AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered into as
of May 23, 2003, by and among InnerSpace Corporation, a Delaware corporation
("InnerSpace"), SurfNet New Media, Inc., an Arizona corporation and wholly owned
subsidiary of InnerSpace (the "Purchaser"), and SurfNet Media Group, Inc., an
Arizona corporation (the "Company").
RECITALS
A. The Company, InnerSpace and the Purchaser believe it advisable and in their
respective best interests to effect a merger of the Company and the
Purchaser pursuant to this Agreement (the "Merger").
B. The Board of Directors and shareholders of the Company has approved this
Agreement and the Merger as required by applicable law.
C. The Boards of Directors of InnerSpace and the Purchaser and the sole
shareholder of the Purchaser have approved this Agreement and the Merger as
required by applicable law.
D. It is intended that the Merger will qualify as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
E. It is intended that certain shareholders of the Company will enter into
voting agreements with InnerSpace in connection with the Merger
concurrently herewith.
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions hereof, (a) at the
Effective Time (as defined in Section 1.3 hereof) the separate existence of
the Company shall cease and the Company shall be merged with and into the
Purchaser (the Purchaser as the surviving corporation after the Merger is
sometimes referred to herein as the "Surviving Corporation"), and (b) from
and after the Effective Time, the Merger shall have all the effects of a
merger under the laws of the State of Arizona and other applicable law.
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger pursuant to this Agreement (the "Closing") shall take
place on or before June 6, 2003 (the "Closing Date") after the satisfaction
or waiver of the conditions set forth in Articles 5 and 6 at 10:00 a.m.
local time at such location as InnerSpace and the Company shall agree.
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1.3 EFFECTIVE DATE AND TIME. On the Closing Date and subject to the terms and
conditions hereof, Articles of Merger, together with an officers'
certificate, complying with the applicable provisions of the Arizona
Corporations Code ("Arizona Law") shall be delivered for filing to the
Arizona Corporations Commission. The Merger shall become effective on the
date (the "Effective Date") and at the time (the "Effective Time") of the
filing of the Articles of Merger with the Arizona Corporations Commission
or at such other time as may be specified in the Articles of Merger as
filed. If the Arizona Corporations Commission requires any changes in the
Articles of Merger as a condition to filing or issuing its certificate to
the effect that the Merger is effective, InnerSpace, the Purchaser and the
Company will execute any necessary revisions incorporating such changes,
provided such changes are not inconsistent with and do not result in any
material change in the terms of this Agreement.
1.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The Articles of
Incorporation of the Purchaser, as in effect immediately prior to the
Effective Time, shall become the Articles of Incorporation of the Surviving
Corporation.
1.5 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of the Purchaser, as in
effect immediately prior to the Effective Time, shall become the Bylaws of
the Surviving Corporation.
1.6 DIRECTORS AND OFFICERS. At the Effective Time, the directors and officers
of both InnerSpace and the Surviving Corporation shall be the directors and
officers of the Purchaser immediately prior to the Effective Time, and such
directors and officers shall hold office in accordance with and subject to
the Articles of Incorporation and Bylaws of the Surviving Corporation. The
directors and officers of InnerSpace and the Purchaser shall be set forth
in a voting agreement, substantially in the form attached hereto as Exhibit
3.22 (the "Voting Agreement").
ARTICLE 2
MERGER CONSIDERATION AND CONVERSION OF SHARES
2.1 MERGER CONSIDERATION. For purposes of this Agreement, the term "Merger
Consideration" shall mean 3,500,000 shares of common stock, par value
$0.0001 per share, of InnerSpace ("InnerSpace Common Stock").
2.2 EXCHANGE RATIO; INTERWEST ESCROW SHARES. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders
thereof:
(a) All shares of any class of capital stock of the Company held by the
Company as treasury shares shall be canceled.
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(b) Each issued and outstanding share of Common Stock of the Company (the
"Company Common Stock"), other than shares of Company Capital Stock,
if any, for which dissenters' rights are perfected in compliance with
applicable law, shall be converted into the right to receive from
InnerSpace a number of shares of InnerSpace Common Stock determined by
dividing (i) the number of shares comprising the Merger Consideration
by (ii) the Fully Diluted Common Stock Number. The "Fully Diluted
Common Stock Number" shall mean the total number of shares of Company
Common Stock outstanding immediately prior to the Effective Time on a
fully diluted basis, which calculation assumes (x) the exercise of all
outstanding rights, warrants or options, vested or unvested, to
acquire Company Capital Stock, regardless of restrictions on exercise,
and (y) the conversion of all outstanding securities and notes
convertible at any time into Company Common Stock, regardless of
restrictions on conversion (such rights, warrants, options and
convertible securities referenced in clauses (x) and (y) being
referred to herein as "Stock Purchase Rights"). The quotient as
derived above shall be referred to herein as the "Exchange Ratio." The
number of shares of InnerSpace Common Stock to be issued to each
holder of Company Capital Stock in existence immediately prior to the
Effective Time or reserved for issuance to each holder of Stock
Purchase Rights (collectively, the "Shareholders") under this Section
2.2(b) shall be calculated by aggregating all shares of Company Common
Stock held by each such Shareholder and Stock Purchase Rights held by
each such security holder, so that such number of shares of InnerSpace
Common Stock to be issued or reserved for issuance shall be equal to
the sum of the number of shares of Company Common Stock and the shares
reserved for issuance pursuant to Stock Purchase Rights multiplied by
the Exchange Ratio, rounded up to the nearest whole number for each
fractional share that is one half or greater and rounded down to the
nearest whole number for each fractional share that is less than
one-half.
(c) Notwithstanding the foregoing, 10% of that number of shares comprising
the Merger Consideration (the "Interwest Escrow Shares") shall be
deposited in escrow (the "Interwest Escrow") with Interwest Transfer
Co., Inc. ("Interwest Escrow Agent"), to be held and administered in
accordance with an Escrow Agreement, in substantially the form of
Exhibit 2.2(c) hereto (the "Interwest Escrow Agreement"), such
Interwest Escrow Shares to be withheld and deducted, pro rata, from
the shares of InnerSpace Common Stock otherwise issuable to each
Shareholder. By approving the Merger at a special meeting of the
shareholders or by written consent or by delivering their certificates
representing shares of Company Capital Stock to Interwest in
accordance with the provisions of Section 2.3, the Shareholders shall
agree to be bound with respect to the indemnification obligations of
the Shareholders and the procedures set forth in Article 9. In the
event of fractional shares, each Shareholder shall round up such
fractional share that is one-half or greater to the nearest whole
number and deposit into escrow a full share of InnerSpace Common Stock
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for such fractional share and round down to the nearest whole number
for each fractional share that is less than one-half. The Interwest
Escrow Agent in book entry form shall hold the Interwest Escrow
Shares. Notwithstanding the escrow of the Interwest Escrow Shares,
dividends or other distributions declared and paid on such shares
shall continue to be paid by InnerSpace to the holders of Interwest
Escrow Shares and all voting rights with respect to such shares shall
inure to the benefit of and be enjoyed by such stockholders. Any
securities received by the Interwest Escrow Agent in respect of any
Interwest Escrow Shares held in escrow as a result of any stock split
or combination of shares of InnerSpace Common Stock, payment of a
stock dividend or other stock distribution in or on shares of
InnerSpace Common Stock, or change of InnerSpace Common Stock into any
other securities pursuant to or as a part of a merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation of InnerSpace, or otherwise, shall be held by the
Interwest Escrow Agent as, and shall be included within the definition
of, Interwest Escrow Shares. The Interwest Escrow Shares shall be
available to satisfy any indemnification obligations pursuant to
Article 9 for the Survival Period (as defined in Section 9.1).
(d) Each outstanding option to purchase shares of Company Common Stock or
stock purchase right set forth on Schedule 2.2(d), whether or not
vested or exercisable (each, an "Option" or "Stock Purchase Right"),
shall be assumed by InnerSpace and shall constitute an option to
acquire, on the same vesting terms, and on substantially the same
other terms and conditions as were applicable under such assumed
Option or Stock Purchase Right, that number of shares of InnerSpace
Common Stock equal to the product of the Common Stock Exchange Ratio
and the number of shares of Company Common Stock subject to such
Option or Stock Purchase Right rounded up to the nearest whole number
for each fractional share that is one half or greater and rounded down
to the nearest whole number for each fractional share that is less
than one-half, at a price per share(rounded to the nearest $0.01)
equal to the aggregate exercise price for the shares of Company Common
Stock subject to such Option or Stock Purchase Right divided by the
number of full shares of InnerSpace Common Stock deemed to be
purchasable pursuant to such Option or Stock Purchase Right; provided,
however, that in the case of any Option to which Section 421 of the
Code applies by reason of its qualification under Section 422 of the
Code, the option price, the number of shares purchasable pursuant to
such Option and the terms and conditions of exercise of such Option
shall be determined in order to comply with Section 424 of the Code.
(e) Holders of shares of Company Capital Stock who have complied with all
the requirements for perfecting dissenters' rights, as required under
Arizona Law, shall be entitled to their rights under Arizona Law with
respect to such shares (the "Dissenting Shares"). Notwithstanding the
foregoing, if any holder of Dissenting Shares shall effectively
withdraw or lose (through failure to perfect or otherwise) the right
to dissent, then, as of the later of the Effective Time and the
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occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive the shares of
InnerSpace Common Stock to which such holder is then entitled under
this Agreement and Arizona Law, without interest thereon and upon
surrender of the certificate representing such shares. Notwithstanding
any provision of this Agreement to the contrary, any Dissenting Shares
held by a Shareholder who has perfected dissenter's rights for such
shares in accordance with Arizona Law shall not be converted in
InnerSpace Common Stock pursuant to this Section 2.2.
