STOCK PURCHASE AGREEMENT
By and Among
Brian Wood
Keenan Cheung
and
Worldnet Recourses Group, Inc.
and
GenesisIntermedia.com, Inc.,
dated as of April 1, 2000
for the purchase of all of the outstanding
stock of Car Rental Direct.com, Inc.
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 1st day of April 2000 by and among GenesisIntermedia.com, Inc., a
Delaware corporation ("Purchaser"), Car Rental Direct.com, Inc. d/b/a Car Rental
Direct, a Nevada corporation ("Company"), and Worldnet Recourses Group, Inc., a
Utah corporation ("Worldnet"), Brian Wood, an individual ("Wood") and Keenan
Cheung, an individual ("Cheung" and Wood collectively referred to herein as
"Stockholders").
BACKGROUND
WHEREAS the Stockholders own all of the issued and outstanding shares
of capital stock of Company and desire to sell all such shares to Purchaser, and
Purchaser desires to purchase all such shares from the Stockholders at the
Purchase Price (as defined in Section 1.2 hereof) and upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. SALE AND PURCHASE OF SHARES
1.1 Stock Purchase. Subject to the terms and conditions of this Agreement
and on the basis of and in reliance upon the representations, warranties,
covenants and agreements set forth herein, on the Closing Date (as hereinafter
defined) the Stockholders shall sell to Purchaser all of the Company Common
Stock (as defined in Section 1.3 hereof) and Purchaser shall purchase (the
"Stock Purchase") from the Stockholders all of the Company Common Stock, in
exchange for the Purchase Price, subject to adjustment as set forth in Section
1.2 below. Company, after the consummation of the Stock Purchase, is sometimes
referred to as the "Surviving Corporation."
1.2 Purchase Price. The purchase price shall be (a) 170,000 restricted
shares of common stock of the Purchaser, par value $.001 per share (the
"Purchaser Common Stock") to be paid to Wood and Cheung; (b) an option granted
to Wood and Cheung to purchase 100,000 shares of the Purchaser Common Stock, at
the exercise price of $17 per share; and (c) 90,000 restricted shares of common
stock of the Purchaser, par value $.001 per share, to be paid to Worldnet in
satisfaction in full of the loan made to the Company by Worldnet in the amount
of $700,000. (subsections (a),(b) and (c) collectively the "Purchase Price").
1.3 Certain Information with Respect to Capital Stock of Company. As of the
date of this Agreement, the authorized capital stock of Company consists of
__________ shares of common stock par value $______ per share (the "Company
Common Stock"), of which __________ shares are issued and outstanding.
2. PLEDGED ASSETS
2.1 Pledged Assets.
(a) As collateral security for the payment of any damages resulting from a
breach of this Agreement or any indemnification obligations of Stockholders
pursuant to Article 9, Stockholders shall, and by execution hereof do hereby,
transfer, pledge and assign to Purchaser, for the benefit of Purchaser, a
security interest in the following assets (the "Pledged Assets"):
(i) at the Closing, twenty percent (20%) of the initial Purchaser Common
Stock delivered to the Stockholders pursuant to Section 1.2 hereof, and
the certificates and instruments, if any, representing or evidencing
such Pledged Assets;
(ii) all securities hereafter delivered to Stockholders with respect to or
in substitution for the Pledged Assets described in clause (i), all
certificates and instruments representing or evidencing such
securities, and all non-cash dividends and other property at any time
received, receivable or otherwise distributed in respect of or in
exchange for any or all thereof; and in the event Stockholders receives
any such property, Stockholders shall hold such property in trust for
Purchaser and shall immediately deliver such property to Purchaser to
be held hereunder as Pledged Assets; and
(iii) all cash and non-cash proceeds of all of the foregoing property and all
rights, titles, interests, privileges and preferences appertaining or
incident to the foregoing property.
(b) Each certificate, if any, evidencing the Pledged Assets issued pursuant
to this Agreement shall be delivered to Purchaser directly by the transfer
agent, such certificate bearing no restrictive or cautionary legend other than
those imprinted by the transfer agent at Purchaser's request. Stockholders
shall, at the Closing or at such other date of receipt, deliver to Purchaser,
for each such certificate, a stock power duly signed in blank by it.
(c) The Pledged Assets shall be available to satisfy any damages for breach
of this Agreement and any indemnification obligations of Stockholders pursuant
to Article 9 until the date that is two years after the Closing Date (the
"Release Date"). Promptly following the Release Date, Purchaser shall return or
cause to be returned to Stockholders the Pledged Assets, less Pledged Assets
having an aggregate value equal to the amount of (i) any damages for breach,
(ii) any pending claim for indemnification made by any Indemnified Party (as
defined in Article 9) until such claim is resolved, and (iii) any
indemnification obligations of Stockholders pursuant to Article 9. For purposes
of this Section 2.1(c) and Article 9, the Purchaser Common Stock held as Pledged
Assets shall be valued at (x) the arithmetic mean of the closing price of the
Purchaser Common Stock for the 20 trading days ending on the day prior to
closing reduced by (y) the per share amount of any damages or Claims.
(d) Stockholders shall be entitled to exercise any voting powers incident
to the Pledged Assets and to receive and retain all cash dividends paid thereon.
3. CLOSING
3.1 Location and Date. The Stock Purchase and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Purchaser, in Van Nuys, California on April 1, 2000, providing that all
conditions to Closing shall have been satisfied or waived, or at such other time
and date as Purchaser, Stockholders, Worldnet and Company may mutually agree,
which date shall be referred to as the "Closing Date."
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3.2 Closing Deliveries.
(a) At the Closing, Stockholders, as the holders of all outstanding
certificates representing shares of Company Stock, shall surrender such
certificates to Purchaser and Purchaser shall deliver to Stockholders the shares
of Purchaser Common Stock initially deliverable by Purchaser as set forth in
Section 1.2 above and the shares of common stock deliverable by Purchaser to
Worldnet as set forth in Section 1.2 above.
(b) Stockholders shall deliver to Purchaser at Closing the certificates
representing the Company Stock, duly endorsed in blank by Stockholders, or
accompanied by blank irrevocable stock powers, and with all necessary transfer
tax and other revenue stamps, acquired at Stockholders' expense, affixed and
canceled and shall take such steps as shall be necessary to cause the Company to
enter Purchaser or its nominee(s) upon the books of the Company as the holder of
the Company Stock and to issue one or more share certificates to Purchaser or
its nominee(s) representing the Company Stock. Stockholders agree promptly to
cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to such Company Stock or with respect
to the stock powers accompanying any Company Stock.
(c) The parties hereto shall deliver such other documents as may be
required by this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY, STOCKHOLDERS AND WORLDNET
To induce Purchaser to enter into this Agreement and consummate the
transactions contemplated hereby, the Company and Stockholders, jointly and
severally, represent and warrant to Purchaser as follows (for purposes of this
Agreement, the phrases "knowledge of Company" or "Company's knowledge," or words
of similar import, mean the knowledge of the Stockholders and the directors and
officers the Company and each of its Subsidiaries (as defined below), including
facts of which the directors and officers, in the reasonably prudent exercise of
their duties, should be aware):
4.1 Due Organization. The Company and each of Company's subsidiaries (the
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is duly
authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to own, operate and lease its
properties and to carry on its business in the places and in the manner as now
conducted except where the failure to be so authorized, qualified or licensed
would not have a material adverse effect on the business, operations,
properties, assets or condition, financial or otherwise, of the Company or any
of its Subsidiaries ("Material Adverse Effect"). Schedule 4.1 hereto contains a
list of all jurisdictions in which the Company or any of its Subsidiaries is
authorized or qualified to do business. The Company and each Subsidiary is in
good standing in each such jurisdiction. The Company has made available to
Purchaser true, complete and correct copies of the articles or certificate of
incorporation and bylaws of the Company and each Subsidiary. Such articles or
certificate of incorporation and bylaws are collectively referred to as the
"Charter Documents." The Company or any Subsidiary is not in violation of any
Charter Documents. The minute books of the Company and each Subsidiary have been
made available to Purchaser (and as of the Closing, the minute books of Company
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and each Subsidiary) will have been delivered, along with Company's and each
Subsidiary's original stock ledger and corporate seal, to Purchaser) and are
correct and, except as set forth in Schedule 4.1, complete in all material
respects.
4.2 Authorization; Validity. The Company and Stockholders each has all
requisite power and authority to enter into and perform its or his obligations
pursuant to the terms of this Agreement. The Company and Stockholders each has
the full legal right, corporate power and authority to enter into this Agreement
and the transactions contemplated hereby. The execution and delivery of this
Agreement by the Company and the Stockholders and the performance of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of the Company, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of Company and the Stockholders, enforceable in
accordance with its terms.
4.3 No Conflicts. Except as disclosed in Schedule 4.3, the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which Stockholders,
Company or any Subsidiary is a party or by which Stockholders, Company or any
Subsidiary is bound, or result in the creation or imposition of any lien, charge
or encumbrance on any of any Stockholders, Company's or any Subsidiary's
properties pursuant to (i) any law or regulation to which Stockholders, Company
or any Subsidiary or any of their respective property is subject, or (ii) any
judgment, order or decree to which Stockholders, Company or any Subsidiary is
bound or any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of Stockholders, Company or
any Subsidiary; or
(d) violate any law, order, judgment, rule, regulation, decree or ordinance
to which Stockholders, Company or any Subsidiary is subject or by which
Stockholders, Company or any Subsidiary is bound including, without limitation,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
together with all rules and regulations promulgated thereunder.
4.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of ______ shares of common stock, $____ par value, of which
_____ shares are issued and outstanding. All of the issued and outstanding
shares of the capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned of record and
beneficially by the Stockholders as set forth in Schedule 4.4, free and clear of
all Liens (defined below). All of the issued and outstanding shares of the
capital stock of the Company were offered, issued, sold and delivered by the
Company in compliance with all applicable state and federal laws concerning the
issuance of securities. Further, none of such shares were issued in violation of
any preemptive rights. There are no voting agreements or voting trusts with
respect to any of the outstanding shares of the capital stock of the Company.
For purposes of this Agreement, "Lien" means any mortgage, security interest,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge, preference, priority or other security
agreement, option, warrant, attachment, right of first refusal, preemptive,
4
conversion, put, call or other claim or right, restriction on transfer (other
than restrictions imposed by federal and state securities laws), or preferential
arrangement of any kind or nature whatsoever (including any restriction on the
transfer of any assets, any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
4.5 Transactions in Capital Stock. No option, warrant, call, subscription
right, conversion right or other contract or commitment of any kind exists of
any character, written or oral, which may obligate the Company to issue, sell or
otherwise cause to become outstanding any shares of capital stock. The Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of their respective equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. As a result of the
Stock Purchase, Purchaser will be the record and beneficial owner of all
outstanding capital stock of the Company and rights to acquire capital stock of
the Company.
4.6 Subsidiaries, Stock and Notes.
(a) Except as set forth on Schedule 4.6, Company has no other subsidiaries.
