than Kent Rhodes
shall have executed a Joinder Agreement in form and substance reasonably
satisfactory to EMKT; and
(e) OTHER DOCUMENTS. EMKT and Top Team shall have received
such other documents, opinions, agreements, certificates and instruments as they
shall reasonably require in connection with the consummation of the
Transactions.
6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SELLERS.
The obligations of the Company and the Sellers to effect the Transactions are
also subject to the satisfaction or waiver, on or prior to the Closing Date, of
each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of EMKT and Top Team contained herein shall be
true and correct in all material respects as of the date hereof and at and as of
the Closing, with the same force and effect as though made on and as of the
Closing Date;
(b) PERFORMANCE BY EMKT AND TOP TEAM. Each of EMKT and Top
Team shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants and
conditions, contained in this Agreement to be performed or complied with by it
prior to the Closing Date; and
(c) STOCK INCENTIVE PLAN. Top Team shall have implemented a
stock option plan and restricted stock purchase plan prior to the Closing Date
and shall have reserved for issuance up to 25,000 shares of Top Team stock for
issuance to former employees of the Company pursuant to such plan; and
(d) REGISTRATION RIGHTS. Top Team and Sellers shall have
entered into an agreement regarding registration rights for the Purchase
Consideration in form and content mutually satisfactory to the parties thereto.
Top Team and the Sellers agree to negotiate the terms of such agreement in good
faith and as soon as possible after the execution hereof. EMKT and Sellers shall
have entered into an agreement regarding registration rights for the Exchange
Consideration in form and content mutually satisfactory to the parties thereto.
Top Team and the Sellers agree to negotiate the terms of such agreement in good
faith and as soon as possible after the execution hereof.
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ARTICLE VII
TERMINATION AND ABANDONMENT
7.1 TERMINATION. This Agreement may be terminated and the Transactions
may be abandoned, at any time prior to the Closing Date:
(a) by mutual consent of the Company and the Sellers, on the
one hand, and of EMKT and Top Team, on the other hand;
(b) by EMKT and Top Team, on the one hand, or the Company and
the Sellers, on the other hand, if the Closing shall not have occurred within
six months after the date of this Agreement or there has been a material breach
of any representation, warranty, obligation, covenant or agreement set forth in
this Agreement on the part of the other party;
(c) by EMKT and Top Team, if any of the conditions specified
in Sections 6.1 or 6.2 have not been met or waived by EMKT and Top Team prior to
or at such time as such condition can no longer be satisfied; or
(d) by the Company and the Sellers, if any of the conditions
specified in Sections 6.1 or 6.3 have not been met or waived by the Company and
the Sellers prior to or at such time as such condition can no longer be
satisfied.
7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1 by EMKT or Top Team, on the one hand, or the
Company and the Sellers, on the other hand, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall become void
and have no effect, and there shall be no liability hereunder on the part of
EMKT, Top Team, the Company or the Sellers, except that Section 9.1, Article
VIII and this Section 7.2 shall survive any termination of this Agreement.
Nothing in this Section 7.2 shall relieve any party to this Agreement of
liability for breach of this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY SELLERS. Each Seller, for a period of three
years from the date hereof, shall severally and not jointly, indemnify and hold
harmless EMKT and Top Team and each of their affiliates, directors, officers,
employees, attorneys, agents and representatives (collectively, the "AFFILIATED
PARTIES") in respect of any and all claims, losses, damages, liabilities,
25
declines in value, penalties, interest, costs and expenses (including, without
limitation, any attorneys', accountants' and consultants' fees and other
expenses) reasonably incurred by EMKT or Top Team or their respective Affiliated
Parties, together with interest on cash disbursements in connection therewith,
at an annual rate equal to the prime rate as reported from time to time by Bank
of America NT & SA (the "PRIME RATE") then in effect, from the date such cash
disbursements were made by EMKT or Top Team or any of their Affiliated Parties
until paid by such Seller, in connection with each and all of the following:
(a) Any breach of any representation or warranty made by such
Seller in Article II or III of this Agreement;
(b) Any misrepresentation contained in any written statement
or certificate furnished by such Seller individually pursuant to this Agreement
or in connection with the Transactions; and
(c) Any breach of any covenant, agreement or obligation of
such Seller individually contained in this Agreement or any other instrument
contemplated by this Agreement.