(f) If, prior to the Effective Time, InnerSpace recapitalizes through a
split-up of its outstanding shares of capital stock into a greater
number, or a combination of its outstanding shares of capital stock
into a lesser number, reorganizes, reclassifies or otherwise changes
its outstanding shares of capital stock into the same or a different
number of shares of other classes of capital stock, or declares a
dividend on its outstanding shares of capital stock payable in shares
or securities convertible into shares, the number of shares of
InnerSpace Common Stock into which the shares of Company Capital Stock
are to be converted, and the number of shares of InnerSpace Common
Stock issuable upon the exercise of each assumed Option, will be
adjusted appropriately so as to maintain the proportionate interests
of the holders of the Company Capital Stock and Options and the
holders of shares of capital stock of InnerSpace.
2.3 EXCHANGE OF CERTIFICATES
(a) As soon as practicable after the Effective Date, Interwest, as
exchange agent (the "Exchange Agent"), shall make available, and each
Shareholder will be entitled to receive, in no event more than five
business days after surrender to the Exchange Agent of a letter of
transmittal attached hereto as Exhibit 2.3(a) (the "Letter of
Transmittal") together with documents delivered as required therein,
including certificates representing shares of Company Capital Stock
for cancellation, certificates representing the number of shares of
InnerSpace Common Stock that such Shareholder is entitled to receive
pursuant to Section 2.2 hereof; provided, however, that the Interwest
Escrow Shares shall (i) be retained by Interwest in accordance with
the provisions of the Interwest Escrow Agreement, (ii) not be issued
in certificated form and (iii) be held by Interwest in book entry
form. In the event that any certificates representing shares of
Company Capital Stock shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Shareholder claiming
such certificate to be lost, stolen or destroyed, InnerSpace shall
issue in exchange for such lost, stolen or destroyed certificate the
shares of InnerSpace Common Stock that such Shareholder is entitled to
receive pursuant to Section 2.2 hereof; provided, however, that
InnerSpace may in its discretion and as a condition precedent to the
issuance thereof, require such Shareholder to provide InnerSpace with
an indemnity agreement against any claim that may be made against
InnerSpace with respect to the certificate alleged to have been lost,
stolen or destroyed. The shares of InnerSpace Common Stock that each
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Shareholder shall be entitled to receive in connection with the Merger
pursuant to Section 2.2 and the Interwest Escrow Shares shall be
deemed to have been issued at the Effective Time. No interest shall
accrue on the Merger Consideration. If the Merger Consideration (or
any portion thereof) is to be delivered to any person other than the
person in whose name the certificate or certificates representing
shares of Company Capital Stock surrendered in exchange therefor is
registered, it shall be a condition to such exchange that the person
requesting such exchange shall pay to InnerSpace any transfer or other
taxes required by reason of the payment of the Merger Consideration to
a person other than the registered holder of the certificate or
certificates so surrendered, or shall establish to the satisfaction of
InnerSpace that such tax has been paid or is not applicable.
Notwithstanding anything to the contrary, neither InnerSpace nor any
other party hereto shall be liable to a holder of shares of Company
Capital Stock for any Merger Consideration delivered to a public
official pursuant to applicable law, including, without limitation,
abandoned property, escheat and similar laws.
(b) InnerSpace or the Exchange Agent will be entitled to deduct and
withhold from the Merger Consideration such amounts as InnerSpace or
the Exchange Agent are required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld,
such amounts will be treated for all purposes of this Agreement as
having been paid to the former holder of the Company Capital Stock in
respect of whom such deduction and withholding were made by InnerSpace
or the Exchange Agent.
2.4 NO FURTHER TRANSFERS. After the Effective Time, there shall be no transfers
of any shares of Company Capital Stock on the stock transfer books of the
Surviving Corporation. If, after the Effective Time, certificates formerly
representing shares of Company Capital Stock are presented to the Surviving
Corporation, they shall be forwarded to InnerSpace and be canceled and
exchanged in accordance with this Section 2.4, subject to applicable law in
the case of Dissenting Shares.
2.5 NO FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of InnerSpace Common Stock shall be issued by virtue of the Merger,
and no dividend, stock split or other distribution with respect to
InnerSpace Common Stock shall relate to any such fractional interest, and
any such fractional interests shall not entitle the owner thereof to vote
or to any rights of a security holder.
2.6 SHAREHOLDER REPRESENTATIVE
(a) By approving the Merger at a special meeting of shareholders or by
written consent of the shareholders, each Shareholder shall have
irrevocably authorized and appointed the chief executive officer of
the Surviving Corporation or if there is no chief executive officer
the next highest ranking officer ("Shareholder Representative"), with
full power of substitution and resubstitution, as such Shareholder's
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representative and true and lawful attorney-in-fact and agent to act
in such Shareholder's name, place and stead as contemplated by Article
9 and to execute in the name and on behalf of such Shareholder the
Interwest Escrow Agreement and any other agreement, certificate,
instrument or document to be delivered by such Shareholder in
connection with the Interwest Escrow Agreement.
(b) The Shareholder Representative shall not be liable for any act done or
omitted hereunder or under the Interwest Escrow Agreement as the
Shareholder Representative while acting in good faith and in the
exercise of reasonable judgment. The Shareholders on whose behalf the
Interwest Escrow Shares were contributed to the Interwest Escrow shall
indemnify the Shareholder Representative and hold the Shareholder
Representative harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the
Shareholder Representative and arising out of or in connection with
the acceptance or administration of the Shareholder Representative's
duties hereunder and under the Interwest Escrow Agreement, including
the reasonable fees and expenses of any legal counsel retained by the
Shareholder Representative.
(c) A decision, act, consent or instruction of the Shareholder
Representative shall constitute a decision of the Shareholders and
shall be final, binding and conclusive upon the Shareholders; and the
Interwest Escrow Agent and the Indemnified Parties (as defined herein)
may rely upon any such decision, act, consent or instruction of the
Shareholder Representative as being the decision, act, consent or
instruction of the Shareholders. The Interwest Escrow Agent and the
Indemnified Parties are hereby relieved from any liability to any
person for any acts done by them in accordance with such decision,
act, consent or instruction of the Shareholder Representative.
2.7 TAX FREE REORGANIZATION
(a) Except as otherwise required by the Internal Revenue Service (the
"IRS") pursuant to a determination (as defined in Section 1313 of the
Code) or otherwise, or by applicable law, the parties shall not take a
position on any tax returns inconsistent with the treatment of the
Merger for tax purposes as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(D) of
the Code, in the case of the merger of the Company with and into the
Purchaser with the Purchaser being the surviving corporation, by
reason of Section 368(a)(2)(E) of the Code, in the case of any merger
of the Purchaser with and into the Company with the Company being the
surviving corporation, or by reason of Section 368(a)(1)(A) itself, in
the case of the merger of the Company with and into InnerSpace.
(b) In addition, InnerSpace represents, solely for tax purposes, now, and
as of the Closing Date, the following: (i) prior to the Merger, it
will be in "control" of Purchaser within the meaning of Section 368(c)
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of the Code; (ii) except for reorganizations under Section
368(a)(1)(F) of the Code or a merger with InnerSpace, it has no
present plan or intention to liquidate the Company or to merge the
Company with or into another corporation, to sell, distribute or
otherwise dispose of the Company Capital Stock, except for transfers
of stock described in Section 368(a)(2)(C) of the Code or Treasury
Regulation Section 1.368-2(k)(2), or to cause the Company to sell or
otherwise dispose of any of its assets except for dispositions made in
the ordinary course of business or transfers described in Section
368(a)(2)(C) or Treasury Regulation Section 1.368-2(k)(2); and (iii)
that it presently intends to continue the Company's historic business
or use a significant portion of the Company's business assets in
business in a manner that satisfies the continuity of business
enterprise requirement set forth in Treasury Regulation Section
1.368-1(d). Notwithstanding the foregoing, neither InnerSpace nor the
Purchaser makes any representation or warranty with respect to any Tax
consequences to the Company or its shareholders arising under this
Agreement or as a result of the transactions contemplated hereby.
(c) The Company represents that it has not taken any action that would
prevent the Merger from meeting the requirement under Section
368(a)(2)(E) of the Code that "substantially all of the assets" of the
Company must be acquired in the Merger.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as is otherwise set forth in the Schedules attached hereto, and in order
to induce InnerSpace and the Purchaser to enter into and perform this Agreement
and the other agreements and certificates that are required to be executed
pursuant to this Agreement (collectively, the "Operative Documents"), the
Company represents and warrants to InnerSpace and the Purchaser as of the date
of this Agreement and as of the Closing as follows in this Article 3.
3.1 ORGANIZATION. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Arizona. The Company
has all requisite corporate power and authority to own, operate and lease
its properties and assets, to carry on its business as now conducted and as
currently proposed to be conducted, and to enter into and perform its
obligations under this Agreement and the other Operative Documents to which
the Company is a party, and to consummate the transactions contemplated
hereby and thereby. The Company is duly qualified and licensed as a foreign
corporation to do business and is in good standing in each jurisdiction in
which the character of the Company's properties occupied, owned or held
under lease or the nature of the business conducted by the Company makes
such qualification or licensing necessary, except where the failure to be
so qualified or in good standing would not have a Company Material Adverse
Effect. For purposes of this Agreement, the term "Company Material Adverse
Effect" shall mean any change, event or effect that is or is reasonably
likely to be materially adverse to the Company's business, operations,
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assets, liabilities, condition (financial or otherwise) or prospects;
provided, however, that a Company Material Adverse Effect shall not include
any change, event or effect that relates to or results from (i) the
announcement or other disclosure or consummation of the transactions
contemplated by this Agreement; (ii) a general economic downturn; or (iii)
an economic downturn in the Company's industry which does not
disproportionately affect the Company.
3.2 ENFORCEABILITY. The Company has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each
of the other Operative Documents to which it is a party and each of the
certificates, instruments and documents executed or delivered by it
pursuant to the terms of this Agreement. All corporate action on the part
of the Company and its officers, directors and shareholders necessary for
the authorization, execution, delivery and performance of this Agreement
and the other Operative Documents to which the Company is a party, the
consummation of the Merger, and the performance of all the Company's
obligations under this Agreement and the other Operative Documents to which
the Company is a party has been taken or will be taken as of or prior to
the Effective Time. All such corporate action on the part of the Company's
Board of Directors has been taken. This Agreement has been, and each of the
other Operative Documents to which the Company is a party at the Closing
will have been, duly executed and delivered by the Company, and this
Agreement is, and each of the other Operative Documents to which the
Company is a party will be at the Closing, a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors
generally, (b) rules of law governing specific performance, injunctive
relief and other equitable remedies, and (c) the enforceability of
provisions requiring indemnification in connection with the offering,
issuance or sale of securities.