(b) Except as set forth on Schedule 4.6(b), Company does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity, nor are Stockholders or
Company, directly or indirectly, a participant in any joint venture, partnership
or other noncorporate entity.
(c) Except as set forth on Schedule 4.6(c), there are no promissory notes
that have been issued to, or are held by, Company or any Subsidiary.
4.7 Predecessor Status. Schedule 4.7 sets forth a list of all names of all
predecessor companies of Company and each Subsidiary, including the names of any
entities from which Company or any Subsidiary previously acquired significant
assets. Except as set forth on Schedule 4.7, neither Company nor any Subsidiary
has ever been a subsidiary or division of another corporation, nor have they
been a part of an acquisition that was later rescinded. 4.8 Absence of Claims.
Except as set forth on Schedule 4.8, neither Stockholders nor any of
Stockholders' affiliates has any claim against Company or any Subsidiary, and
upon consummation of the Stock Purchase and the distribution of the Purchase
Price, neither Stockholders nor any of Stockholders' affiliates will have any
claim against Company or any Subsidiary except as expressly provided in this
Agreement.
4.9 Financial Statements. Company has delivered to Purchaser (a) true and
correct summaries accurately reflecting Company's financial condition at
December 31, 1999 (collectively, the "Year-end Financials") and (b) true and
correct summaries accurately reflecting Company's financial condition as of
March 31, 2000 (the "Balance Sheet Date") (the "Interim Financials," and
together with the Year-end Financials, the "Company Financial Statements"). The
Company Financial Statements present fairly the financial condition of Company
as of the dates indicated thereon and the results of its operations for the
periods indicated thereon.
5
4.10 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities except for:
(i) those liabilities reflected on the Interim Balance Sheet and not
previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its business
consistent with past practice under any contract, commitment or agreement
specifically disclosed on any Schedule to this Agreement or not required to
be disclosed thereon because of the term or amount involved or otherwise;
(iii) those liabilities incurred since the Balance Sheet Date in the
ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material; and
(iv) those liabilities disclosed on Schedule 4.10(a).
(b) Set forth on Schedule 4.10(b) is, in the case of those liabilities
which are not fixed or are contested, a reasonable estimate of the maximum
amount which may be payable.
(c) Schedule 4.10(c) also includes a summary description of all current
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of Company or any Subsidiary has made any material
expenditure in the two-year period prior to the date of this Agreement, which if
pursued by Company would require additional material expenditures of capital.
(d) For purposes of this Section 4.10, the term "liabilities" shall include
without limitation any direct or indirect liability, indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, either accrued, absolute, contingent, mature, unmatured or
otherwise and whether known or unknown, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured. Schedule 4.10(d) contains a
complete list of all indebtedness of Company (on a consolidated basis) as of the
Closing Date.
4.11 Accounts and Notes Receivable. The Company has delivered to Purchaser
a complete and accurate list, as of a date not more than two (2) business days
prior to the Closing Date, of the accounts and notes receivable of Company and
all Subsidiaries (including without limitation receivables from and advances to
employees, Stockholders and affiliates), which includes an aging of all accounts
and notes receivable showing amounts due in 30-day aging categories
(collectively, the "Accounts Receivable"). All Accounts Receivable represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business. The Accounts Receivable are
current and collectible net of any respective reserves shown on the Company's
books and records (which reserves are adequate and calculated consistent with
past practice). Subject to such reserves, each of the Accounts Receivable will
be collected in full, without any set-off, within ninety (90) days after the day
on which it first became due and payable. There is no contest, claim, or right
of set-off, other than rebates and returns in the ordinary course of business,
under any contract with any obligor of an Account Receivable relating to the
amount or validity of such Account Receivable.
4.12 Books and Records. The Company has made and kept books and records and
accounts, which, in reasonable detail, accurately and fairly reflect the
6
activities of Company and its Subsidiaries. Neither Company nor any Subsidiary
has engaged in any transaction, maintained any bank account, or used any
corporate funds except for transactions, bank accounts, and funds which have
been and are reflected in the Company's normally maintained books and records
and which are in compliance with all applicable laws, including laws relating to
the receipt and deposit of funds in trust for third parties.
4.13 Permits. Except as disclosed in Schedule 4.13, Company and each
Subsidiary owns or holds all licenses, franchises, permits and other
governmental authorizations, including without limitation permits, titles
(including without limitation motor vehicle titles and current registrations),
licenses and franchises necessary for the continued operation of their
respective business as it is currently being conducted (the "Permits"). The
Permits are valid, and Company has not received any notice that any governmental
authority intends to modify, cancel, terminate or fail to renew any Permit. No
present or former officer, manager, member or employee of Company or any
affiliate thereof, or any other person, firm, corporation or other entity, owns
or has any proprietary, financial or other interest (direct or indirect) in any
Permits. Except as otherwise disclosed in Schedule 4.13, the Company and each
Subsidiary has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Permits and
other applicable orders, approvals, variances, rules and regulations and is not
in violation of any of the foregoing. The transactions contemplated by this
Agreement will not result in a default under, or a breach or violation of, or
adversely affect the rights and benefits afforded to Company or any Subsidiary
by, any Permit.
4.14 Real Property.
(a) For purposes of this Agreement, "Real Property" means all interests in
real property including, without limitation, fee estates, leaseholds and
subleaseholds, purchase options, easements, licenses, rights to access, and
rights of way, and all buildings and other improvements thereon, owned or used
by the Company, together with any additions thereto or replacements thereof.
(b) Schedule 4.14(b) contains a complete and accurate description of all
Real Property (including street address, owner and Company's use thereof) and,
to the Company's knowledge, any Liens on such Real Property. Schedule 4.14(b)
indicates whether the Real Property is owned or leased. The Real Property listed
on Schedule 4.14 includes all interests in real property necessary to conduct
the business and operations of the Company.
(c) Except as set forth in Schedule 4.14(c):
(i) The Company does not own any Real Property.
(ii) The Company has good and valid rights of ingress and egress to
and from all Real Property from and to the public street systems for all
usual street, road and utility purposes.
(iii) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by
the use and operation of the Real Property in the conduct of the Company's
business are installed to the property lines of the Real Property, are
connected pursuant to valid permits to municipal or public utility services
or proper drainage facilities, are fully operable and are adequate to
service the Real Property in the operation of the Company's business and to
permit full compliance with the requirements of all laws in the operation
of such business. No fact or condition exists which could result in the
7
termination or material reduction of the current access from the Real
Property to existing roads or to sewer or other utility services presently
serving the Real Property.
(iv) The Real Property and all present uses and operations of the Real
Property comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion
of the Real Property (including, without limitation, applicable statutes,
rules, regulations, orders and restrictions relating to zoning, land use,
safety, health, employment and employment practices and access by the
handicapped) (collectively, "Laws"), covenants, conditions, restrictions,
easements, disposition agreements and similar matters affecting the Real
Property. The Company has obtained all approvals of governmental
authorities (including certificates of use and occupancy, licenses and
permits) required in connection with the use, occupation and operation of
the Real Property.
(v) There are no pending or, to the Company's knowledge, threatened
condemnation, fire, health, safety, building, zoning or other land use
regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
affect the current use, occupancy or value thereof, nor has the Company or
any of the Stockholders received notice of any pending or threatened
special assessment proceedings affecting any portion of the Real Property.
(vi) No portion of the Real Property has suffered any damage by fire
or other casualty, which has not heretofore been completely repaired and
restored to its original condition.
(vii) There are no parties other than the Company in possession of any
of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral,
granting to any party or parties the right of use or occupancy of any
portion of the Real Property or any portion thereof.
(viii) There are no service contracts or other agreements relating to
the use or operation of the Real Property.
(ix) No portion of the Real Property is located in a wetlands area, as
defined by Laws, or in a designated or recognized flood plain, flood plain
district, flood hazard area or area of similar characterization. No
commercial use of any portion of the Real Property will violate any
requirement of the United States Corps of Engineers or Laws relating to
wetlands areas.
(x) All written leases, subleases, licenses, concession agreements or
other use or occupancy agreements pursuant to which the Company leases from
any other party any real property, including all amendments, renewals,
extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are
valid and in full force and effect. The Company has provided Purchaser with
true and complete copies of all of the Leases, all amendments, renewals,
extensions, modifications or supplements thereto, and all material
8
correspondence related thereto, including all correspondence pursuant to
which any party to any of the Leases declared a default thereunder or
provided notice of the exercise of any options granted to such party under
such Lease. The Company does not have any oral leases. The Leases and the
Company's interests thereunder are free of all Liens, except as set forth
on Schedule 4.15.
(xi) None of the Leases requires the consent or approval of any party
thereto in connection with the consummation of the transactions
contemplated hereby.
(d) The Real Property and all present uses and operations of the Real
Property comply with all applicable statutes, rules, regulations, ordinances,
orders, writs, injunctions, judgments, decrees, awards or restrictions of any
government entity having jurisdiction over any portion of the Real Property
(including, without limitation, applicable statutes, rules, regulations, orders
and restrictions relating to zoning, land use, safety, health, employment and
employment practices and access by the handicapped) (collectively, "Laws"),
covenants, conditions, restrictions, easements, disposition agreements and
similar matters affecting the Real Property. Company and each Subsidiary has
obtained all approvals of governmental authorities (including certificates of
use and occupancy, licenses and permits) required in connection with the use,
occupation and operation of the Real Property.
(e) To Company's knowledge, there are no pending or threatened
condemnation, fire, health, safety, building, zoning or other land use
regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
affect the current use, occupancy or value thereof, nor has Stockholders,
Company or any Subsidiary received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
(f) No portion of the Real Property has suffered any damage by fire or
other casualty that has not heretofore been completely repaired and restored to
its original condition.
(g) There are no parties other than Company or a Subsidiary in possession
of any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the Real
Property or any portion thereof.
(h) There are no service contracts or other agreements relating to the use
or operation of the Real Property.
(i) All written leases, subleases, licenses, concession agreements or other
use or occupancy agreements pursuant to which Company or any Subsidiary leases
from any other party any real property, including all amendments, renewals,
extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. Company has provided Purchaser with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
options granted to such party under such Lease. Neither Company nor any
Subsidiary has any oral leases. The Leases and Company's and the Subsidiaries'
interests thereunder are free of all Liens, except as set forth on Schedule
4.14(b).
(j) None of the Leases requires the consent or approval of any party
thereto in connection with the consummation of the transactions contemplated
hereby.
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4.15 Personal Property.
(a) Schedule 4.15(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by Company or any Subsidiary with a current book value
in excess of $5,000 both (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, including in each case true, complete and correct
copies of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by Stockholders or business or personal
affiliates of Stockholders or Company.
(b) Company and each Subsidiary currently owns or leases all personal
property necessary to conduct the business and operations of Company and such
Subsidiary as they are currently being conducted.
(c) All material machinery and equipment of Company, including those listed
on Schedule 4.15(a), are in good working order and condition, ordinary wear and
tear excepted. All leases set forth on Schedule 4.15(a) are in full force and
effect and constitute valid and binding agreements of Company or any Subsidiary,
and the Stockholders, Company or any Subsidiary are not in breach of any of
their terms. All fixed assets used by the Company that are material to the
operation of its business are either owned by Company or a Subsidiary or leased
under an agreement listed on Schedule 4.15(a).