No claim, demand, suit or cause of action shall be brought
against such Seller under this Section 8.1 unless and until the aggregate amount
of claims under Sections 8.1 and 8.2 exceeds $50,000, in which event EMKT and
Top Team and their respective Affiliated Parties shall be entitled to
indemnification from such Seller for all claims hereunder relating back to the
first dollar.
8.2 INDEMNIFICATION BY SELLERS JOINTLY AND SEVERALLY. The Sellers
shall, for a period of three years from the date hereof, jointly and severally
indemnify and hold harmless EMKT and Top Team and each of their respective
Affiliated Parties in respect of any and all claims, losses, damages,
liabilities, declines in value, penalties, interest, costs and expenses
(including, without limitation, any attorneys, accountants' and consultants'
fees and other expenses) reasonably incurred by EMKT or Top Team or their
respective Affiliated Parties, together with interest on cash disbursements in
connection therewith, at an annual rate equal to the Prime Rate then in effect,
from the date such cash disbursements were made by EMKT or Top Team or any of
their Affiliated Parties until paid by the Sellers, in connection with each and
all of the following:
(a) Subject to Section 8.4 hereof, any breach of any
representation or warranty made by the Sellers or the Company in Article III of
this Agreement or pursuant hereto;
(b) Any misrepresentation contained in any written statement
or certificate furnished by Sellers and/or the Company pursuant to this
Agreement or in connection with the Transactions; or
(c) Any breach of any covenant, agreement or obligation of
Sellers and/or the Company contained in this Agreement or any other instrument
contemplated by this Agreement.
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No claim, demand, suit or cause of action shall be brought against the
Sellers under this Section 8.2 unless and until the aggregate amount of claims
under Sections 8.1 and 8.2 exceeds $50,000, in which event EMKT and Top Team and
their respective Affiliated Parties shall be entitled to indemnification from
the Sellers for all claims hereunder relating back to the first dollar.
8.3 INDEMNIFICATION BY EMKT AND TOP TEAM. EMKT and Top Team shall, for
a period of three years from the Closing Date, jointly and severally, indemnify
and hold harmless each of Sellers in respect of any and all claims, losses,
damages, liabilities, declines in value, penalties, interest, costs and expenses
(including, without limitation, any attorneys', accountants' and consultants'
fees and other expenses) reasonably incurred by Sellers, together with interest
on cash disbursements in connection therewith, at an annual rate equal to the
Prime Rate then in effect, from the date that such cash disbursements were made
by Sellers until paid by EMKT or Top Team, in connection with each and all of
the following:
(a) Any breach of any representation or warranty made by EMKT
or Top Team in this Agreement or pursuant hereto; or
(b) Any breach of any covenant, agreement or obligation of
EMKT or Top Team contained in this Agreement or any other instrument
contemplated by this Agreement; or
(c) Any misrepresentation contained in any statement or
certificate furnished by EMKT or Top Team pursuant to this Agreement or in
connection with the Transactions.
No claim, demand, suit or cause of action shall be brought
against EMKT or Top Team under this Section 8.3 unless and until the aggregate
amount of claims under this Section 8.3 exceeds $50,000, in which event, Sellers
shall be entitled to indemnification from EMKT or Top Team for all claims
hereunder relating back to the first dollar.
8.4 INDEMNIFICATION BY SELLERS FOR TAX LIABILITIES. In addition to, and
not by way of limitation on, the indemnities set forth in this Article VIII, the
Sellers shall jointly and severally indemnify and hold harmless on an after-tax
basis EMKT and Top Team against all Taxes of the Company (together with its
consolidated Subsidiaries) for all taxable periods ending on or before the date
hereof or otherwise attributable to the operations, transactions, assets, or
income of the Company or its Subsidiaries prior to the date hereof, together
with any expenses (including, without limitation, settlement costs and any
legal, accounting and other expenses) incurred in connection with the
contesting, collection or assessment of such Taxes, and together with interest
at an annual rate equal to the Prime Rate then in effect, but not for losses due
to any action or inaction taken or required to be taken by EMKT or Top Team
hereunder. Notwithstanding Sections 8.1 and 8.2, the Sellers' obligation to
indemnify EMKT and Top Team pursuant to this Section 8.4 shall continue until 90
days after all applicable statutes of limitations have expired. For purposes of
this Section 8.4, the term "AFTER-TAX BASIS" means determined after giving
effect to (i) the receipt by the indemnified party of such payment, if such
receipt is taxable and (ii) any tax deduction available on account of the
payment of such Taxes; and assuming that Taxes are payable at a combined
effective rate of 45% of taxable income.