3.3 CAPITALIZATION
(a) The authorized capital stock of the Company consists of 10,000,000
shares of no par value Company Common Stock.
(b) As of the date of this Agreement, the issued and outstanding capital
stock of the Company consisting solely of Company Common Stock is
7,766,653 shares, all of which shares are held of record on the date
of this Agreement and, to the knowledge of the Company, beneficially
by the Shareholders as set forth on Schedule 3.3(b). Such outstanding
shares are, and immediately prior to the Closing will be duly
authorized and validly issued, fully paid and nonassessable, and
issued in compliance with all applicable federal and state securities
laws. True and correct copies of the stock records of the Company,
showing all issuances and transfers of shares of capital stock of the
Company since inception, have been provided to InnerSpace.
(c) As of the date of this Agreement, other than the Options and other
Stock Purchase Rights set forth on Schedule 2.2(d) reflecting 863,961
shares of Company Common Stock reserved for issuance, there are no
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outstanding rights of first refusal or offer, preemptive rights, other
Stock Purchase Rights or other agreements, either directly or
indirectly, for the purchase or acquisition from the Company or any of
its shareholders of any shares of Company Capital Stock or any
securities convertible into or exchangeable for shares of Company
Capital Stock. Schedule 2.2(d) accurately reflects the number of such
Options and other Stock Purchase Rights outstanding as of the date of
this Agreement, the grant or issue dates, vesting schedules and
exercise or conversion prices thereof, and, in each case, the
identities of the holders and an indication of their relationships to
the Company (if any exist other than as a security holder). The
Company has delivered to InnerSpace or its counsel true and correct
copies of the stock option agreements relating to Options granted
thereunder, all other agreements with respect to such other Stock
Purchase Rights, and all material deviations therefrom. Schedule
2.2(d) also identifies all Options or other Stock Purchase Rights that
have been offered in connection with any employee or consulting
agreement but that, as of the date hereof, have not been issued or
granted. All Options and other Stock Purchase Rights have been granted
or issued at fair market value, as determined by the Company's Board
of Directors at the date of grant or issuance.
(d) The Company is not a party or subject to any agreement or
understanding, and, to the knowledge of the Company, there is no
agreement or understanding between any Persons that affects or relates
to the voting or giving of written consents with respect to any
securities of the Company or the voting by any director of the
Company.
(e) No Shareholder or any affiliate thereof is indebted to the Company,
and the Company is not indebted to any Shareholder or any affiliate
thereof.
(f) The Company is not under any contractual or other obligation to
register any of its presently outstanding securities or any of its
securities that may hereafter be issued.
(g) The Company has not granted any rights of refusal or co-sale.
3.4 SUBSIDIARIES AND AFFILIATES. The Company does not own and has not in the
past owned, directly or indirectly, any ownership, equity, or voting
interest in, or otherwise control or controlled, any corporation,
partnership, limited liability company, joint venture or other entity, and
has no agreement or commitment to purchase any such interest.
3.5 NO APPROVALS; NO CONFLICTS. The execution, delivery and performance by the
Company of this Agreement and the other Operative Documents to which the
Company is a party and the consummation of the transactions contemplated
hereby and thereby will not (a) constitute a violation (with or without the
giving of notice or lapse of time, or both) of any provision of law or any
judgment, decree, order, regulation or rule of any court or other
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governmental authority applicable to the Company, (b) require any consent,
approval or authorization of, or declaration, filing or registration with,
any person, corporation, partnership, joint venture, association,
organization, other entity or governmental or regulatory authority (a
"Person"), except (i) compliance with applicable securities laws, (ii) the
filing of all documents necessary to consummate the Merger with the
Delaware Secretary of State and the Arizona Corporations Commission, (iii)
the approval by the Shareholders of the transactions contemplated hereby,
as provided under Arizona Law and the Articles of Incorporation and Bylaws
of the Company, and (iv) the filing of all documents necessary to roll-up
each Company Subsidiary, (c) result in a default (with or without the
giving of notice or lapse of time, or both) under, or acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other
restriction, encumbrance, obligation or liability to which the Company is a
party or by which it is bound or to which any assets of the Company are
subject, (d) result in the creation of any Encumbrance (as defined in
Section 3.9(d)) upon any material assets of the Company or, to the
knowledge of the Company, upon any outstanding shares or other securities
of the Company, (e) conflict with or result in a breach of or constitute a
default under any provision of the Articles of Incorporation or Bylaws of
the Company, or (f) invalidate or adversely affect any permit, license or
authorization currently material to the conduct of the business of the
Company.
3.6 FINANCIAL STATEMENTS. The Company will use its best efforts to deliver by
May 31, 2003 to InnerSpace (a) audited balance sheets and statements of
income and expense of the Company as of or for the fiscal years ended
February 28, 2002 and 2001, and (b) an unaudited balance sheet, statement
of income and expense and statement of cash flow of the Company as of and
for the three-month period ended February 28, 2003. All the foregoing
financial statements are herein referred to as the "Financial Statements."
The balance sheet of the Company as of February 28, 2003 is herein referred
to as the "Company Balance Sheet." The Financial Statements have been
prepared in conformity with generally accepted accounting principles in the
United States ("GAAP") on a basis consistent with prior accounting periods
and fairly present the financial position, results of operations and
changes in financial position of the Company as of the dates and for the
periods indicated. The Company has no liabilities or obligations of any
nature (absolute, contingent or otherwise) that are not fully reflected or
reserved against in the Company Balance Sheet and that would be required
under GAAP to be reflected or reserved, except liabilities or obligations
incurred since the date of the Company Balance Sheet in the ordinary course
of business and consistent with past practice that are not in excess of
$5,000 in the aggregate or $1,000 individually. The Company maintains
standard systems of accounting that are adequate for its business. The
Company is not a guarantor, indemnitor, surety or other obligor of any
indebtedness of any other Person. The Company's practices with respect to
capitalizing software development costs, as reflected in the Financial
Statements, are reasonable, in accordance with industry standards and
consistent with the advice of the Company's independent accountants.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except (i) as set forth in Schedule
3.7 and (ii) for transactions specifically contemplated in this Agreement,
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since the date of the Company Balance Sheet, neither the Company nor any of
its officers or directors in their representative capacities on behalf of
the Company have:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course
of the Company's business as currently conducted and as proposed to be
conducted;
(b) forgiven or canceled any indebtedness or waived any claims or rights
of material value (including, without limitation, any indebtedness
owing by any shareholder, officer, director, employee or affiliate of
the Company);
(c) granted, other than in the ordinary course of business and consistent
with past practice, any increase in the compensation of directors,
officers, employees or consultants who already held such positions at
that time (including any such increase pursuant to any employment
agreement or bonus, pension, profit-sharing, lease payment or other
plan or commitment) or any increase in the compensation payable or to
become payable to any director, officer, employee or consultant;
(d) suffered any change having or reasonably likely to have a Company
Material Adverse Effect;
(e) borrowed or agreed to borrow any funds, incurred or become subject to,
whether directly or by way of assumption or guarantee or otherwise,
any obligations or liabilities (absolute, accrued, contingent or
otherwise) individually in excess of $1,000 or in excess of $10,000 in
the aggregate, except liabilities and obligations (i) that are
incurred in the ordinary course of business and consistent with past
practice or (ii) that would not be required to be reflected or
reserved against in a balance sheet prepared in accordance with GAAP,
or increased, or experienced any change in any assumptions underlying
or methods of calculating, any bad debt, contingency or other
reserves;
(f) paid, discharged or satisfied any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than
the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of claims, liabilities and
obligations reflected or reserved against in the Company Balance Sheet
or incurred in the ordinary course of business and consistent with
past practice since the date of the Company Balance Sheet, or prepaid
any obligation having a fixed maturity of more than 90 days from the
date such obligation was issued or incurred;
(g) knowingly permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or
charge, except in the ordinary course of business and consistent with
past practice;
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(h) purchased or sold, transferred or otherwise disposed of any of its
material properties or assets (real, personal or mixed, tangible or
intangible);
(i) disposed of or permitted to lapse any rights to the use of any
trademark, trade name, patent or copyright, or disposed of or
disclosed to any Person without obtaining an appropriate
confidentiality agreement from any such Person any trade secret,
formula, process or know-how not theretofore a matter of public
knowledge;
(j) made any single capital expenditure or commitment in excess of $5,000
for additions to property, plant, equipment or intangible capital
assets or made aggregate capital expenditures in excess of $20,000 for
additions to property, plant, equipment or intangible capital assets;
(k) made any change in accounting methods or practices or internal control
procedure;
(l) issued any capital stock or other securities, or declared, paid or set
aside for payment any dividend or other distribution in respect of its
capital stock, or redeemed, purchased or otherwise acquired, directly
or indirectly, any shares of capital stock or other securities of the
Company, or otherwise permitted the withdrawal by any of the holders
of Company Capital Stock of any cash or other assets (real, personal
or mixed, tangible or intangible), in compensation, indebtedness or
otherwise, other than payments of compensation in the ordinary course
of business and consistent with past practice;
(m) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets (real, personal or mixed, tangible or
intangible) to any of the Company's shareholders, officers, directors
or employees or any affiliate of any of the Company's shareholders,
officers, directors or employees, except compensation paid to officers
and employees at rates not exceeding the rates of compensation paid
during the fiscal year last ended and except for advances for travel
and other business-related expenses; or
(n) agreed, whether in writing or otherwise, to take any action described
in this Section 3.7.