4.16 Intellectual Property.
(a) Company or the respective Subsidiary is the true and lawful owner of,
or is licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks listed on Schedule 4.16(a). Such schedule
lists (i) all of the Marks registered in the United States Patent and Trademark
Office ("PTO") or the equivalent thereof in any state of the United States or in
any foreign country, and (ii) all of the unregistered Marks, that Company and
the Subsidiaries now own or use in connection with their businesses. Except with
respect to those Marks shown as licensed on Schedule 4.16(a), Company owns all
of the registered and unregistered Marks that Company and the Subsidiaries use.
The Marks listed on Schedule 4.16(a) will not cease to be valid rights of
Company and the Subsidiaries by reason of the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby. For purposes of this Section 4.16, the term "Mark" shall
mean all right, title and interest in and to any United States or foreign
trademarks, service marks and trade names now held by Company or any Subsidiary,
including any registration or application for registration of any trademarks and
services marks in the PTO or the equivalent thereof in any state of the United
States or in any foreign country, as well as any unregistered marks used by
Company or any Subsidiary, and any trade dress (including logos, designs,
company names, business names, fictitious names and other business identifiers)
used by Company or any Subsidiary in the United States or any foreign country.
(b) Company or the respective Subsidiary is the true and lawful owner of,
or is licensed or otherwise possesses legally enforceable rights to use, all
rights in the Patents listed on Schedule 4.16(b)(i) and in the Copyright
registrations listed on Schedule 4.16(b)(ii). Such Patents and Copyrights
constitute all of the Patents and Copyrights that Company and the Subsidiaries
now own or are licensed to use. The Company or the respective Subsidiary owns or
is licensed to practice under all patents and copyright registrations that
Company or the respective Subsidiary now owns or uses in connection with its
businesses. For purposes of this Section 4.16, the term "Patent" shall mean any
United States or foreign patent to which Company or any Subsidiary has title as
of the date of this Agreement, as well as any application for a United States or
foreign patent made by Company or any Subsidiary; the term "Copyright" shall
mean any United States or foreign copyright owned by Company or any Subsidiary
as of the date of this Agreement, including any registration of copyrights, in
the United States Copyright Office or the equivalent thereof in any foreign
country, as well as any application for a United States or foreign copyright
registration made by Company or any Subsidiary.
(c) Company or the respective Subsidiary is the true and lawful owner of,
or is licensed or otherwise possess legally enforceable rights to use, all
rights in the trade secrets, franchises, or similar rights (collectively, "Other
Rights"). Those Other Rights constitute all of the Other Rights that Company and
the Subsidiaries now own or are licensed to use. The Company and the
Subsidiaries, respectively, own or are licensed to practice under all trade
secrets, franchises or similar rights that they own, use or practice under.
(d) The Marks, Patents and Copyrights listed on Schedules 4.16(a),
4.16(b)(i) and 4.16(b)(ii), and the Other Rights are referred to collectively
herein as the "Intellectual Property." The Intellectual Property owned by
Company and its Subsidiaries is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third-Party Intellectual Property." Except as indicated on
Schedule 4.16(d), neither Company nor any Subsidiary has any obligation to
compensate any person for the use of any Intellectual Property nor has Company
or any Subsidiary granted to any person any license, option or other rights to
use in any manner any Intellectual Property, whether requiring the payment of
royalties or not.
(e) Neither Company nor any Subsidiary is, nor will any of them be as a
result of the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any Third-Party Intellectual Property
license, sublicense or agreement described in Schedule 4.16(a), (b) or (c). No
claims with respect to Company Intellectual Property or Third-Party Intellectual
Property are currently pending or, to the knowledge of the Company, are
threatened by any person, nor, to Company's knowledge, do any grounds for any
claims exist: (i) to the effect that the manufacture, sale, licensing or use of
any product as now used, sold or licensed or proposed for use, sale or license
by Company or any Subsidiary infringe on any copyright, patent, trademark,
service mark or trade secret; (ii) against the use by Company or any Subsidiary
of any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in Company's or any
Subsidiary's businesses as currently conducted by Company or any Subsidiary;
(iii) challenging the ownership, validity or effectiveness of any of Company
Intellectual Property or other trade secret material to Company or any
Subsidiary; or (iv) challenging Company's or any Subsidiary's license or legally
enforceable right to use of the Third-Party Intellectual Property. To Company's
knowledge, there is no unauthorized use, infringement or misappropriation of any
of Company Intellectual Property by any third party. Neither Company nor any
Subsidiary (x) has been sued or charged in writing as a defendant in any claim,
suit, action or proceeding which involves a claim or infringement of trade
secrets, patents, trademarks, service marks, or copyrights and which has not
been finally terminated or been informed or notified by any third party that
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Company or any Subsidiary may be engaged in such infringement or (y) has
knowledge of any infringement liability with respect to, or infringement by,
Company or any Subsidiary of any trade secret, patent, trademark, service mark,
or copyright of another.
4.17 Material Contracts and Commitments.
(a) Schedule 4.17(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which Company or any Subsidiary is a party or by which they
or their properties are bound (including without limitation, joint venture or
partnership agreements, contracts with any labor organizations, employment
agreements, consulting agreements, loan agreements, indemnity or guaranty
agreements, bonds, mortgages, options to purchase land, liens, pledges or other
security agreements) (i) to which Company or any Subsidiary and any affiliate of
Company or any Subsidiary or any officer, director or Stockholders of Company or
any Subsidiary are parties ("Related Party Agreements"); or (ii) that may give
rise to obligations or liabilities exceeding, during the current term thereof,
$20,000, or that may generate revenues or income exceeding, during the current
term thereof, $20,000 (collectively with the Related Party Agreements, the
"Material Contracts"). Company has delivered to Purchaser true, complete and
correct copies of the Material Contracts that are in writing. Company and each
Subsidiary has complied with all of their commitments and obligations and is not
in default under any of the Material Contracts, and no notice of default has
been received with respect to any thereof, and there are no Material Contracts
that were not negotiated at arm's length.
(b) Each Material Contract, except those terminated pursuant to Section
6.3(b), is valid and binding on Company and each Subsidiary and is in full force
and effect and is not subject to any default thereunder by any party obligated
to Company or any Subsidiary pursuant thereto. Except as disclosed in Schedule
4.17(b), Company and each Subsidiary has obtained all necessary consents,
waivers and approvals of parties to any Material Contracts that are required in
connection with any of the transactions contemplated hereby, or are required by
any governmental agency or other third party or are advisable in order that any
such Material Contract remain in effect without modification after the Stock
Purchase and without giving rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
(c) The outstanding balances on all loans or credit agreements either (i)
between Company or any Subsidiary and any person in which Stockholders owns a
material interest, or (ii) guaranteed by Company or any Subsidiary for the
benefit of any person in which Stockholders owns a material interest, are set
forth in Schedule 4.17(c).
(d) The pledge, hypothecation or mortgage of all or substantially all of
Company's or any Subsidiary's assets (including, without limitation, a pledge of
Company's or any Subsidiary's contract rights under any Material Contract) will
not, except as set forth on Schedule 4.17(d), (i) result in the breach or
violation of, (ii) constitute a default under, (iii) create a right of
termination under, or (iv) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the assets of Company or
any Subsidiary (other than a Lien created pursuant to the pledge, hypothecation
or mortgage described at the start of this Section 4.17(d)) pursuant to any of
the terms and provisions of, any Material Contract to which Company or any
Subsidiary is a party or by which the property of Company or any Subsidiary is
bound.
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4.18 Government Contracts.
(a) Except as set forth on Schedule 4.18, neither Company nor any
Subsidiary is a party to any government contracts.
(b) Neither Company nor any Subsidiary has been suspended or debarred from
bidding on contracts or subcontracts for any agency or instrumentality of the
United States Government or any state or local government, nor, to the knowledge
of Company, has any suspension or debarment action been threatened or commenced.
There is no valid basis for Company's or any Subsidiary's suspension or
debarment from bidding on contracts or subcontracts for any agency of the United
States Government or any state or local government.
(c) Except as set forth in Schedule 4.18, neither Company nor any
Subsidiary has been, nor is it now being, audited, or investigated by any
government agency, or the inspector general or auditor general or similar
functionary of any government agency or instrumentality, nor, to the knowledge
of Company, has such audit or investigation been threatened.
(d) Neither Company nor any Subsidiary has any dispute pending before a
contracting office of, nor any current claim (other than the Accounts
Receivable) pending against, any agency or instrumentality of the United States
Government or any state or local government, relating to a contract.
(e) Neither Company nor any Subsidiary has, with respect to any government
contract, received a cure notice advising Company or any Subsidiary that it is
or was in default or would, if it failed to take remedial action, be in default
under such contract.
(f) Neither Company nor any Subsidiary has submitted any inaccurate,
untruthful, or misleading cost or pricing data, certification, bid, proposal,
report, claim, or any other information relating to a contract to any agency or
instrumentality of the United States Government or any state or local
government.
(g) No employee, agent, consultant, representative, or affiliate of Company
or any Subsidiary is in receipt or possession of any competitor or government
proprietary or procurement sensitive information related to Company's or any
Subsidiary's business under circumstances where there is reason to believe that
such receipt or possession is unlawful or unauthorized.
(h) Each of Company's and any Subsidiary's government contracts has been
issued, awarded or nominated to Company or such Subsidiary in Company's or such
Subsidiary's name.
4.19 Insurance. Schedule 4.19 sets forth a complete and accurate list of
all insurance policies carried by Company and each Subsidiary and all insurance
loss runs or workmen's compensation claims received for the past two policy
years. The Company has made available to Purchaser true, complete and correct
copies of all current insurance policies, all of which are in full force and
effect. All premiums payable under all such policies have been paid and Company
and each Subsidiary is otherwise in full compliance with the terms of such
policies. Such policies of insurance are of the type and in amounts customarily
carried by persons conducting businesses similar to that of Company and its
Subsidiaries, as applicable. The insurance carried by Company with respect to
its properties, assets and business is, to the Company's knowledge, with
financially sound insurers. To the knowledge of Company and its Subsidiaries,
12
there have been no threatened terminations of, or material premium increases
with respect to, any of such policies.
4.20 Labor and Employment Matters. With respect to employees of and service
providers to Company and each Subsidiary, except as set forth in Schedule 4.20:
(a) Company and each Subsidiary is and has been in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three years has there been, any
unfair labor practice complaint against Company or such Subsidiary pending or,
to Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three years has there been, any
labor strike, slowdown or stoppage actually pending or, to Company's knowledge,
threatened, against or directly affecting Company or such Subsidiary;
(d) to Company's knowledge, no labor representation organization effort
exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of Company and such Subsidiary are not and have never
been represented by any labor union, and no collective bargaining agreement is
binding and in force against Company or such Subsidiary or currently being
negotiated by Company or such Subsidiary; and
(g) all persons classified by Company and such Subsidiary as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company and such Subsidiary have fully and accurately
reported their compensation on IRS Forms 1099 when required to do so.