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8.5 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification hereunder, the party entitled to indemnification (the
"INDEMNIFIED PARTY") shall promptly notify the party obligated to provide
indemnification (the "INDEMNIFYING PARTY") of the claim and, when known, the
facts constituting the basis for such claim; provided, however, that the failure
to so notify the indemnifying party shall not relieve the indemnifying party of
its obligation hereunder to the extent such failure does not materially
prejudice the indemnifying party. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the indemnifying party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. If any
claims shall arise against Sellers hereunder, EMKT and Top Team may (but shall
not be required to) set-off against any amount then or thereafter payable (but
not yet paid) to such Seller.
8.6 DEFENSE CLAIMS. In connection with any claim giving rise to
indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a Person who is not a party to this Agreement, the indemnifying
party at its sole cost and expense and with counsel reasonably satisfactory to
the indemnified party may, upon written notice to the indemnified party, assume
the defense of any such claim or legal proceeding if (a) the indemnifying party
acknowledges to the indemnified party in writing, within 15 days after receipt
of notice from the indemnifying party, its obligations to indemnify the
indemnified party with respect to all elements of such claim, (b) the
indemnifying party provides the indemnified party with evidence reasonably
acceptable to the indemnified party that the indemnifying party will have the
financial resources to defend against such third-party claim and fulfill its
indemnification obligations hereunder, (c) the third-party claim involves only
money damages and does not seek an injunction or other equitable relief, and (d)
settlement or an adverse judgment of the third party claim is not, in the good
faith judgment of the indemnified party, likely to establish a pattern or
practice adverse to the continuing business interests of the indemnified party.
The indemnified party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense; provided,
however, that if there are one or more legal defenses available to the
indemnified party that conflict with those available to the indemnifying party,
or if the indemnifying party fails to take reasonable steps necessary to defend
diligently the claim after receiving notice from the indemnified party that it
believes the indemnifying party has failed to do so, the indemnified party may
assume the defense of such claim; provided, further, that the indemnified party
may not settle such claim without the prior written consent of the indemnifying
party, which consent may not be unreasonably withheld. If the indemnified party
assumes the defense of the claim, the indemnifying party shall reimburse the
indemnified party for the reasonable fees and expenses of counsel retained by
the indemnified party and the indemnifying party shall be entitled to
participate in (but not control) the defense of such claim, with its counsel and
at its own expense. The parties agree to render, without compensation, to each
other such assistance as they may reasonably require of each other in order to
insure the proper and adequate defense of any action, suit or proceeding,
whether or not subject to indemnification hereunder. Notwithstanding the
foregoing, if any of Sellers assumes the defense of a claim for Taxes for which
they are obligated to indemnify EMKT, Top Team or any of its Subsidiaries, then
such indemnifying party shall not settle or otherwise agree to a resolution of a
dispute with respect to such claim if that settlement or resolution would have
an adverse impact on the liability of EMKT, Top Team or any of their respective
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Subsidiaries for any taxable period ending after the date hereof without the
express written consent of EMKT, Top Team or such affected Subsidiary, which
consent will not be unreasonably withheld or delayed.
8.7 MANNER OF INDEMNIFICATION. All indemnification payments hereunder
shall be effected by payment of cash or delivery of a certified or official bank
check in the amount of the indemnification liability.
8.8 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the provisions of
Section 8.1, 8.2 and 8.3 to the effect that an indemnifying party's obligation
under such section shall expire on the third anniversary hereof, such obligation
shall continue (i) as to any matter as to which a claim is submitted in writing
to the indemnifying party prior to such third anniversary and identified as a
claim for indemnification pursuant to this Agreement or (ii) as to any matter
that is based upon willful fraud by the indemnifying party, until such time as
such claims and matters are resolved.
ARTICLE IX
MISCELLANEOUS
9.1 FEES AND EXPENSES.
(a) Except as provided in paragraph (b) below, all costs and
expenses incurred in connection with this Agreement and the consummation of the
Transactions shall be paid by the party incurring such costs and expenses;
provided that Top Team shall reimburse the Sellers for the reasonable fees and
costs of their counsel, not to exceed $20,000, and the Sellers will pay for the
amount in excess thereof.