3.8 TAXES
(a) (i) All Tax Returns (as defined below) required to be filed by or on
behalf of the Company, to the knowledge of the Company have been filed
on a timely basis with the appropriate governmental authority in all
jurisdictions in which such Tax Returns are required to be filed, and,
to the Knowledge of the Company, all Taxes (as defined below) of the
Company (whether or not reflected on any Tax Return) have been fully
and timely paid; (iii) no waivers of statutes of limitation have been
given or requested with respect to the Company in connection with any
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Tax Returns covering the Company with respect to any Taxes payable by
it; (iv) no taxing authority in a jurisdiction where the Company does
not file Tax Returns has made a claim, assertion, or threat to the
Company that the Company is or may be subject to taxation by such
jurisdiction; (v) the Company has duly and timely withheld from
employee salaries, wages and other compensation and paid over to the
appropriate governmental authority all amounts required to be so
withheld and paid over for all periods under all applicable laws; and
no amounts have been or would be required to be withheld with respect
to the lapse of restrictions on Company Capital Stock; (vi) there are
no liens with respect to Taxes on any of the Company's property or
assets other than liens for current Taxes not yet payable; (vii) there
are no Tax rulings, requests for rulings, or closing agreements
relating to the Company which could affect the liability for Taxes or
the amount of taxable income of the Company for any period (or portion
of a period) after the date hereof; and (viii) any adjustment of Taxes
of the Company made by the IRS in any examination which is required to
be reported to the appropriate state, local or foreign taxing
authorities has been reported, and any additional Taxes due with
respect thereto have been paid. "Taxes" means all foreign, federal,
state, county or local taxes, charges, fees, levies, imposts, duties,
and other assessments, including, but not limited to, any income,
alternative minimum or add-on tax, estimated, gross income, gross
receipts, sales, use, transfer, transactions, intangibles, ad valorem,
value-added, franchise, registration, title, license, capital, paid-up
capital, profits, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, real property, recording, personal
property, federal highway use, commercial rent, environmental
(including, but not limited to, taxes under Section 59A of the Code)
or windfall profit tax, custom, duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with
any interest, penalties or additions to tax; and "Tax" means any of
the foregoing Taxes. "Tax Returns" means any return, declaration,
report, claim or refund, information return, statement, or other
similar document relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
(b) There is no dispute or claim concerning any Tax liability of the
Company either (i) claimed or raised by any authority in writing or
(ii) as to which any of the directors and officers (and employees
responsible for Tax matters) of the Company have knowledge based on
contact or correspondence with any agent of such authority.
3.9 PROPERTY.
(a) The Company owns no real property other than the leasehold interests
described on Schedule 3.9(a), which contains a complete and accurate
list of all real property owned, leased or currently being used by the
Company (the "Real Property"). The Company has delivered to InnerSpace
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or its counsel true and complete copies of all written leases,
subleases, rental agreements, contracts of sale, tenancies or licenses
relating to the Real Property and written summaries of the terms of
any oral leases, subleases, rental agreements, contracts of sale,
tenancies or licenses to which the Real Property is subject.
(b) The personal property of the Company is located on the premises at
0000 X. Xxxxxxxxxx Xxxxx, Xxxxx 0, Xxxxx, Xxxxxxx (the "Personal
Property"). The Company has delivered to InnerSpace or its counsel
true and complete copies of all leases, subleases, rental agreements,
contracts of sale, tenancies or licenses to which the Personal
Property is subject.
(c) The Real Property and the Personal Property include all the properties
and assets (whether real, personal or mixed, tangible or intangible)
(other than, in the case of the Personal Property, property rights
with an individual value of less than $500 and the Technology and IP
Rights) reflected in the Company Balance Sheet (except for such
properties or assets sold since the date of the Company Balance Sheet
in the ordinary course of business and consistent with past practice)
and all the properties and assets purchased by the Company since the
date of the Company Balance Sheet (other than, in the case of the
Personal Property, property rights with an individual value of less
than $500 and the Technology and the IP Rights). The Real Property and
the Personal Property include all material property used in the
business of the Company, other than the Technology and IP Rights. The
Company's offices and other structures and its Personal Property are
of a quality consistent with industry standards, are in good operating
condition and repair, normal wear and tear excepted, are adequate for
the uses to which they are being put, and comply in all material
respects with applicable safety and other laws and regulations.
(d) The Company's leasehold interest in each parcel of the Real Property
is free and clear of all liens, mortgages, pledges, deeds of trust,
security interests, charges, encumbrances and other adverse claims or
interests of any kind (each, an "Encumbrance"), except for
Encumbrances related to Taxes not yet due and payable. Each lease of
any portion of the Real Property is valid, binding and enforceable in
accordance with its terms against the parties thereto and, to the
Company's knowledge, any other Person with an interest in such Real
Property, the Company has performed in all material respects all
obligations imposed upon it thereunder, and neither the Company nor,
to the Company's knowledge, any other party thereto is in default
thereunder, nor is there any event which with notice or lapse of time,
or both, would constitute a default thereunder by the Company or, to
the Company's knowledge, by any other party. The Company has not
granted any lease, sublease, tenancy or license of, or entered into
any rental agreement or contract of sale with respect to, any portion
of the Real Property.
(e) The Personal Property is free and clear of all Encumbrances and, other
than leased Personal Property, the Company owns such Personal
Property. Each lease, license, rental agreement, contract of sale or
15
other agreement to which the Personal Property is subject is valid,
binding and enforceable in accordance with its terms against the
parties thereto, the Company has performed in all material respects
all obligations imposed upon it thereunder, and neither the Company
nor, to the Company's knowledge, any other party thereto is in default
thereunder, nor is there any event which with notice or lapse of time,
or both, would constitute a default by the Company or, to the
Company's knowledge, any other party thereunder. The Company has not
granted any lease, sublease, tenancy or license of any portion of the
Personal Property, except in the ordinary course of business.
3.10 CONTRACTS
3.10.1 MATERIAL CONTRACTS. To the knowledge of the Company, Schedule 3.10.1
contains a complete and accurate list of all contracts, agreements and
understandings, oral or written, to which the Company is currently a
party or by which the Company is currently bound providing for
potential payments by or to the Company in excess of $1,000,
including, without limitation, security agreements, license
agreements, software development agreements, distribution agreements,
joint venture agreements, reseller agreements, credit agreements and
instruments relating to the borrowing of money (collectively, the
"Material Contracts"). All Material Contracts are valid, binding and
enforceable in accordance with their terms against the Company and, to
the Company's knowledge, each other party thereto (except as to the
effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law
governing specific performance, injunctive relief and other equitable
remedies, and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of
securities), and are in full force and effect, the Company has
performed in all material respects all obligations imposed on it
thereunder, and neither the Company nor, to the Company's knowledge,
any other party thereto is in default thereunder, nor to the Company's
knowledge is there any event which with notice or lapse of time, or
both, would constitute a default by the Company or, to the Company's
knowledge, any other party thereunder. True and complete copies of
each written Material Contract (or written summaries of the terms of
any oral Material Contract) have been delivered to InnerSpace or its
counsel by the Company. Except as set forth on Schedule 3.10.1, the
Company has no:
(a) contracts with directors, officers, shareholders, employees, agents,
consultants, advisors, salespeople, sales representatives,
distributors or dealers that cannot be canceled by the Company within
30 days' notice without liability, penalty or premium, any agreement
or arrangement providing for the payment of any bonus or commission
based on sales or earnings, or any compensation agreement or
arrangement affecting or relating to former employees of the Company;
16
(b) employment agreement, whether express or implied, or any other
agreement for services that contains severance or termination pay
liabilities or obligations;
(c) noncompetition agreement or other arrangement that would prevent the
Company from carrying on its business anywhere in the world;
(d) notice that any party to a Material Contract intends to cancel,
terminate or refuse to renew such contract (if such contract is
renewable);
(e) material dispute with any of its suppliers, customers, distributors,
licensors or licensees;
(f) product distribution agreement, development agreement, or license
agreement as licensor or licensee (except for standard nonexclusive
software licenses granted to end-user customers in the ordinary course
of business, the form of which has been provided to InnerSpace, or
standard licenses purchased by the Company for off-the-shelf
software);
(g) joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons;
(h) instrument evidencing indebtedness for borrowed money by way of a
direct loan, sale of debt securities, purchase money obligation,
conditional sale or guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business, and except
as disclosed in the Financial Statements or Schedule 3.10.1(h); and
(i) agreements or commitments to provide indemnification.
3.10.2 REQUIRED CONSENTS. The execution and delivery of this Agreement and
the performance of the obligations of the Company hereunder will not
constitute a default under any Material Contract and do not require
the consent of any other party to any Material Contract, except for
those consents listed on Schedule 3.10.2, all of which will be
obtained on or prior to the Closing.
3.11 CLAIMS AND LEGAL PROCEEDINGS. Except as set forth in Schedule 3.11, there
are no claims, actions, suits, arbitrations, investigations or proceedings
pending or involving or, to the Company's knowledge, threatened against the
Company before or by any court or governmental or nongovernmental
department, commission, board, bureau, agency or instrumentality, or any
other Person. To the Company's knowledge, there is no valid basis for any
claim, action, suit, arbitration, proceeding or investigation before or by
any Person. There are no outstanding or unsatisfied judgments, orders,
decrees or stipulations to which the Company is a party.
3.12 LABOR AND EMPLOYMENT MATTERS.
17
3.12.1 LABOR DISPUTES. There are no material labor disputes, employee
grievances or disciplinary actions pending or, to the Company's
knowledge, threatened against or involving the Company or any of its
present or former employees. The Company is not engaged in any unfair
labor practice and has no liability for any arrears of wages or Taxes
or penalties for failure to comply with any such provisions of law. To
the Company's knowledge, no employee (or person performing similar
functions) of the Company is in material violation of any employment
agreement, noncompetition agreement, patent disclosure agreement,
invention assignment agreement, proprietary information agreement or
other contract or agreement relating to the relationship of such
employee with the Company or any other party.