4.21 Employee Benefit Plans. Attached hereto as Schedule 4.21 is a list of
all employee benefit plans, all employee welfare benefit plans, all employee
pension benefit plans, all multi-employer plans and all multi-employer welfare
arrangements (as defined in Sections 3(3), (1), (2), (37) and (40),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), copies of which have been made available to Purchaser, which are
currently maintained and/or sponsored by Company or any of its Subsidiaries, or
to which Company or any of its Subsidiaries currently contribute, or have an
obligation to contribute in the future (including, without limitation,
employment agreements and any other agreements containing "golden parachute"
provisions and deferred compensation agreements), together with copies of any
trusts related thereto and a classification of employees covered thereby
(collectively, the "Plans"). Schedule 4.21 sets forth all of the Plans that have
been terminated within the past three years.
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All Plans are in compliance in all material respects with all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable laws, and in all material respects have been administered,
operated and managed in accordance with the governing documents. All Plans that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code, have been determined by the Internal Revenue Service to be so qualified,
and copies of the current plan determination letters, most recent actuarial
valuation reports, if any, most recent Form 5500, or, as applicable, Form
5500-C/R filed with respect to each such Qualified Plan or employee welfare
benefit plan and most recent trustee or custodian report, are included as part
of Schedule 4.21. To the extent that any Qualified Plans have not been amended
to comply with applicable law, the remedial amendment period permitting
retroactive amendment of such Qualified Plans has not expired and will not
expire within 120 days after the Closing Date. All reports and other documents
required to be filed with any governmental agency or distributed to plan
participants or beneficiaries (including, but not limited to, annual reports,
summary annual reports, actuarial reports, PBGC-1 Forms, audits or tax returns)
have been timely filed or distributed. None of: (i) any Stockholders; (ii) any
Plan; (iii) Company; or (iv) any Subsidiary have engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and neither Company nor
any Subsidiary currently has (nor at the Closing Date will have) any direct or
indirect liability whatsoever (including being subject to any statutory lien to
secure payment of any such liability), to the Pension Benefit Guaranty
Corporation ("PBGC") with respect to any such Plan under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty; and none of Company,
any Subsidiary or any member of a "controlled group" (as defined in ERISA
Section 4001(a)(14)) currently have (or at the Closing Date will have) any
obligation whatsoever to contribute to any "multi-employer pension plan" (as
defined in ERISA Section 4001(a)(14)), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan. Further:
(a) there have been no terminations, partial terminations or discontinuance
of contributions to any Qualified Plan without notice to and approval by the
Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA has
been terminated;
(c) there have been no "reportable events" (as that phrase is defined in
Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing Date,
shall exceed the actuarial present value of all accrued pension benefits under
any such Qualified Plan in accordance with the assumptions contained in the
Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by "COBRA"), Company, each
Subsidiary and the Stockholders has complied (and on the Closing Date will have
complied), in all respects with all reporting, disclosure, notice, election and
14
other benefit continuation requirements imposed thereunder as and when
applicable to such plans, and neither Company nor any Subsidiary has (or will
incur) direct or indirect liability or is (or will be) subject to any loss,
assessment, excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect failure
by the Company, any Subsidiary or the Stockholders, at any time prior to the
Closing Date, to comply with any such federal or state benefit continuation
requirement, which is capable of being assessed or asserted before or after the
Closing Date directly or indirectly against Stockholders, Company or any
Subsidiary with respect to such group health plans;
(f) neither Company nor any Subsidiary now is nor has it been within the
past five years a member of a "controlled group" as defined in ERISA Section
4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to Company's knowledge, there is no
threatened litigation, arbitration or disputed claim, settlement or adjudication
proceeding, or any governmental or other proceeding, or investigation with
respect to any Plan, or with respect to any fiduciary, administrator, or sponsor
thereof (in their capacities as such), or any party in interest thereof;
(h) the Company Financial Statements as of the Balance Sheet Date reflect
the approximate total pension, medical and other benefit expense for all Plans,
and no material funding changes or irregularities are reflected thereon which
would cause such Company Financial Statements to be not representative of most
prior periods; and
(i) neither Company nor any Subsidiary has incurred liability under Section
4062 of ERISA.
4.22 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 4.22(a), neither Company nor any
Subsidiary is in violation of any law or regulation or under any order of any
court or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction, which would have a
Material Adverse Effect. Company and each Subsidiary has conducted and are
conducting their business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing which
might have a Material Adverse Effect.
(b) No officer, director or Stockholders of Company has, at any time: (i)
committed any criminal act (except for minor traffic violations); (ii) engaged
in acts of fraud, gross negligence or moral turpitude; (iii) filed for personal
bankruptcy; or (iv) been an officer, director, manager, trustee or controlling
shareholder of a company that filed for bankruptcy or Chapter 11 protection
while he held such position or within two years thereafter.
(c) Except as set forth on Schedule 4.22(c), there are no claims, actions,
suits or proceedings, pending or, to the knowledge of Company, threatened
against or affecting Company or any Subsidiary at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
15
by arbitration) against Company or any Subsidiary or against any of their
respective properties or business.
4.23 Restrictive Covenants. Neither Company nor any Subsidiary is a party
to or bound or affected by any commitment, agreement or document containing any
covenant limiting the freedom of Company or a Subsidiary to compete in any line
of business, transfer or move any of its assets or operations or which does or
would reasonably expected to materially or adversely affect the business
practices, operations or conditions of Company or any Subsidiary.
4.24 Taxes.
(a)
(i) Company and each Subsidiary timely filed all Tax Returns due on or
before the Closing Date and all such Tax Returns are true, correct and
complete in all respects.
(ii) Company and each Subsidiary has paid in full on a timely basis
all Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of Company's and all Subsidiaries' liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred
Taxes) shown on the Interim Balance Sheet, and the amount of Company's and
all Subsidiaries' liability for unpaid Taxes for all periods or portions
thereof ending on or before the Closing Date will not exceed the amount of
the current liability accruals for Taxes (excluding reserves for Deferred
Taxes) as such accruals are reflected on the books and records of Company
on the Closing Date.
(iv) There are no ongoing examinations or claims against Company or
any Subsidiary for Taxes, and no notice of any audit, examination or claim
for Taxes, whether pending or threatened, has been received.
(v) Company has had a taxable year ended on December 31, in each year
since its formation.
(vi) Company and each Subsidiary currently utilizes the accrual method
of accounting for income Tax purposes and such method of accounting has not
changed in the past 10 years. Neither Company nor any Subsidiary has agreed
to, and neither is or will be required to, make any adjustments under Code
Section 481(a) as a result of a change in accounting methods.
(vii) Company and each Subsidiary has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld
and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid to any employee,
independent contractor, creditor or third party.
(viii) Copies of (A) any Tax examinations, (B) extensions of statutory
limitations for the collection or assessment of Taxes and (C) the Tax
Returns of Company and each Subsidiary for the last five fiscal years have
been made available to Purchaser.
(ix) There are (and as of immediately following the Closing there will
be) no Liens on the assets of Company or any Subsidiary relating to or
attributable to Taxes.
16
(x) To Company's knowledge, there is no basis for the assertion of any
claim relating to or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of Company or any Subsidiary or
otherwise have a Material Adverse Effect.
(xi) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Company or any Subsidiary that, individually
or collectively, could give rise to any payment (or portion thereof) that
would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xii) Except as set forth on Schedule 4.24, neither Company nor any
Subsidiary is or has been at any time, a party to a tax sharing, tax
indemnity or tax allocation agreement, and neither Company nor any
Subsidiary has assumed the tax liability of any other person under
contract.
(xiii) Company's and its Subsidiaries' tax basis in their assets for
purposes of determining future amortization, depreciation and other federal
income tax deductions is accurately reflected on Company's tax books and
records.
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar governmental
charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross
receipt taxes, value added taxes, employment taxes, excise taxes, ad
valorem taxes, property taxes, withholding taxes, payroll taxes, minimum
taxes or windfall profit taxes) together with any related penalties, fines,
additions to tax or interest imposed by the United States or any state,
county, local or foreign government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
4.25 Absence of Changes. Since the Balance Sheet Date, Company and each
Subsidiary has conducted its business in the ordinary course and, except as
contemplated herein or as set forth on Schedule 4.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Company or any
Subsidiary;
(b) any damage, destruction or loss (whether or not covered by insurance)
adversely affecting the properties or business of Company or any Subsidiary;
(c) any change in the authorized capital of Company or any Subsidiary or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in respect
of the capital stock, or any direct or indirect redemption, purchase or other
17
acquisition of any of the capital stock of Company or any Subsidiary (except for
dividends or distributions to Company by a Subsidiary);
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by Company or any Subsidiary to any of
its officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company or any Subsidiary to any person,
including without limitation the Stockholders and her affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or other
obligation owing to Company or any Subsidiary, including without limitation any
indebtedness or obligation of the Stockholders and her affiliates, provided that
Company or any Subsidiary may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential rights to
purchase or acquire any interest in any of the assets, property or rights of
Company or any Subsidiary or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets outside of the ordinary
course of business of Company or any Subsidiary;
(k) any waiver of any material rights or claims of Company or any
Subsidiary;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which Company or any Subsidiary is
a party;
(m) any transaction by Company or any Subsidiary outside the ordinary
course of business;
(n) any capital commitment by Company or any Subsidiary, either
individually or in the aggregate, exceeding $10,000;
(o) any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Company or any Subsidiary or
the revaluation by Company or any Subsidiary of any of its assets;
(p) any creation or assumption by Company of any mortgage, pledge, security
interest or lien or other encumbrance on any asset (other than liens arising
under existing lease financing arrangements which are not material and liens for
Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or
non-renewal by Company or any Subsidiary of any contract, lease transaction,
commitment or other right or obligation requiring aggregate payments by Company
and its Subsidiaries in excess of $25,000;
18
(r) any loan by Company or any Subsidiary to any person or entity,
incurring by Company, of any indebtedness, guaranteeing by Company or any
Subsidiary of any indebtedness, issuance or sale of any debt securities of
Company or any Subsidiary or guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of Company or any
Subsidiary, threat of commencement, of any lawsuit or proceeding against, or
investigation of, Company or any Subsidiary or any of their respective affairs;
or
(t) any negotiation or agreement by Company or any Subsidiary or any
officer or employee thereof to do any of the things described in the preceding
clauses (a) through (s) (other than negotiations with Purchaser and its
representatives regarding the transactions contemplated by this Agreement).
4.26 Deposit Accounts; Powers of Attorney. Schedule 4.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which Company or any
Subsidiary has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding a
general or special power of attorney from Company or any Subsidiary and a
description of the terms of such power.
4.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 4.27(a), to the
knowledge of Company, no underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state, local or other applicable law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws,
but excluding office and janitorial supplies properly and safely maintained (a
"Hazardous Material"), are present in, on or under any property, including the
land and the improvements, ground water and surface water thereof, that Company
or any Subsidiary has at any time owned, operated, occupied or leased. Schedule
4.27(a) identifies all known underground and aboveground storage tanks, and the
capacity, age, and contents of such tanks, located on Real Property owned or
leased by Company or any Subsidiary.