(b) If either (i) at any time while this Agreement is in
effect, the Company shall have consummated, or entered into an agreement
providing for, a merger of the Company with, sale of all or a substantial part
of the assets of the Company to, or any other business combination involving the
Company with, another Person, or (ii) this Agreement is terminated other than
solely because of a wilful and material breach of the representations or
warranties of EMKT or Top Team or a wilful failure of EMKT or Top Team to
fulfill a material covenant or contained herein, then, in the case of clause (i)
or (ii) above, the Company shall, within two days after the first of such events
has occurred, pay EMKT a fee in lieu of reimbursement for such expenses equal to
$40,000 plus the actual costs of the Audit.
9.2 REPRESENTATIONS AND WARRANTIES. The respective representations and
warranties of the Company and the Sellers, on the one hand, and EMKT and Top
Team, on the other hand, contained herein or in any certificates or other
documents delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party.
9.3 EXTENSION; WAIVER. At any time prior to the Closing Date, the
parties hereto, by action taken by or on behalf of the respective Boards of
Directors of the Company, EMKT, Top Team or Sub, may (i) extend the time for the
29
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein by any other applicable party or in any document, certificate or writing
delivered pursuant hereto by any other applicable party or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
9.4 PUBLIC ANNOUNCEMENTS. The Company and the Sellers, on the one hand,
and EMKT and Top Team, on the other hand, agree to consult promptly with each
other prior to issuing any press release or otherwise making any public
statement with respect to the Transactions , and shall not issue any such press
release or make any such public statement prior to such consultation and review
by the other party of a copy of such release or statement, unless required by
applicable law.
9.5 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered in person or
mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or telecopier, as follows:
(a) if to the Company, to it at:
OnCourse Network, Inc.
2222 Michelson Drive
Suite 222-121
Irvine, California 92612
Attention: President
Fax ________________
(b) if to any Seller to his, her or its address on the
signature pages hereof
(c) if to either EMKT or Top Team, to it at:
c/o Full Moon Interactive Inc.
1111 Tamarind Avenue
Hollywood, California 90038
Attention: President
Fax: 323-856-3011
with a copy to:
eMarketplace, Inc.
225 W. Julian Street, Suite 100
San Jose, California 95110
Attention: Chairman
Fax 408 275-1958
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And to:
Kaye Scholer Fierman, Hays & Handler, LLP
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: B.J. Yankowitz, Esq.
Fax: 310-788-1200
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless if mailed, in which case on the third business day after the
mailing thereof except for a notice of a change of address, which shall be
effective only upon receipt thereof.
9.6 ENTIRE AGREEMENT. This Agreement and the exhibits, schedules and
other documents referred to herein or delivered pursuant hereto, collectively
contain the entire understanding of the parties hereto with respect to the
subject matter contained herein and supersede all prior agreements and
understandings, oral and written, with respect thereto.
9.7 BINDING EFFECT; BENEFIT; ASSIGNMENT. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Nothing
in this Agreement, expressed or implied, is intended to confer on any Person
other than the parties hereto or their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
9.8 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented in writing by the parties
hereto in any and all respects before the Closing Date.
9.9 FURTHER ACTIONS. Each of the parties hereto agrees that, subject to
its legal obligations, it will use its best efforts to fulfill all conditions
precedent specified herein, to the extent that such conditions are within its
control, and to do all things reasonably necessary to consummate the
Transactions.
9.10 HEADINGS. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only, do not constitute
a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement. References to Articles, Sections, Exhibits and
Schedules, unless otherwise specified, are to Articles, Sections, Exhibits and
Schedules of and to this Agreement.
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9.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
9.12 APPLICABLE LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of California, without regard to the conflict of laws rules thereof.
9.13 SEVERABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
9.14 "PERSON" DEFINED. "Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, a group and a government or other department or agency thereof.
IN WITNESS WHEREOF, each of EMKT, Top Team, the Sellers and the Company
have caused this Agreement to be executed by their respective officers (if
applicable) hereunto duly authorized, all as of the date first above written.
EMKT: EMARKETPLACE, INC.
By: /s/ Robert M. Wallace
--------------------------------------
Robert M. Wallace,
Chairman of the Board of Directors
TOP TEAM: TOP TEAM, INC.
By: /s/ Robert M. Wallace
--------------------------------------
Robert M. Wallace,
Chairman of the Board of Directors
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THE COMPANY: ONCOURSE NETWORK, INC.
By: /s/ Kent Rhodes
--------------------------------------
Kent Rhodes, Ph.D.,
President
SELLERS:
/s/ Kent Rhodes
------------------------------------------
Kent Rhodes, Ph.D.
Address:
c/o OnCourse Network, Inc.
2222 Michelson Drive
Suite 222-121
Irvine, California 92612
Fax: _________________________
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