3.12.2 COMPENSATION AMOUNTS AND GROUP INSURANCE. Schedule 3.12.2 lists (a)
the names and current compensation amounts of all directors and
officers of the Company; (b) the names of and wage rates for all
nonsalaried and nonofficer salaried employees of the Company by
classification, and all union contracts (if any); (c) all group
insurance programs in effect for employees of the Company; and (d) the
names and current compensation packages of all independent contractors
and consultants of the Company. The Company is not in default with
respect to any of its obligations referred to in clause (b) above and
has no, and will not incur any, material obligation or liability for
severance or back pay owed through or by virtue of the Merger. All
employees of the Company are employed on an "at will" basis.
3.13 INTELLECTUAL PROPERTY
3.13.1 GENERAL. The Company owns or is licensed or otherwise possesses the
right to use the following as required to conduct its business as now
conducted and as proposed to be conducted except where the failure to
own, license or possess the right to use would not have a Company
Material Adverse Effect, individually or in the aggregate: (a) all
products, tools, computer programs, specifications, source code,
object code, graphics, devices, techniques, algorithms, methods,
processes, procedures, packaging, trade dress, formulae, drawings,
designs, improvements, discoveries, concepts, user interfaces, "look
and feel," software, development and other tools, content, inventions
(whether or not patentable or copyrightable and whether or not reduced
to practice), designs, logos, themes, know-how, concepts and other
technology that are now, or during the two years prior to the date of
this Agreement have been, developed, produced, used, marketed or sold
by the Company (collectively, the "Technology-Related Assets"); and
(b) all intellectual property and other proprietary rights in the
Technology-Related Assets, including, without limitation, all trade
names, trademarks, domain names, service marks, logos, brand names and
other identifiers, trade secrets, copyrights, and domestic and foreign
letters patent, and the registrations, applications, renewals,
extensions and continuations (in whole or in part) thereof, all
goodwill associated therewith, and all rights and causes of action for
infringement, misappropriation, misuse, dilution or unfair trade
practices associated therewith.
18
3.13.2 COMPANY TECHNOLOGY. Schedule 3.13.2 sets forth a list that is
complete in all material respects of all products and tools developed,
produced, used, marketed or sold by the Company since its inception
(collectively, the "Products"). Except for the Third Party
Technologies (as defined in Section 3.13.3), the Company owns all
right, title and interest in and to the following technology used to
conduct its business as currently conducted or as proposed to be
conducted (collectively, the "Technology"), free and clear of all
Encumbrances (other than interests in licenses granted by the Company,
all of which are either disclosed in Schedule 3.13.2 or, under the
terms of this Agreement, are not required to be so disclosed): (a) the
Products, together with any and all codes, techniques, software tools,
formats, designs, user interfaces, content and "look and feel"
embodied therein prior to the date of Closing; (b) any and all
updates, enhancements, corrections, modifications, improvements and
new releases developed or obtained by or for the Company to the items
set forth in clause (a) above prior to the date of Closing; (c) any
and all technology and work in progress developed or obtained by or
for the Company related to the items set forth in clauses (a) and (b)
above prior to the date of Closing; and (d) all inventions,
discoveries, processes, designs, trade secrets, know-how and other
confidential or proprietary information developed or obtained by or
for the Company related to the items set forth in clauses (a), (b) and
(c) above prior to the date of Closing. The Technology, excluding the
Third Party Technologies, is sometimes referred to herein as the
"Company Technology."
3.13.3 THIRD PARTY TECHNOLOGY. Schedule 3.13.3 sets forth a list that is
complete in all material respects, subject to the exception(s) set
forth therein, of all Technology used in the Company's business as
currently conducted or as proposed to be conducted for which the
Company does not own all right, title and interest (collectively, the
"Third Party Technologies"), and all material license agreements or
other material contracts pursuant to which the Company has the right
to use (in the manner used by the Company in its business as currently
conducted or as proposed to be conducted) the Third Party Technologies
(the "Third Party Licenses"), indicating, with respect to each of the
Third Party Technologies listed therein, the licensor thereof, if any,
and the Third Party License applicable thereto. The Company has the
right to use (to the full extent permitted by the terms of such
licenses) all Third Party Technology that is used in the Company's
business as currently conducted or as proposed to be conducted. All
Third Party Licenses are in full force and effect and are valid and
binding against the Company and, to the Company's knowledge, are valid
and binding against each other party thereto (but, with respect to
such other parties only, subject to bankruptcy and similar laws,
general principles of equity or similar legal theories of
unenforceability), and the Company and, to the Company's knowledge,
each other party thereto have performed in all material respects their
obligations thereunder as required as of the date of the Closing, and
neither the Company nor, to the Company's knowledge, any other party
thereto is in material default thereunder, nor to the Company's
knowledge has there occurred any event or circumstance which with
19
notice or lapse of time or both would constitute a material default or
material event of default on the part of the Company or, to the
Company's knowledge, any other party thereto or give to any other
party thereto the right to terminate or modify any Third Party License
for default, except where the failure to have the right to use the
Third Party Technology or the failure of any Third Party License to be
in full force and effect, valid, or binding, or the occurrence of any
event of default or other event giving the other party the right to
terminate or modify any Third Party License for default would not have
a Company Material Adverse Effect, individually or in the aggregate.
The Company has not received notice that any party to any Third Party
License intends to cancel, terminate or elect not to renew (if
renewable by its terms) such Third Party License, except where the
occurrence of such cancellation, termination or non-renewal would not
have a Company Material Adverse Effect, individually or in the
aggregate.
3.13.4 TRADEMARKS. Schedule 3.13.4 sets forth a list that is complete in
all material respects of (a) all trademarks, trade names, brand names,
service marks, logos or other identifiers used on or in connection
with Products or otherwise used by the Company in its business as
currently conducted or as proposed to be conducted and which are owned
or claimed to be owned by the Company (collectively, the "Company
Marks"), and (b) all trademarks, trade names, brand names, service
marks, logos or other identifiers used on or in connection with
Products or otherwise used by the Company in its business as currently
conducted or as proposed to be conducted and which are not owned or
claimed to be owned by the Company (the "Licensed Marks"). The Company
has full legal and beneficial ownership, free and clear of any
Encumbrances (other than interests in licenses granted by the Company,
all of which are either disclosed under the terms of this Agreement,
are not required to be so disclosed), of all rights conferred by use
of the Company Marks in connection with the Products or otherwise in
the Company's business as currently conducted and, as to those Company
Marks that have been registered by or for the Company in the United
States Patent and Trademark Office, by federal registration of the
Company Marks, except where the failure to own or be free and clear of
Encumbrances would not have a Company Material Adverse Effect,
individually or in the aggregate. The Company has the right to use the
Licensed Marks as required to conduct its business as now conducted,
except where the failure to have such right would not have a Company
Material Adverse Effect, individually or in the aggregate.
3.13.5 INTELLECTUAL PROPERTY RIGHTS. Schedule 3.13.5 sets forth all
patents, patent applications, copyright registrations (and
applications therefor) and trademark registrations (and applications
therefor) filed or obtained by or for the Company with respect to the
Company Technology and the Company Marks (collectively, the "IP
Registrations"). The Company owns all right, title and interest, free
and clear of any Encumbrances (other than interests in licenses
granted by the Company, all of which are disclosed under the terms of
this Agreement, are not required to be so disclosed), in and to the IP
Registrations, and the Company owns all right, title and interest, or
20
otherwise possesses sufficient legally enforceable rights to conduct
its business as currently conducted and as proposed to be conducted,
free and clear of any Encumbrances (other than interests in licenses
granted by the Company, all of which are disclosed under the terms of
this Agreement, are not required to be so disclosed) in and to any
other rights in or to any copyrights (registered or unregistered),
rights in the Company Marks (registered or unregistered), trade secret
rights and other intellectual property rights (including, without
limitation, rights of enforcement) contained or embodied in the
Company Technology and the Company Marks (collectively, the "IP
Rights").
3.13.6 MAINTENANCE OF RIGHTS. The Company has not conducted its business,
and has not used or enforced (or, to its knowledge, failed to use or
enforce) the IP Rights, in a manner that has resulted or will result
in the abandonment, cancellation or unenforceability of any material
item of the IP Rights or the IP Registrations, and to the Company's
knowledge the Company has not taken (or, to its knowledge, failed to
take) any action that has resulted or will result in the forfeiture or
relinquishment of any material item of the IP Rights or IP
Registrations, except where such abandonment, cancellation,
unenforceability, forfeiture or relinquishment would not have a
Company Material Adverse Effect, individually or in the aggregate. The
Company has not entered into any material agreements granting to any
third party any rights or permissions to use any of the Technology or
the IP Rights. To the Company's knowledge, except pursuant to a
written nondisclosure agreement or other reasonably prudent
safeguards, (a) no third party has received from the Company any
information maintained or required to be maintained as confidential by
the Company relating to the Technology or the IP Rights, and (b) the
Company is not under any contractual or other obligation to disclose
to any third party any information maintained or required to be
maintained as confidential by the Company relating to the Company
Technology.
3.13.7 THIRD PARTY INFRINGEMENT. No claim has been made (whether written,
oral or otherwise) challenging the Company's ownership or rights in
any material item of the Company Technology or the IP Rights or
claiming that any other person or entity has any legal or beneficial
ownership with respect thereto; (b) all the IP Rights are legally
valid and enforceable without any material qualification, limitation
or restriction on their use (to the fullest extent permitted by law
and except for licenses granted by the Company which are either
disclosed under the terms of this Agreement, are not required to be so
disclosed) and no claim has been made (whether written, oral or
otherwise) challenging the validity or enforceability of any material
item of the IP Rights; and (c) to the Company's knowledge, no other
person or entity is infringing or misappropriating any part of the IP
Rights or otherwise making any unauthorized use of the Company
Technology.