(b) Hazardous Materials Activities. To the knowledge of the Company,
neither the Company nor any Subsidiary has transported, stored, used,
manufactured, disposed of or released, or exposed their employees or others to,
Hazardous Materials in violation of any law in effect on or before the Closing
19
Date, nor has Company nor any Subsidiary disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively, "Company
Hazardous Materials Activities") in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of the
date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. The Company and each Subsidiary currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of Company Hazardous Material
Activities and other business of Company and its Subsidiaries as such activities
and business are currently being conducted. All Environmental Permits are in
full force and effect. Company and each Subsidiary (A) is in compliance in all
material respects with all terms and conditions of the Environmental Permits and
(B) is in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the laws of all Governmental Entities
relating to pollution or protection of the environment or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder. To Company's knowledge, there are
no circumstances that may prevent or interfere with such compliance in the
future. Schedule 4.27(c) includes a listing and description of all Environmental
Permits currently held by Company and each Subsidiary.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of Company, threatened concerning any Environmental Permit, Hazardous
Material or any Company Hazardous Materials Activity. There are no past or
present actions, activities, circumstances, conditions, events, or incidents
that could involve Company or any Subsidiary (or any person or entity whose
liability Company or any Subsidiary has retained or assumed, either by contract
or operation of law) in any environmental litigation, or impose upon Company or
any Subsidiary (or any person or entity whose liability Company or any
Subsidiary has retained or assumed, either by contract or operation of law) any
environmental liability including, without limitation, common law tort
liability.
4.28 Relations with Governments. Neither Company nor any Subsidiary has
made, offered or agreed to offer anything of value to any governmental official,
political party or candidate for government office, nor has it otherwise taken
any action that would cause Company to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any law of similar effect.
4.29 Disclosure. The Company has delivered to Purchaser true and complete
copies of each agreement, contract, commitment or other document (or summaries
thereof) that is referred to in the Schedules or that has been requested in
writing by Purchaser. Without limiting any exclusion, exception or other
limitation contained in any of the representations and warranties made herein,
this Agreement, the Schedules hereto and all other documents and information
furnished to Purchaser and its representatives pursuant hereto do not and will
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading. If Company or
Stockholders become aware of any fact or circumstance which would change a
representation or warranty of Company or Stockholders in this Agreement or any
representation made on behalf of Company or Stockholders, Company or
Stockholders shall immediately give notice of such fact or circumstance to
Purchaser. However, such notification shall not relieve Company or Stockholders
20
of their respective obligations under this Agreement, and at the sole option of
Purchaser, the truth and accuracy of any and all warranties and representations
of Company and Stockholders, at the date of this Agreement and as of the Closing
Date, shall be a precondition to the consummation of this Agreement.
4.30 Affiliates. The Stockholders are the only persons who are, in the
reasonable judgment of Company, an affiliate of Company within the meaning of
Rule 405 promulgated under the Securities Act of 1933, as amended (the "1933
Act") or Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as
amended (each such person an "Affiliate").
4.31 Location of Chief Executive Offices. Schedule 4.31 sets forth the
location of Company's and each Subsidiary's chief executive offices.
4.32 Location of Equipment and Inventory. All Inventory and Equipment held
on the date hereof by Company and each Subsidiary are located at one of the
locations shown on Schedule 4.32. For purposes of this Agreement, (a) the term
"Inventory" shall mean any "inventory" as such term is defined in the Uniform
Commercial Code as in effect on the date hereof in the State of California (the
"Cal. U.C.C.") owned by Company or any Subsidiary as of the date hereof, and, in
any event, shall include, but shall not be limited to, all merchandise,
inventory and goods, and all additions, substitutions and replacements thereof,
wherever located, together with all goods, supplies, incidentals, packaging
materials, labels, materials and any other items used or usable in
manufacturing, processing, packaging or shipping same; in all stages of
production, and all proceeds therefrom; and (b) the term "Equipment" shall mean
any "equipment," as such term is defined in the Cal.U.C.C. in effect on the date
hereof, owned by Company or any Subsidiary, and, in any event, shall include,
but shall not be limited to, all machinery, equipment, furnishings, fixtures and
vehicles owned by Company or any Subsidiary, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
4.33 Accredited Investor. Each Stockholder is an "accredited investor" as
that term is defined in Rule 501(a) promulgated under the 1933 Act; is acquiring
the Purchaser Common Stock for investment purposes only, for his own account and
not with the view to any resale or distribution thereof; is not participating,
directly or indirectly, in an underwriting of such Purchaser Common Stock; and
will not take, or cause to be taken, any action that would cause himself or his
stockholders, if any, to be deemed an "underwriter," as defined in Section
2(a)(11) of the 1933 Act, of such Purchaser Common Stock.
4.34 Representations of Worldnet. To induce Purchaser to enter into this
Agreement and consummate the transactions contemplated hereby, Worldnet,
represents and warrants to Purchaser as follows (for purposes of this Agreement,
the phrases "knowledge of Worldnet" or "Worldnet's knowledge," or words of
similar import, mean the knowledge of the stockholders of Worldnet and the
directors and officers of Worldnet and each of its subsidiaries (as defined
below), including facts of which the directors and officers, in the reasonably
prudent exercise of their duties, should be aware):
(a) Due Organization. Worldnet and each of its subsidiaries (the "Worldnet
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is duly
authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to own, operate and lease its
properties and to carry on its business in the places and in the manner as now
21
conducted except where the failure to be so authorized, qualified or licensed
would not have a material adverse effect on the business, operations,
properties, assets or condition, financial or otherwise, of Worldnet or any of
its Worldnet Subsidiaries ("Material Adverse Effect"). Schedule 4.34(a) hereto
contains a list of all jurisdictions in which Worldnet or any of its Worldnet
Subsidiaries is authorized or qualified to do business. Worldnet and each
Worldnet Subsidiary is in good standing in each such jurisdiction. Worldnet has
made available to Purchaser true, complete and correct copies of the articles or
certificate of incorporation and bylaws of Worldnet and each Worldnet
Subsidiary. Such articles or certificate of incorporation and bylaws are
collectively referred to as the "Charter Documents." Worldnet or any Worldnet
Subsidiary is not in violation of any Charter Documents. The minute books of
Worldnet and each Worldnet Subsidiary have been made available to Purchaser (and
as of the Closing, the minute books of Worldnet and each Worldnet Subsidiary)
will have been delivered, along with Worldnet's and each Worldnet Subsidiary's
original stock ledger and corporate seal, to Purchaser) and are correct and,
except as set forth in Schedule 4.34(a), complete in all material respects.
(b) Authorization; Validity. Worldnet has all requisite power and authority
to enter into and perform its obligations pursuant to the terms of this
Agreement. Worldnet has the full legal right, corporate power and authority to
enter into this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by Worldnet and the performance of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of Worldnet, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of Worldnet, enforceable in accordance with its terms.
(c) No Conflicts. Except as disclosed in Schedule 4.34(c), the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not:
(i) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(ii) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or
both) under, any document, agreement or other instrument to which Worldnet
or any Worldnet Subsidiary is a party or by which Worldnet or any Worldnet
Subsidiary is bound, or result in the creation or imposition of any lien,
charge or encumbrance on any of any Worldnet's or any Worldnet Subsidiary's
properties pursuant to (a) any law or regulation to which Worldnet or any
Worldnet Subsidiary or any of their respective property is subject, or (b)
any judgment, order or decree to which Worldnet or any Worldnet Subsidiary
is bound or any of their respective property is subject;
(iii) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of Worldnet or any
Worldnet Subsidiary; or
(iv) violate any law, order, judgment, rule, regulation, decree or
ordinance to which Worldnet or any Worldnet Subsidiary is subject or by
which Worldnet or any Worldnet Subsidiary is bound including, without
limitation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), together with all rules and regulations promulgated thereunder.
22
(d) Accredited Investor. Worldnet is an "accredited investor" as that term
is defined in Rule 501(a) promulgated under the 1933 Act; is acquiring the
common stock of the Purchaser for investment purposes only, for its own account
and not with the view to any resale or distribution thereof; is not
participating, directly or indirectly, in an underwriting of such common stock
of the Purchaser; and will not take, or cause to be taken, any action that would
cause it or its stockholders, to be deemed an "underwriter," as defined in
Section 2(a)(11) of the 1933 Act, of such common stock of the Purchaser.
5. REPRESENTATIONS OF PURCHASER
To induce the Stockholders and Company to enter into this Agreement and
consummate the transactions contemplated hereby, Purchaser represents and
warrants to Stockholders and Company as follows:
5.1 Due Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to own, operate and lease its
properties and to carry on its business in the places and in the manner as now
conducted, except where the failure to be so authorized, qualified or licensed
would not have a material adverse effect on Purchaser. Copies of the articles or
certificate of incorporation and the bylaws, each as amended, of Purchaser
(collectively, the "Purchaser Charter Documents") have been made available to
Company. Purchaser is not in violation of any Purchaser Charter Document.
5.2 Purchaser Common Stock. The shares of Purchaser Common Stock to be
delivered to Stockholders and the shares of common stock to be delivered to
Worldnet at the Closing Date, when delivered in accordance with the terms of
this Agreement, will be valid and legally issued shares of Purchaser's capital
stock, fully paid and nonassessable.
5.3 Authorization; Validity of Obligations. The representatives of
Purchaser executing this Agreement have all requisite corporate power and
authority to enter into and bind Purchaser to the terms of this Agreement.
Purchaser has the full legal right, power and corporate authority to enter into
this Agreement and the transactions contemplated hereby. The execution and
delivery of this Agreement by Purchaser and the performance by Purchaser of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of Purchaser, and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal, valid
and binding obligation of Purchaser enforceable in accordance with its terms.
5.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the Purchaser
Charter Documents;
(b) subject, until the time of Closing, to compliance with any agreements
between Purchaser and its lenders, conflict with, or result in a default (or
would constitute a default but for a requirement of notice or lapse of time or
both) under any document, agreement or other instrument to which Purchaser is a
party or by which Purchaser is bound, or result in the creation or imposition of
any lien, charge or encumbrance on any of Purchaser's properties pursuant to (i)
any law or regulation to which Purchaser or any of its property is subject, or
(ii) any judgment, order or decree to which Purchaser is bound or any of its
property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Purchaser; or
(d) violate any law, order, judgment, rule, regulation, decree or ordinance
to which Purchaser is subject, or by which Purchaser is bound, (including,
without limitation, the HSR Act, together with all rules and regulations
promulgated thereunder).