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3.13.8 INFRINGEMENT BY THE COMPANY. (a) The use of any of the Company
Technology in the Company's business as currently conducted or as
proposed to be conducted does not and will not infringe, violate or
constitute a misappropriation of any right, title or interest
(including, without limitation, any patent, copyright, trademark or
trade secret right) held by any other person or entity, and no claims
have been made with respect thereto; (b) the use of any of the Company
Marks, and other IP Rights in the Company's business as currently
conducted or as proposed to be conducted does not and will not
infringe, violate or constitute a misappropriation of any right, title
or interest (including, without limitation, any patent, copyright,
trademark or trade secret right) held by any other person or entity,
and no claims have been made with respect thereto; and (c) no claims
have been made (whether written, oral or otherwise) regarding any
infringement, misappropriation, misuse, or abuse of, or other
interference with, any third party intellectual property or
proprietary rights (including, without limitation, infringement of any
patent, copyright, trademark or trade secret right of any third party)
by the Company, the Company Technology, the Company Marks, the IP
Rights, or the Company's use of the Licensed Marks or claiming that
any other entity has any claim of infringement with respect thereto.
3.13.9 CONFIDENTIALITY. (a) The Company has not disclosed any source code
regarding the Technology to any person or entity other than an
employee of the Company or under a written nondisclosure agreement;
(b) the Company has at all times maintained and diligently enforced
commercially reasonable procedures to protect all information
maintained or required to be maintained as confidential by Company
relating to the Technology, and the Company's use of the Company
Technology in its business as currently conducted or proposed to be
conducted does not and will not breach any agreement between the
Company and a third party to maintain information as confidential; (c)
the Company is not under any contractual or other obligation to
disclose the source code or any other information maintained or
required to be maintained as confidential by the Company included in
or relating to the Technology, except, as to such confidential
information only, where such disclosure of confidential information is
made pursuant to written nondisclosure agreements or covenants entered
in the ordinary course of its business and which are disclosed in
Section 3.13.6 under the terms of this Agreement are not required to
be so disclosed therein; and (d) the Company has not deposited any
source code relating to the Technology into any source code escrows or
similar arrangements.
3.13.10 WARRANTY AGAINST DEFECTS. Except where such failure to conform
would not have a Company Material Adverse Effect, individually or in
the aggregate, and solely with respect to the Company Technology, the
Company has used reasonable commercial efforts to design the
Technology to substantially conform to the specifications set forth in
such Schedule ("Specifications").
3.13.11 DOMAIN NAMES. Schedule 3.13.11 sets forth a list of all Internet
domain names used by the Company in its business as presently
22
conducted or proposed to be conducted (collectively, the "Domain
Names"). The Company has a valid registration with the domain name
authority or authorities with which the Domain Names are registered,
and to the Company's knowledge, after the date of the Closing the
Surviving Corporation will have, subject to any transfer requirements
or restrictions imposed by InterNIC or any other domain name
registration authorities having jurisdiction, and the payment of any
fees and execution of all transfer documents as required by such
authorities, and subject to the transferability or nontransferability
of any agreement with such authorities relating to the Domain Names, a
valid registration with the domain name authority or authorities with
which the Domain Names are registered.
3.13.12 INDEMNIFICATION. The Company has not entered into any agreement to
indemnify any Person (other than shareholders, directors and/or
officers of the Company) against any claim of infringement by the
Technology or IP Rights or any other third party intellectual property
right relating to the Technology.
3.13.13 INFRINGEMENT ACTION. The Company has not entered into any material
agreement granting any Person the right to bring any infringement
action with respect to, or otherwise to enforce, any of the Technology
or IP Rights.
3.13.14 RESTRICTIONS ON INTELLECTUAL PROPERTY. To the Company's knowledge,
except in their capacity on behalf of the Company, none of the
Company's officers or employees has entered into any agreement
inconsistent with the Company's rights to the Company Technology
regarding know-how, trade secrets, assignment of rights in inventions,
or prohibition or restriction of competition or solicitation of
customers, or any other similar restrictive agreement or covenant,
inconsistent with the Company's rights to the Company Technology,
whether written or oral, with any Person other than the Company during
the period in which such officer or employee was employed with or
engaged by the Company.
3.14 CORPORATE BOOKS AND RECORDS. To the knowledge of the Company, the Company
has furnished to InnerSpace or its representatives for their examination
true and complete copies of (a) the Articles of Incorporation and Bylaws of
the Company as currently in effect, including all amendments thereto, (b)
the minute books of the Company, and (c) the stock records of the Company.
3.15 LICENSES, PERMITS, AUTHORIZATIONS, ETC. The Company has received all
currently required governmental approvals, authorizations, consents,
licenses, orders, registrations and permits of all agencies, whether
federal, state, local or foreign, the failure to obtain of which would have
a Company Material Adverse Effect. The Company has not received any
notifications of any asserted present failure by it to obtain any such
governmental approval, authorization, consent, license, order, registration
or permit, or past and unremedied failure to obtain such items.
23
3.16 COMPLIANCE WITH LAWS. The Company is in compliance with all federal, state,
local and foreign laws, rules, regulations, ordinances, decrees and orders
applicable to it, to its employees or to the Real Property and the Personal
Property, including, without limitation, all such laws, rules, regulations,
ordinances, decrees and orders relating to intellectual property
protection, equal employment opportunity, securities and investor
protection matters, labor and employment matters, except where the failure
of the Company to so comply would not have a Company Material Adverse
Effect. The Company has not received any notification of any asserted
present or past unremedied failure by the Company to comply with any of
such laws, rules, regulations, ordinances, decrees or orders.
3.17 INSURANCE. Schedule 3.17 sets forth a true and correct list of all
insurance policies maintained by the Company. The Company maintains
commercially reasonable levels of (a) insurance on its property (including
leased premises) that insures against loss or damage by fire or other
casualty and (b) insurance against liabilities, claims and risks of a
nature and in such amounts as are normal and customary in the Company's
industry for companies of similar size and financial condition. All
insurance policies of the Company are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
date this representation is made have been paid, and no notice of
cancellation or termination has been received with respect to any such
policy or binder. Such policies or binders are sufficient for compliance
with all requirements of law currently applicable to the Company and of all
agreements to which the Company is a party, will remain in full force and
effect through the respective expiration dates of such policies or binders
without the payment of additional premiums, and will not in any way be
affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. The Company has not been refused any
insurance with respect to its assets or operations, nor has any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance limited its coverage.
3.18 BROKERS OR FINDERS. Except with respect to Sundance Capital Partners, LLC,
the Company has not incurred, and will not incur, directly or indirectly,
as a result of any action taken by or on behalf of the Company, any
liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with the Merger, this Agreement or any
transaction contemplated hereby.
3.19 BANK ACCOUNTS. Schedule 3.19 sets forth the names and locations of all
banks, trust companies, savings and loan associations and other financial
institutions at which the Company maintains safe deposit boxes or accounts
of any nature and the names of all Persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
3.20 INSIDER INTERESTS. Except as set forth on Schedule 3.20, no Shareholder or
officer or director of the Company has any interest (other than as a
Shareholder) (a) in any Real Property, Personal Property, Technology or IP
Rights used in or pertaining to the business of the Company, including,
without limitation, inventions, patents, trademarks or trade names, or (b)
in any agreement, contract, arrangement or obligation relating to the
Company, its present or prospective business or its operations. Except as
24
set forth on Schedule 3.22, there are no agreements, understandings or
proposed transactions between the Company and any of its officers,
directors, shareholders, affiliates or any affiliate thereof. The Company
and its officers and directors and, to the knowledge of the Company, its
shareholders have no interest, either directly or indirectly, in any
entity, including, without limitation, any corporation, partnership, joint
venture, proprietorship, firm, licensee, business or association (whether
as an employee, officer, director, shareholder, agent, independent
contractor, security holder, creditor, consultant or otherwise) that
presently (i) provides any services, produces and/or sells any products or
product lines, or engages in any activity that is the same, similar to or
competitive with any activity or business in which the Company is now
engaged or proposes to engage; (ii) is a supplier, customer or creditor; or
(iii) has any direct or indirect interest in any asset or property, real or
personal, tangible or intangible, of the Company or any property, real or
personal, tangible or intangible, that is necessary or desirable for the
present or currently anticipated future conduct of the Company's business.
3.21 FULL DISCLOSURE. No information furnished by the Company to InnerSpace or
its representatives in connection with this Agreement (including, but not
limited to, the Financial Statements and all information in the other
Exhibits hereto) or the other Operative Documents contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements so made or information so delivered not
misleading.
3.22 VOTING AGREEMENTS. As of the date hereof, beneficial holders of not less
than two-fifths of the outstanding shares of Company Common Stock have
executed and delivered to InnerSpace the Voting Agreement substantially in
the form attached hereto as Exhibit 3.22.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INNERSPACE AND THE PURCHASER
In order to induce the Company to enter into and perform this Agreement and the
other Operative Documents, InnerSpace and the Purchaser jointly and severally
represent and warrant to the Company as follows in this Article 4:
4.1 ORGANIZATION. InnerSpace is a corporation duly organized validity existing
and in good standing under the laws of the state of Delaware. The Purchaser
is a corporation validly existing and in good standing under the laws of
the State of Arizona. Each of InnerSpace and the Purchaser has all
requisite corporate power and authority to own, operate and lease its
respective properties and assets, to carry on its respective business as
now conducted, and as proposed to be conducted and to enter into and
perform its obligations under this Agreement and the other applicable
Operative Documents to which InnerSpace or the Purchaser is a party, and to
consummate the transactions contemplated hereby and thereby. Each of
InnerSpace and the Purchaser is duly qualified and licensed as a foreign
corporation to do business and is in good standing in each jurisdiction in
which the character of properties occupied, owned or held under lease by
InnerSpace or the Purchaser, as applicable, or the nature of the business
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conducted by InnerSpace or the Purchaser, as applicable, makes such
qualification or licensing necessary, except where the failure to be so
qualified or in good standing would not have an InnerSpace Material Adverse
Effect on the business, operations, assets, liabilities, condition
(financial or other) or prospects of InnerSpace. For purposes of this
Agreement, the term "InnerSpace Material Adverse Effect" shall mean any
change, event or effect that is or is reasonably likely to be materially
adverse to InnerSpace's business, operations, assets, liabilities,
condition (financial or otherwise) or prospects; provided, however, that a
InnerSpace Material Adverse Effect shall not include any change, event or
effect that relates to or results from (i) the announcement or other
disclosure or consummation of the transactions contemplated by this
Agreement; (ii) a general economic downturn; (iii) an economic downturn in
InnerSpace's industry which does not disproportionately affect InnerSpace,
or (iv) changes in the trading prices of InnerSpace Common Stock. Each of
InnerSpace and the Purchaser has full corporate power and authority to
execute, deliver and perform this Agreement and the other Operative
Documents to which it is a party, and to carry out the transactions
contemplated hereby and thereby. InnerSpace holds of record and all the
issued and outstanding shares of capital stock of the Purchaser
beneficially.
4.2 ENFORCEABILITY. InnerSpace and the Purchaser each have full corporate power
and authority to execute, deliver and perform their obligations under this
Agreement and each of the other Operative Documents to which they are a
party and each of the certificates, instruments and documents executed or
delivered by them pursuant to the terms of this Agreement. All corporate
action on the part of InnerSpace and the Purchaser and their respective
officers, directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement and the other
applicable Operative Documents to which InnerSpace or the Purchaser is a
party, the consummation of the Merger and the performance of all of their
respective obligations under this Agreement and the other applicable
Operative Documents to which InnerSpace or the Purchaser is a party has
been taken or will be taken prior to the Effective Time. This Agreement has
been, and each of the other Operative Documents to which InnerSpace is a
party will have been at the Closing, duly executed and delivered by
InnerSpace, and this Agreement is, and each of the other Operative
Documents to which InnerSpace is a party will be at the Closing, a legal,
valid and binding obligation of InnerSpace, enforceable against InnerSpace
in accordance with its terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (b) rules of law governing specific performance,
injunctive relief and other equitable remedies, and (c) the enforceability
of provisions requiring indemnification in connection with the offering,
sale or issuance of securities. This Agreement has been, and each of the
other Operative Documents to which the Purchaser is a party will have been
at the Closing duly executed and delivered by the Purchaser, and this
Agreement is, and each of the other Operative Documents to which the
Purchaser is a party will be at the Closing, a legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as to the effect, if any, of (i)
applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies, and (iii) the
26
enforceability of provisions requiring indemnification in connection with
the offering, sale or issuance of securities.
4.3 SUBSIDIARIES AND AFFILIATES. Other than Purchaser, InnerSpace does not own
and has not in the past owned, directly or indirectly, any ownership,
equity, or voting interest in, or otherwise control or controlled, any
corporation, partnership, limited liability company, joint venture or other
entity, and has no agreement or commitment to purchase any such interest.
4.4 TAXES AND INSURANCE. InnerSpace, since inception, has generated no taxable
income, has filed no Tax Returns and has maintained no insurance policies.
4.5 PROPERTY. InnerSpace owns no real property, personal property or leasehold
interest.
4.6 SECURITIES. The InnerSpace Common Stock to be issued pursuant to this
Agreement has been, or will be prior to the Effective Time, duly authorized
for issuance, and such InnerSpace Common Stock, when issued and delivered
to the Shareholders pursuant to this Agreement, shall be validly issued,
fully paid and nonassessable.
4.7 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS. The
execution, delivery and performance of this Agreement and the other
Operative Documents by the Purchaser and InnerSpace, as applicable, and the
consummation by them of the transactions contemplated hereby and thereby
will not (a) constitute a violation (with or without the giving of notice
or lapse of time, or both) of any provision of law applicable to InnerSpace
or the Purchaser; (b) require any consent, approval or authorization of any
Person, except (i) compliance with applicable securities laws, and (ii) the
filing of all documents necessary to consummate the Merger with the
Delaware Secretary of State and the Arizona Corporations Commission; (c)
result in a default (with or without the giving of notice or lapse of time,
or both) under, or acceleration or termination of, or the creation in any
party of the right to accelerate, terminate, modify or cancel, any
agreement, lease, note or other restriction, encumbrance, obligation or
liability to which InnerSpace or the Purchaser is a party or by which it is
bound or to which any assets of InnerSpace or the Purchaser are subject; or
(d) conflict with or result in a breach of or constitute a default under
any provision of the Certificate of Incorporation or Bylaws of InnerSpace
or of the Purchaser.
4.8 CAPITALIZATION. The authorized capital stock of InnerSpace consists of
25,000,000 shares of InnerSpace Common Stock, par value $0.0001 per share
of which 16,000,000 shares are expected to be issued and outstanding prior
to the date the reverse split referred to in Section 6.9 is effectuated,
and 5,000,000 shares of preferred stock, par value $0.0001 per share, of
which none are expected to be issued or outstanding. Such issued and
outstanding shares of InnerSpace Common Stock are or will be validly
issued, fully paid and nonassessable.
4.9 SEC DOCUMENTS. True and complete copies of its Annual Report on Form 10-KSB
for the fiscal year ended February 28, 2002, and all Forms 10-QSB and 8-K
27
filed after the date of such Form 10-K (collectively, the "SEC Documents")
are available for electronic review on the XXXXX database maintained by the
Securities and Exchange Commission (the "Commission"). As of their
respective filing dates, each of the SEC Documents complied in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the
Commission promulgated thereunder, and did not at the time they were filed
with the SEC contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under
which they are made, not misleading.
4.10 ABSENCE OF CERTAIN CHANGES. Since the November 30, 2002 financial
statements included in the SEC Documents, there has not been any change,
which by itself or in conjunction with all other such changes, has had or
could reasonably be expected to have an InnerSpace Material Adverse Effect,
except as disclosed in the SEC Documents.
4.11 FINANCIAL STATEMENTS. The financial statements (including any related notes
thereto) contained in the SEC Documents (i) have been prepared in
accordance with the published rules and regulations of the SEC and
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and (ii) fairly present the financial position of InnerSpace as of
the dates thereof and the results of operations and cash flows for the
periods indicated, except that any unaudited interim financial statements
were or will be subject to normal and recurring year-end adjustments and
may omit footnote disclosure as permitted by regulations of the SEC.
4.12 LIABILITIES. Except as set forth in Schedule 4.12, InnerSpace does not have
any direct or indirect material obligation or liability (the "Liabilities")
that would be reasonably likely to have a Material Adverse Effect other
than (a) Liabilities fully and adequately reflected or reserved against it
in the SEC Reports, and (b) Liabilities incurred since November 30, 2002,
in the ordinary course of business. Since November 30, 2002, there has been
no change, event, circumstance or other occurrence with respect to
InnerSpace, its assets or properties that could reasonably be expected to
have a Material Adverse Effect.
4.13 NO DEFAULT OR BREACH; CONTRACTUAL OBLIGATIONS. Except as set forth in
Schedule 4.13, InnerSpace has not received notice of a default and is not
in default under, or with respect to, any material contractual obligation
nor does any condition exist that with notice or lapse of time or both
would constitute a default thereunder. Except as described in the SEC
Reports or Schedule 4.13, all material contracts, agreements,
understandings and arrangements, whether written or oral (collectively, the
"Contracts") are valid, subsisting, in full force and effect and binding
upon InnerSpace and the other parties thereto, and InnerSpace has paid in
full or accrued all amounts due thereunder and has satisfied in full or
provided for all of its liabilities and obligations thereunder, except to
the extent that the failure of any such payment or liability could not
reasonably be expected to have a Material Adverse Effect. To the knowledge
28
of InnerSpace and except as described in the SEC Reports or Schedule 4.13,
no other party to any such Contract is in default thereunder, nor does any
condition exist that with notice or lapse of time or both would constitute
a default by such other party thereunder, except, to the extent that such
default could not reasonably be expected to have a Material Adverse Effect.
4.14 LITIGATION. Except as disclosed in the SEC Reports or Schedule 4.14, there
are no actions, suits, proceedings, claims, complaints, disputes,
arbitrations or investigations pending or, to the knowledge of InnerSpace,
threatened at law, in equity, in arbitration or before any governmental
authority against InnerSpace or any of its property or assets which, could
reasonably be expected to have a Material Adverse Effect.
4.15 INTELLECTUAL PROPERTY. InnerSpace owns or is licensed or otherwise
possesses the right to use the following as required to conduct its
business as now conducted and as proposed to be conducted except where the
failure to own, license or possess the right to use would not have a
InnerSpace Material Adverse Effect, individually or in the aggregate: (a)
all products, tools, computer programs, specifications, source code, object
code, graphics, devices, techniques, algorithms, methods, processes,
procedures, packaging, trade dress, formulae, drawings, designs,
improvements, discoveries, concepts, user interfaces, "look and feel,"
software, development and other tools, content, inventions (whether or not
patentable or copyrightable and whether or not reduced to practice),
designs, logos, themes, know-how, concepts and other technology that are
now, or during the two years prior to the date of this Agreement have been,
developed, produced, used, marketed or sold by InnerSpace (collectively,
the "InnerSpace Technology-Related Assets"); and (b) all intellectual
property and other proprietary rights in the InnerSpace Technology-Related
Assets, including, without limitation, all trade names, trademarks, domain
names, service marks, logos, brand names and other identifiers, trade
secrets, copyrights, and domestic and foreign letters patent, and the
registrations, applications, renewals, extensions and continuations (in
whole or in part) thereof, all goodwill associated therewith, and all
rights and causes of action for infringement, misappropriation, misuse,
dilution or unfair trade practices associated therewith.
4.16 CORPORATE BOOKS AND RECORDS. InnerSpace has furnished to the Company or its
representatives for their examination true and complete copies of (a) the
Articles of Incorporation and Bylaws of the Company as currently in effect,
including all amendments thereto, (b) the minute books of the Company, and
(c) the stock transfer books of the Company. Such minutes reflect all
meetings of InnerSpace's stockholders, Board of Directors and any
committees thereof since the Company's inception, and such minutes
accurately reflect in all material respects the events of and actions taken
at such meetings. Such stock transfer books accurately reflect all
issuances and transfers of shares of capital stock of the Company since its
inception.