23
6. COVENANTS
6.1 Tax Matters.
(a) The following provisions shall govern the allocation of responsibility
as between the Stockholders on one part, and the Surviving Corporation on
another part for certain tax matters following the Closing Date:
(i) Stockholders shall prepare or cause to be prepared and file or
cause to be filed, within the time and in the manner provided by law, all
Tax Returns of Company (which for purposes of this Section 6.1 shall
include all Subsidiaries) for all periods ending on or before the Closing
Date that are due after the Closing Date. Stockholders shall pay to the
Surviving Corporation on or before the due date of such Tax Returns the
amount of all Taxes shown as due on such Tax Returns to the extent that
such Taxes are not reflected in the current liability accruals for Taxes
(excluding reserves for deferred Taxes) shown on Company's books and
records as of the Closing Date. Such Returns shall be prepared and filed in
accordance with applicable law and in a manner consistent with past
practices and shall be subject to the reasonable review and approval by
Purchaser. To the extent reasonably requested by Stockholders or required
by law, Purchaser and the Surviving Corporation shall participate in the
filing of any Tax Returns filed pursuant to this paragraph.
(ii) The Surviving Corporation shall prepare or cause to be prepared
and file or cause to be filed any Tax Returns for Tax periods which begin
before the Closing Date and end after the Closing Date. Stockholders shall
pay to the Surviving Corporation within fifteen (15) days after the date on
which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such taxable period
ending on the Closing Date to the extent such Taxes are not reflected in
the current liability accruals for Taxes (excluding reserves for deferred
Taxes) shown on Company's books and records as of the Closing Date. For
purposes of this Section 6.1, in the case of any Taxes that are imposed on
a periodic basis and are payable for a taxable period that includes (but
does not end on) the Closing Date, the portion of such Tax which relates to
the portion of such taxable period ending on the Closing Date shall (x) in
the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire taxable
period multiplied by a fraction the numerator of which is the number of
days in the taxable period ending on the Closing Date and the denominator
of which is the number of days in the entire taxable period, and (y) in the
case of any Tax based upon or related to income or receipts be deemed equal
to the amount which would be payable if the relevant taxable period ended
on the Closing Date. Any credits relating to a taxable period that begins
before and ends after the Closing Date shall be taken into account as
though the relevant taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with prior practice of the Surviving
Corporation.
24
(iii) Purchaser and the Surviving Corporation on one part and
Stockholders on another part shall (A) cooperate fully, as reasonably
requested, in connection with the preparation and filing of Tax Returns
pursuant to this Section 6.1 and any audit, litigation or other proceeding
with respect to Taxes; (B) make available to the other, as reasonably
requested, all information, records or documents with respect to Tax
matters pertinent to Company for all periods ending prior to or including
the Closing Date; and (C) preserve information, records or documents
relating to tax matters pertinent to Company that is in their possession or
under their control until the expiration of any applicable statute of
limitations or extensions thereof.
(iv) Stockholders shall timely pay all transfer, documentary, sales,
use, stamp, registration and other Taxes and fees arising from or relating
to the transactions contemplated by this Agreement, and Stockholders shall,
at its own expense, file all necessary Tax Returns and other documentation
with respect to all such transfer, documentary, sales, use, stamp,
registration, and other Taxes and fees. If required by applicable law,
Purchaser and the Surviving Corporation will join in the execution of any
such Tax Returns and other documentation.
6.2 Accounts Receivable. Purchaser and the Surviving Corporation will use
their reasonable best efforts to collect the Accounts Receivable. Any amounts
received by the Surviving Corporation for a particular Account Receivable (i)
that was not originally collected within ninety (90) days after the day on which
it became due and payable and (ii) for which Purchaser or the Surviving
Corporation has not received indemnification pursuant to Article 9, shall be
applied against amounts due on that particular Account Receivable and such
amount shall be subtracted from the aggregate amount of Damages on the date of
collection of such Account Receivable. Any amounts received by the Surviving
Corporation for a particular Account Receivable (i) that was not originally
collected within ninety (90) days after the day on which it became due and
payable and (ii) for which Purchaser or the Surviving Corporation has received
indemnification pursuant to Article 9, shall be remitted to Stockholders within
fifteen (15) days of receipt by the Surviving Corporation.
6.3 Related Party Agreements. Company and/or Stockholders, as the case may
be, shall terminate any Related Party Agreements that Purchaser requests Company
or Stockholders to terminate in writing.
6.4 Cooperation; Delayed Deliveries.
(a) Company, Stockholders, and Purchaser shall each deliver or cause to be
delivered to the other on the Closing Date, and at such other times and places
as shall be reasonably agreed to, such instruments as the other may reasonably
request for the purpose of carrying out this Agreement. In connection therewith,
if required, the president or chief financial officer of Company shall execute
any documentation reasonably required by Purchaser's Accountants (in connection
with the Purchaser's Accountants' future audits of Company).
25
(b) The Stockholders and Company shall cooperate and use their reasonable
efforts to have the present officers, directors and employees of Company and its
Subsidiaries cooperate with Purchaser on and after the Closing Date in
furnishing information, evidence, testimony and other assistance in connection
with any filing obligations, actions, proceedings, arrangements or disputes of
any nature with respect to matters pertaining to all periods prior to the
Closing Date.
(c) Each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby.
(d) The Company, Stockholders, and Purchaser shall file all notices and
other information and documents required under the HSR Act as promptly as
practicable after the date hereof.
6.5 Conduct of Business Pending Closing. Between the date hereof and the
Closing Date, Company (which includes each Subsidiary for purposes of this
Section 6.5) will (except as requested or agreed by Purchaser):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held under
leases, in as good working order and condition as at present, ordinary wear and
tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and preserve its
business organization intact, retain its present officers and key employees and
maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) maintain present debt and lease instruments and not enter into new or
amended debt or lease instruments; and
(h) maintain present salaries and commission levels for all officers,
directors, employees, agents, representatives and independent contractors,
except for ordinary and customary bonuses and salary increases for employees.
6.6 Access to Information. Between the date of this Agreement and the
Closing Date, Stockholders and Company will afford to the officers and
authorized representatives of Purchaser access to (i) all of the sites,
properties, books and records of Company and each Subsidiary and (ii) such
additional financial and operating data and other information as to the business
and properties of Company and each Subsidiary as Purchaser may from time to time
reasonably request, including without limitation, access upon reasonable request
to Company's and each Subsidiary's employees, customers, vendors, suppliers and
creditors for due diligence inquiry. No information or knowledge obtained in any
investigation pursuant to this Section 6.6 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the Stock Purchase.
6.7 Prohibited Activities. Between the date hereof and the Closing Date,
neither Company nor any Subsidiary will, without the prior written consent of
Purchaser:
26
(a) make any change in their articles or certificate of incorporation or
bylaws, or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance, delivery or
sale of any securities, options, warrants, calls, conversion rights or
commitments relating to their securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution (whether in cash,
stock or property) in respect of its stock whether now or hereafter outstanding,
or split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur any
liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of business and consistent with past practice, in
an amount in excess of $25,000, including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any officer
or director of Company, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or encumbrance upon
any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent with
past practice;
(h) acquire or negotiate for the acquisition of (by stock purchase,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to
Company;
(i) merge or consolidate or agree to merge or consolidate with or into any
other corporation;
(j) waive any material rights or claims of Company or any Subsidiary,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at arm's
length with a third party not affiliated with Company or any Subsidiary or any
officer, director or stockholder of Company or any Subsidiary or (ii) outside
27
the ordinary course of business consistent with past practice or (iii)
prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of business and
consistent with past practice, change any tax election, adopt any tax accounting
method other than in the ordinary course of business and consistent with past
practice, change any tax accounting method, file any Tax Return (other than any
estimated tax returns, payroll tax returns, withholding tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Purchaser; or
(p) take, or agree (in writing or otherwise) to take, any of the actions
described in Sections 6.7(a) through (o) above, or any action which would make
any of the representations and warranties of Stockholders and Company contained
in this Agreement untrue or result in any of the conditions set forth in
Articles 7 and 8 not being satisfied.
6.8 Sales of Purchaser Common Stock
(a) Stockholders will not, directly or indirectly, offer, sell, contract to
sell, pledge or otherwise dispose of any of the shares of Purchaser Common Stock
to be received by them, that do not constitute Pledged Assets, in the Stock
Purchase prior to the date that is, (i) with respect to 140,000 of the shares,
12 months from the Closing Date, and (ii) with respect to 30,000 of the shares,
90-days from the Closing Date.
(b) Stockholders acknowledge and agree that Purchaser will not provide
Stockholders with a prospectus for Stockholders' use in selling the shares of
Purchaser Common Stock to be received by Stockholders in the Stock Purchase, and
agrees to sell such shares only in accordance with the requirements, if any, of
Rule 144 or Rule 145(d) promulgated under the 1933 Act, as applicable. Purchaser
acknowledges that the provisions of this Section 6.8(b) will be satisfied as to
any sale by Stockholders of the Purchaser Common Stock Stockholders may acquire
pursuant to the Stock Purchase pursuant to Rule 144 or Rule 145(d) under the
Securities Act, by a broker's letter and a letter from Stockholders with respect
to that sale stating that the applicable requirements of Rule 144(c), (d), (e),
(f) and (h) or Rule 145(d)(1) have been met or are inapplicable by virtue of
Rule 144(k), Rule 145(d)(2) or Rule 145(d)(3), provided, however, that Purchaser
has no reasonable basis to believe that such sales were not made in compliance
with such provisions of Rule 144 or Rule 145(d) and subject to any changes in
Rule 144 or Rule 145 after the date of this Agreement.
(c) The certificate or certificates evidencing the shares of Purchaser
Common Stock to be delivered to Stockholders in the Stock Purchase will bear
restrictive legends substantially in the following forms: THE SHARES REPRESENTED
BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THESE SHARES MAY ONLY BE
TRANSFERRED PURSUANT TO A REGISTRATION STATEMENT COVERING THE TRANSFER OF SUCH
SHARES OR A VALID EXEMPTION FROM REGISTRATION. THE SHARES REPRESENTED BY THIS
28
CERTIFICATE ARE SUBJECT TO A CONTRACTUAL HOLDING PERIOD EXPIRING ON ***,
PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED AS OF APRIL 1, 2000,
AMONG THE ISSUER, WORLDNET RECOURSES GROUP, INC., BRIAN WOOD AND KEENAN CHEUNG.
PRIOR TO THE EXPIRATION OF SUCH HOLDING PERIOD, SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) WHEN THE HOLDING PERIOD HAS
EXPIRED. *** With respect to the shares of Purchaser Common Stock to be received
by Stockholders in the Stock Purchase, certificates representing 140,000 shares
issued will read "April 1, 2001," and certificates representing 30,000 shares
will read "July 1, 2000."
(d) The Purchaser has agreed to register the 90,000 shares of common stock
granted to Worldnet on Form S-3 and in no event later than 45 days after June
15, 2000.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligations of Purchaser to effect the Stock Purchase is subject to the
satisfaction or waiver, before the date for such loan and on or before the
Closing Date, as applicable, to the following conditions and deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date; all of the terms, covenants, agreements and conditions of
this Agreement to be complied with, performed or satisfied by Stockholders and
Company on or before the Closing Date shall have been duly complied with,
performed or satisfied; and a certificate to the foregoing effect dated the
Closing Date and signed on behalf of Stockholders and Company shall have been
delivered to Purchaser.
7.2 No Litigation. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or provision challenging Purchaser's acquisition
of the Company Common Stock, or limiting or restricting Purchaser's conduct or
operation of the business of Company (or its own businesses) following the Stock
Purchase shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit, claim or proceeding of any nature pending or
threatened against Purchaser or Company or any Subsidiary, their respective
properties or any of their officers or directors, that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of Company or any Subsidiary.
7.3 No Material Adverse Change. Except as otherwise disclosed in this
Agreement or the Schedules hereto, there shall have been no material adverse
changes in the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits or condition (financial
or otherwise) of Company, taken as a whole, since the Balance Sheet Date; and
Purchaser shall have received a certificate signed by Stockholders dated the
Closing Date to such effect.
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7.4 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party, relating to the
consummation by Stockholders and Company of the transactions contemplated
hereby, shall have been obtained and made.
7.5 Opinion of Counsel. Purchaser shall have received an opinion of legal
counsel to Stockholders and Company dated the Closing Date in form and substance
reasonably satisfactory to Purchaser and its counsel.
7.6 Charter Documents. Purchaser shall have received (a) a copy of the
articles or certificate of incorporation of Company and each Subsidiary
certified by an appropriate authority in their respective state of incorporation
and (b) a copy of the bylaws of Company and each Subsidiary certified by the
Secretary of Company and each Subsidiary, and such documents shall be in form
and substance reasonably acceptable to Purchaser.
7.7 Quarterly Financial Statements. Purchaser shall have received from
Company completed quarterly financial statements through March 31, 2000 in a
form reasonably satisfactory to Purchaser.
7.8 Due Diligence Review; Schedules. Stockholders and Company shall have
made such deliveries as are called for by this Agreement. Purchaser shall be
fully satisfied in its sole discretion with the results of its review of all of
the Schedules, whether delivered before or after the execution hereof, and such
deliveries, and its review of, and other due diligence investigations with
respect to, the business, operations, affairs, prospects, properties, assets,
existing and potential liabilities, obligations, profits and condition
(financial or otherwise) of the Company and the Subsidiaries. If Purchaser shall
not be fully satisfied with the foregoing, Purchaser shall be entitled to
terminate this Agreement.
7.9 Employment Agreements and Non-Competition Agreements. Each employee of
Company as designated by Purchaser shall have entered into an employment
agreement and a non-competition agreement with Company, in form and substance
reasonably satisfactory to Purchaser.
7.10 Stockholders' Release. Stockholders shall have delivered to Purchaser
an instrument dated the Closing Date releasing Company from any and all claims
of Stockholders against Company.
7.11 No Laws. No laws, rules, regulations, orders or any other requirements
of any Governmental Authority shall have been enacted, introduced or announced
which may materially and adversely affect Company or any Subsidiary or the
business carried on by any of them.
7.12 HSR Act. Any waiting period applicable to the consummation of the
Stock Purchase under the HSR Act shall have expired or been terminated, and no
action by the Department of Justice or Federal Trade Commission challenging or
seeking to enjoin the consummation of the transactions contemplated hereby shall
be pending.
7.13 Related Party Agreements. The Company shall have delivered to
Purchaser evidence of repayment of all amounts due from, or due to, Stockholders
and all entities in which Stockholders has an interest. Such amounts shall
include all accounts receivable.
7.14 Termination of Employment Agreements. The Company shall have
terminated without liability, expense or obligation to Company or any Subsidiary
(and no payments shall be required to be made by the Surviving Corporation or
any Subsidiary from and after the Closing Date in respect of) any employment
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agreements the terms of which are not specifically provided for in this
Agreement, and neither Company nor any subsidiary shall be liable for any
payment in respect of any agreement as a result of a change in control of
Company (whether or not in conjunction with any other event or events).
7.15 Payment or Satisfaction of Existing Indebtedness. The Company shall
have paid or otherwise satisfied all accrued indebtedness, which is not the
regular and customary (a) operating indebtedness not for borrowed money as set
forth in Schedule 7.15(a), (b) car financing debt and trade debt as set forth in
Schedule 7.15(b), or (c) the private placement debenture in the principal amount
of $244,000.00 set forth in Schedule 7.15(c).
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF STOCKHOLDERS, COMPANY AND WORLDNET
The obligation of Stockholders, Company and Worldnet to effect the Stock
Purchase is subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
8.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of Purchaser contained in this Agreement shall be
true, correct and complete on and as of the Closing Date with the same effect as
though such representations and warranties had been made as of such date; all of
the terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by Purchaser on or before the Closing Date shall
have been duly complied with, performed or satisfied; and a certificate to the
foregoing effects dated the Closing Date and signed by the President or any Vice
President of Purchaser shall have been delivered to Stockholders.
8.2 No Litigation. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or provision challenging Purchaser's proposed
acquisition of the Company Common Stock, or limiting or restricting Purchaser's
conduct or operation of the business of the Company or the Subsidiaries (or its
own businesses) following the Stock Purchase shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature pending or threatened, against Purchaser or Stockholders, Company,
any Subsidiary, their respective properties or any of their officers or
directors, that could materially and adversely affect the business, assets,
liabilities, financial condition, results of operations or prospects of the
Purchaser and its subsidiaries taken as a whole.
8.3 Consents and Approvals. All necessary consents of, and filings with,
any governmental authority or agency or third party relating to the consummation
by Purchaser of the transactions contemplated herein, shall have been obtained
and made.
8.4 Employment Agreements. Company shall have afforded each employee of
Company designated by Purchaser an opportunity to enter into an employment
agreement with Company in form and substance reasonably satisfactory to
Purchaser.
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9. INDEMNIFICATION
9.1 General Indemnification by Stockholders. Stockholders covenants and
agrees to indemnify, defend, protect and hold harmless Purchaser and the
Surviving Corporation and their respective officers, directors, employees,
stockholders, assigns, successors and affiliates (individually, an "Indemnified
Party" and collectively, "Indemnified Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes of
action, lawsuits, administrative proceedings (including informal proceedings),
investigations, audits, demands, assessments, adjustments, judgments, settlement
payments, deficiencies, penalties, fines, interest (including interest from the
date of such damages) and costs and expenses (including without limitation
reasonable attorneys' fees and disbursements of every kind, nature and
description) (collectively, "Damages") suffered, sustained, incurred or paid by
the Indemnified Parties in connection with, resulting from or arising out of,
directly or indirectly:
(i) any breach of any representation or warranty of Stockholders or
Company set forth in this Agreement or any Schedule or certificate,
delivered by or on behalf of Company or Stockholders in connection
herewith; or
(ii) any nonfulfillment of any covenant or agreement by Stockholders
or, prior to the Closing Date, Company, under this Agreement;
(iii) the business, operations or assets of Company and its
Subsidiaries prior to the Closing Date or the actions or omissions of
Company's or any Subsidiary's directors, officers, shareholders, employees
or agents prior to the Closing Date, other than Damages arising from
matters expressly disclosed in the Company Financial Statements, this
Agreement or the Schedules to this Agreement; or
(iv) the matters disclosed on Schedules 4.22 (conformity with law;
litigation), 4.24 (taxes) and 4.27 (environmental matters).
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 9.1.
9.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section 9.1
unless, and solely to the extent that, the aggregate amount of Damages exceeds
$25,000 (the "Indemnification Threshold"); provided, however, that the
Indemnification Threshold shall not apply to (i) Damages arising out of any
breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 4.9 (Company financial
conditions), 4.17 (material contracts and commitments), 4.22 (conformity with
law; litigation), 4.24 (taxes) and 4.27 (environmental matters); or (ii) Damages
described in Section 9.1(a)(iv) or (v).
(b) the aggregate amount of Stockholders' liability under this Article 9
shall not exceed the Purchase Price; provided, however, that Stockholders'
liability for Damages arising out of any breaches of the representations made in
Sections 4.24 (taxes) or 4.27 (environmental matters) or Damages described in
Sections 9.1(a)(ii) and 9.1(a)(iv) shall not be subject to such limitation;
32
(c) the indemnification obligations under this Article 9, or under any
certificate or writing furnished in connection herewith, shall terminate at the
date that is the later of clause (i) or (ii) of this Section 9.2(c):
(i) (1) except as to representations, warranties, and covenants
specified in clause (i)(2) of this Section 9.2(c), the first
anniversary of the Closing Date, or
(2) with respect to representations and warranties contained in
Sections 4.21 (employee benefit plans), 4.24 (taxes), 4.27
(environmental matters), and the indemnification set forth in
Section 9.1(a)(ii), (iii), (iv), (v) on (A) the date that is six
(6) months after the expiration of the longest applicable federal
or state statute of limitation (including extensions thereof), or
(B) if there is no applicable statute of limitation, (x) ten (10)
years after the Closing Date if the Claim (as defined below) is
related to the cost of investigating, containing, removing, or
remediating a release of Hazardous Material into the environment,
or (y) five (5) years after the Closing Date for any other Claim
covered by clause (i)(2)(B) of this Section 9.2(c); or
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 9.2(c)
(such claims referred to as "Pending Claims").
9.3 Indemnification Procedures. All claims or demands for indemnification
under this Article 9 ("Claims") shall be asserted and resolved as follows:
(a) In the event that any Indemnified Party has a Claim against any party
obligated to provide indemnification pursuant to Section 9.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Indemnifying Party of such Claim, specifying
the nature of such Claim and the amount or the estimated amount thereof to the
extent then feasible (the "Claim Notice"). If Indemnifying Party does not notify
the Indemnified Party within thirty days after the date of delivery of the Claim
Notice that the Indemnifying Party disputes such Claim, with a detailed
statement of the basis of such position, the amount of such Claim shall be
conclusively deemed a liability of the Indemnifying Party hereunder. In case an
objection is made in writing in accordance with this Section 9.3(a), the
Indemnified Party shall respond in a written statement to the objection within
thirty days and, for sixty days thereafter, attempt in good faith to agree upon
the rights of the respective parties with respect to each of such Claims (and,
if the parties should so agree, a memorandum setting forth such agreement shall
be prepared and signed by both parties).
(b)
(i) In the event that any Claim for which the Indemnifying Party would
be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third-Party Claim"), the Indemnified
Party shall deliver a Claim Notice to Indemnifying Party. The Indemnifying
Party shall have thirty days from the date of delivery of the Claim Notice
to notify the Indemnified Party (A) whether the Indemnifying Party disputes
liability to the Indemnified Party hereunder with respect to the
Third-Party Claim, and, if so, the basis for such a dispute, and (B) if
such party does not dispute liability, whether or not the Indemnifying
Party desires, at the sole cost and expense of the Indemnifying Party, to
33
defend against the Third-Party Claim, provided that the Indemnified Party
is hereby authorized (but not obligated) to file any motion, answer or
other pleading and to take any other action which the Indemnified Party
shall deem necessary or appropriate to protect the Indemnified Party's
interests.
(ii) In the event that the Indemnifying Party timely notifies the
Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the
Third-Party Claim, the Indemnifying Party shall defend the Indemnified
Party against such Third-Party Claim by appropriate proceedings, provided
that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any Third-Party Claim (in whole or in
part) if such settlement does not include a complete and unconditional
release of the Indemnified Party. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and expense. If the
Indemnifying Party elects not to defend the Indemnified Party against a
Third-Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified
Party, without waiving any rights against such party, may settle or defend
against such Third-Party Claim in the Indemnified Party's sole discretion
and the Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or judgment and, on an
ongoing basis, all indemnifiable costs and expenses of the Indemnified
Party with respect thereto, including interest from the date such costs and
expenses were incurred.
(iii) If at any time, in the reasonable opinion of the Indemnified
Party, notice of which shall be given in writing to the Indemnifying Party,
any Third-Party Claim seeks material prospective relief which could have an
adverse effect on any Indemnified Party or the Surviving Corporation or any
subsidiary, the Indemnified Party shall have the right to control or assume
(as the case may be) the defense of any such Third-Party Claim and the
amount of any judgment or settlement and the reasonable costs and expenses
of defense shall be included as part of the indemnification obligations of
the Indemnifying Party hereunder. If the Indemnified Party elects to
exercise such right, the Indemnifying Party shall have the right to
participate in, but not control, the defense of such Third-Party Claim at
the sole cost and expense of the Indemnifying Party.
(c) Nothing herein shall be deemed to prevent the Indemnified Party from
making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 9.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 9.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax benefits, Tax
detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 9, provided that no Indemnified
34
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
9.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by Stockholders, Company and
Purchaser in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
The representations of Stockholders and Company will survive the Closing and
will remain in effect until, and will expire upon, the termination of the
indemnification obligations as provided in Section 9.2. The representations of
Purchaser will survive the Closing and will remain in effect until, and will
expire upon the first anniversary of the Closing Date.
9.5 Remedies Cumulative. The remedies set forth in this Article 9 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
9.6 Right to Set Off. Purchaser shall have the right, but not the
obligation, to set off or recoup, in whole or in part, the Pledged Assets or any
other against sums or property held or owed by Purchaser or the Surviving
Corporation amounts finally determined under Section 9.3 to be owed to Purchaser
by Stockholders under Section 9.1 hereof. Stockholders shall have no right of
contribution or subrogation against Company for any claim made hereunder by
Purchaser or any other Indemnified Party from and after the Closing.
10. NONCOMPETITION
10.1 Prohibited Activities. Stockholders agree that for a period of two
years following the Closing, neither them nor any of their affiliates, including
its stockholders immediately prior to the Closing, shall:
(a) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any business
selling any products or services in direct competition with the Surviving
Corporation or Purchaser within the United States of America, Canada or any
other country in which Purchaser, Company or their respective affiliates
currently conduct business (the "Territory");
(b) call upon any person who is, at that time, within the Territory, an
employee of Purchaser or any subsidiary of Purchaser in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of Purchaser or such subsidiary;
(c) call upon any person or entity which is, at that time, or which has
been, within one year prior to that time, a customer of Purchaser or Company or
any subsidiaries of Purchaser or Company within the Territory for the purpose of
soliciting or selling online information dissemination, advertising or marketing
or web page design or development related services within the Territory;
(d) call upon any prospective acquisition candidate, on their own behalf or
on behalf of any competitor, which candidate was either called upon by any of
them or for which any of them made an acquisition analysis for themselves or
Purchaser or any subsidiaries of Purchaser, including Company; or
35
(e) disclose customers, whether in existence or proposed, of Company to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Stockholders or any such affiliate from (i) acquiring as an investment
not more than one percent of the capital stock of a competing business, whose
stock is traded on a national securities exchange or in the over-the-counter
market or (ii) engaging in any activity to which Purchaser shall have provided
its prior written consent.
10.2 Damages. Because of the difficulty of measuring economic losses to
Purchaser as a result of the breach of the foregoing covenant, and because of
the immediate and irreparable damage that would be caused to Purchaser for which
they would have no other adequate remedy, Stockholders agree that, in the event
of a breach by it or its affiliates of the foregoing covenant, the covenant may
be enforced by Purchaser by, without limitation, injunctions and restraining
orders.
10.3 Reasonable Restraint. It is agreed by the parties that the foregoing
covenants in this Article 10 impose a reasonable restraint on Stockholders and
any affiliates in light of the activities and business of Purchaser on the date
of the execution of this Agreement and the current and future plans of Purchaser
(as successors to the businesses of Company).
10.4 Severability; Reformation. The covenants in this Article 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent, which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5 Independent Covenants. All of the covenants in this Article 10 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of Stockholders
against Company or Purchaser, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement of such covenants. It is
specifically agreed that the period of three years stated above, shall be
computed by excluding from such computation any time during which Stockholders
or any of her affiliates are in violation of any provision of this Article 10
and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action Purchaser
seeks to enforce the agreements and covenants of Stockholders or in which any
person contests the validity of such agreements and covenants or their
enforceability or seeks to avoid their performance or enforcement; provided,
however, that if Stockholders or any of their affiliates are found not to be in
violation of the agreements or covenants in any such activity the period during
which the action was pending shall not be excluded from such computation.
10.6 Materiality. Company and Stockholders hereby agree that the covenants
set forth in this Article 10 are a material and substantial part of the
transactions contemplated by this Agreement, supported by adequate
consideration.
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11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 Stockholders. Stockholders recognize and acknowledge that they have in
the past, currently have, and in the future may possibly have, access to certain
confidential information of Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of Company and Company's business. Stockholders agree that they will not
disclose any confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except to
authorized representatives of Purchaser, unless Stockholders can show that such
information has become known to the public generally through no fault of
Stockholders'. In the event of a breach or threatened breach by Stockholders of
the provisions of this Article 11, Purchaser shall be entitled to an injunction
restraining Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Purchaser from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
11.2 Purchaser. Purchaser recognizes and acknowledges that it has in the
past, currently has, and prior to the Closing Date will have, access to certain
confidential information of Company, such as lists of customers, operational
policies, pricing and cost policies that are valuable, special and unique assets
of Company and Company's business. Purchaser agrees that it will not disclose
any confidential information to any person, firm, corporation, association, or
other entity for any purpose or reason whatsoever, prior to the Closing Date
without prior written consent of Stockholders. In the event of a breach or
threatened breach by Purchaser of the provisions of this Article 11,
Stockholders shall be entitled to an injunction restraining Purchaser from
disclosing, in whole or in part, such confidential information. Nothing
contained herein shall be construed as prohibiting Stockholders from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages.
11.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, Purchaser and Stockholders agree that, in the event of a breach
by any of them of the foregoing covenant, the covenant may be enforced against
them by injunctions and restraining orders.
12. GENERAL
12.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(a) by mutual consent of the boards of directors of Purchaser and Company;
or
(b) by Stockholders and Company as a group, on one part, or by Purchaser,
on another part, if the Closing shall not have occurred on or before May 31,
2000, provided that the right to terminate this Agreement under this Section
12.1(b) shall not be available to either party (with Stockholders and Company
deemed to be a single party for this purpose) whose material misrepresentation,
breach of warranty or failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur on or
before such date; or
(c) by Stockholders and Company as a group, on one part, or by Purchaser,
on another part, if there is or has been a material breach, failure to fulfill
or default on the part of the other party (with Stockholders and Company deemed
to be a single party for this purpose) of any of the representations and
37
warranties contained herein or in the due and timely performance and
satisfaction of any of the covenants, agreements or conditions contained herein,
and the curing of such default shall not have been made or shall not reasonably
be expected to occur before the Closing Date; or
(d) by Stockholders and Company as a group, on one part, or by Purchaser,
on another part, if there shall be a final nonappealable order of a federal or
state court in effect preventing consummation of the Stock Purchase; or there
shall be any action taken, or any statute, rule regulation or order enacted,
promulgated or issued or deemed applicable to the Stock Purchase by any
governmental entity which would make the consummation of the Stock Purchase
illegal.
12.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 12.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 12 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
12.1(c) above, then notwithstanding the provisions of Section 12.7 below, the
breaching party (with Stockholders and Company deemed to be a single party for
purposes of this Article 12), shall be liable to the other party to the extent
of the expenses incurred by such other party in connection with this Agreement
and the transactions contemplated hereby, as well as any damages in accordance
with applicable law.
12.3 Successors and Assigns. Except as provided in this Section 12.3, this
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding upon and shall inure to the benefit of
the parties hereto, the successors of Purchaser and Stockholders. Purchaser may
assign this Agreement to any affiliate or associate (as such terms are defined
in Rule 405 under the 1933 Act) of Purchaser or any entity newly formed by
Purchaser or such affiliate or associate for the purpose of consummating the
transactions contemplated by this Agreement.
12.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 12.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
12.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, including by
electronic facsimile, each of which when executed and delivered shall be deemed
to be an original, and all of which counterparts taken together shall constitute
but one and the same instrument.
12.6 Brokers and Agents. Each of Purchaser, on one part, and Stockholders
and Company (as a group), on another part, represents and warrants to the other
38
that it has not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
12.7 Expenses. Purchaser has and will pay the fees, expenses and
disbursements of Purchaser and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement.
Stockholders (and not Company) have and will pay the fees, expenses and
disbursements of Stockholders, Company and their agents, representatives,
financial advisers, accountants and counsel incurred in connection with the
subject matter of this Agreement.
12.8 Specific Performance; Remedies. Each party hereto acknowledges that
the other parties will be irreparably harmed and that there will be no adequate
remedy at law for any violation by any of them of any of the covenants or
agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 10 and the confidentiality
obligations set forth in Article 11. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
12.9 Notices. Any notice, request, claim, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given if delivered personally or sent by telefax
(with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to Purchaser to:
GenesisIntermedia.com, Inc.
5805 Sepulveda Blvd. 4th Floor
Van Nuys, CA 91411
Attn: Ramy El-Batrawi
Facsimile: 818-902-4301
with a required copy to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101-2212
Attn: Theodore R. Maloney, Esq.
Facsimile: (805) 568-1955
If to Worldnet to:
c/o Car Rental Direct.com, Inc.
765 The City Drive #105
Orange, CA 92868
Attn: Brian Wood
Facsimile: _______________
39
If to Stockholders or Company to:
Car Rental Direct.com, Inc.
765 The City Drive #105
Orange, CA 92868
Attn: Brian Wood
Facsimile: _______________
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
12.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of California,
without giving effect to any of the conflicts of laws provisions thereof that
would require the application of the substantive laws of any other jurisdiction.
12.11 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstances in any other jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
The preceding sentence is in addition to and not in place of the severability
provisions in Section 10.4.
12.12 Absence of Third-Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third-party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
12.13 Further Representations. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
12.14 Accounting Terms. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PURCHASER:
GENESISINTERMEDIA.COM, INC.
By:______________________________
Name:
Title:
WORLDNET:
WORLDNET RECOURSES GROUP, INC.,
a Utah corporation
By:______________________________
Name:
Title:
STOCKHOLDERS:
BRIAN WOOD
______________________________
KEENAN CHEUNG
______________________________