4.17 BANK ACCOUNTS. Schedule 4.17 sets forth the names and locations of all
banks, trust companies, savings and loan associations and other financial
institutions at which InnerSpace maintains safe deposit boxes or accounts
of any nature and the names of all Persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
29
4.18 COMPLIANCE WITH LAWS. InnerSpace is in compliance, with all requirements of
any law, regulation or rule applicable to it or its property or assets and
all orders and consent decrees issued by any court or governmental
authority against InnerSpace, except to the extent that such default could
not reasonably be expected to have a Material Adverse Effect. InnerSpace
has all licenses, permits and approvals of any governmental authority that
are necessary for the conduct of the business of InnerSpace and all such
permits are in full force and effect and no violations are or have recorded
in respect of any permit, except to the extent that the failure of any such
permit to be in full force and effect or any such violation could not
reasonably be expected to have a Material Adverse Effect.
4.19 INSIDER INTERESTS. No Stockholder or officer or director of InnerSpace has
any interest (other than as a Stockholder) (a) in any Real Property,
Personal Property, Technology or IP Rights used in or pertaining to the
business of InnerSpace, including, without limitation, inventions, patents,
trademarks or trade names, or (b) in any agreement, contract, arrangement
or obligation relating to InnerSpace, its present or prospective business
or its operations. Except as set forth on Schedule 4.19, there are no
agreements, understandings or proposed transactions between InnerSpace and
any of its officers, directors, Stockholders, affiliates or any affiliate
thereof. InnerSpace and its officers and directors and, to the knowledge of
InnerSpace, its Stockholders have no interest, either directly or
indirectly, in any entity, including, without limitation, any corporation,
partnership, joint venture, proprietorship, firm, licensee, business or
association (whether as an employee, officer, director, Stockholder, agent,
independent contractor, security holder, creditor, consultant or otherwise)
that presently (i) provides any services, produces and/or sells any
products or product lines, or engages in any activity that is the same,
similar to or competitive with any activity or business in which InnerSpace
is now engaged or proposes to engage; (ii) is a supplier, customer or
creditor; or (iii) has any direct or indirect interest in any asset or
property, real or personal, tangible or intangible, of InnerSpace or any
property, real or personal, tangible or intangible, that is necessary or
desirable for the present or currently anticipated future conduct of
InnerSpace's business.
4.20 EMPLOYEE BENEFIT PLANS. Except as provided in Section 4.20, InnerSpace does
not maintain or contribute to, or has not since its inception, maintained
or contributed to, or have any liability with respect to, any benefit plan,
arrangement, policy, program, agreement or commitment maintained by the
Company subject to Title IV of ERISA or Section 412 of the Code or any
"multiple employer plan" within the meaning of the Code or ERISA.
4.21 BROKERS OR FINDERS. Except with respect to Xxxxxxxx Financial Group,
InnerSpace has not incurred, and will not incur, directly or indirectly, as
a result of any action taken by or on behalf of the Company, any liability
for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the Merger, this Agreement or any transaction
contemplated hereby.
30
4.22 INFORMATION SUPPLIED BY INNERSPACE. None of the information supplied or to
be supplied by InnerSpace in connection with any written consent by or
meeting of the Stockholders (collectively, "Stockholder Materials"),
including the SEC Documents, at the date such information was supplied,
contained or will contain any untrue statement of a material fact or
omitted or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not materially misleading;
provided, however, that InnerSpace makes no representations or warranties
regarding information furnished by or related to the Company.
4.23 FULL DISCLOSURE. No information furnished by InnerSpace or the Purchaser to
the Company or its representatives in connection with this Agreement or the
other Operative Documents contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
so made or information so delivered not misleading.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS OF INNERSPACE AND THE PURCHASER
The obligations of InnerSpace and the Purchaser to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived only in writing signed by InnerSpace:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein (including, without limitation,
applicable Exhibits or Schedules) and in the other Operative Documents
shall have been true and correct in all material respects when made and,
except (a) for changes contemplated by this Agreement and the other
Operative Documents and (b) to the extent that such representations and
warranties speak as of an earlier date, shall be true and correct as of the
Closing Date in all material respects as though made on that date.
5.2 PERFORMANCE OF AGREEMENTS. The Company shall have performed in all material
respects all obligations and agreements and complied in all material
respects with all covenants contained in this Agreement or any other
Operative Document to be performed and complied with by it at or prior to
the Closing.
5.3 COMPLIANCE CERTIFICATE. InnerSpace shall have received a certificate of the
President and the Chief Financial Officer of the Company, dated the Closing
Date, in form and substance satisfactory to InnerSpace, certifying that the
conditions to the obligations of InnerSpace and the Purchaser in Sections
3.1, 3.2 and 3.5 have been fulfilled.
5.4 APPROVALS AND CONSENTS. All transfers of material permits or material
licenses and all material approvals of or notices to public agencies,
federal, state, local or foreign, the granting or delivery of which is
31
necessary for the consummation of the transactions contemplated hereby and
by the other Operative Documents, or for the continued operation of the
Company as now operated, shall have been obtained, and all waiting periods
specified by law shall have passed. All consents listed on Schedules 3.5
and 3.10.2 required in connection with a reverse triangular merger should
have been obtained and delivered.
5.5 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE. InnerSpace shall have
received a certificate of the Secretary of the Company, in form and
substance satisfactory to InnerSpace, as to the authenticity and
effectiveness of the actions of the Board of Directors and Shareholders
authorizing the Merger and the transactions contemplated by this Agreement
and the other Operative Documents. Copies of the Company's Articles of
Incorporation, certified by the Arizona Corporations Commission, and
Bylaws, certified by the Secretary of the Company, shall be attached to
such certificate.
5.6 COMPLIANCE WITH LAWS. The consummation of the transactions contemplated by
this Agreement and the other Operative Documents shall be legally permitted
by all laws and regulations to which InnerSpace, the Purchaser or the
Company is subject.
5.7 SHAREHOLDER APPROVAL. The principal terms of this Agreement shall have been
approved by the Company's shareholders as required by the Company's
Articles of Incorporation and applicable law.
5.8 LEGAL PROCEEDINGS. No order of any court or administrative agency shall be
in effect which enjoins, restrains, conditions or prohibits consummation of
the transactions contemplated by this Agreement or any other Operative
Document, and no litigation, investigation or administrative proceeding
shall be pending which would enjoin, restrain, condition or prevent
consummation of the transactions contemplated by this Agreement or any
other Operative Document.
5.9 AFFILIATE LETTERS. The Company shall have delivered or caused to be
delivered to InnerSpace an affiliate letter from each of those Persons who
were, on the date on which the requisite number of consents or votes has
been obtained to approve the Merger, "affiliates" of the Company within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act.
5.10 RIGHTS OF REFUSAL. Any and all rights of refusal, co-sale rights and
registration rights, if any, for the benefit of the holders of Company
Capital Stock or Stock Purchase Rights of the Company shall have
terminated.
5.11 EXERCISE OF STOCK PURCHASE RIGHTS; CONVERSION OF CONVERTIBLE SECURITIES.
Any and all Stock Purchase Rights and any and all securities and notes
convertible at any time into Company Common Stock, vested and unvested, and
regardless of restrictions on exercise or conversion, shall have been
exercised or converted, as the case may be, for shares of Company Capital
Stock prior to the Effective Time, except for the convertible promissory
32
note, Options and other Stock Purchase Rights assumed by InnerSpace
pursuant to Section 2.2(d).
5.12 DISSENTER RIGHTS. Holders of not more than 10% of the outstanding shares of
Company Common Stock shall have not voted in favor of the Merger or not
consented thereto in writing and shall have delivered before the Effective
Time timely written notice of such holders' intent to demand payment as
dissenting shareholders for such shares in accordance with Arizona Law.
5.13 INVESTMENT BANKING AGREEMENT. The Company shall have executed the
Investment Banking Agreement with Sundance Capital Partners, LLC attached
as Exhibit 5.13
5.14 STOCK PURCHASE AGREEMENT. InnerSpace shall have executed the Stock Purchase
Agreement with Sundance Capital Fund I, LP attached as Exhibit 5.14
providing for the issuance of 1,900,000 shares of Common Stock for the
consideration and on the terms described therein.
5.15 SUNDANCE ESCROW AGREEMENT. In connection with the Stock Purchase Agreement
described at Section 5.14, Sundance Capital Fund I, LP shall have executed
an escrow agreement with InnerSpace on the terms described therein.
5.16 VOTING AGREEMENT. The Founders (as hereinafter defined), the Company and
Sundance Capital Fund I, LP shall have executed the Voting Agreement
described at Section 3.22. For purposes hereof, "Founders" means the
shareholders of the Company who have signed the Voting Agreement.
5.17 SUNDANCE WARRANT AGREEMENT. The Surviving Corporation shall have executed
the Warrant Agreement and the Registration Right Agreement relating to the
issuance of a Warrant to Sundance Capital Partners, LLC attached as
Exhibits 5.17(a) and 5.17(b).
5.18 ASSUMPTION AGREEMENT AND REGISTRATION RIGHTS AGREEMENT. Sundance Capital
Fund I, LP and the Company shall have executed the Assumption Agreement
attached as Exhibit 5.18(a) and the Surviving Corporation shall have
executed the Registration Rights Agreement attached as Exhibit 5.18(b).
5.19 WARRANT AGREEMENT AND MUTUAL SETTLEMENT AGREEMENT AND RELEASE. The
Surviving Corporation and Nova Redwood, LLC shall have executed the Warrant
Agreement attached as Exhibit 5.19(a) and the Company and Nova Redwood, LLC
shall have executed the Mutual Settlement Agreement and Release attached as
Exhibit 5.19(b).
5.20 VOICEAMERICA AGREEMENT. The Company and Voice America, LLC shall have
executed the Voice America Agreement attached as Exhibit 5.20.
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ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to perform and observe the covenants, agreements
and conditions hereof to be performed and observed by them at or before the
Closing shall be subject to the satisfaction of the following conditions, which
may be expressly waived only in writing signed by the Company.
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of InnerSpace and the Purchaser contained herein and in the
other Operative Documents shall have been true and correct in all material
respects when made and, except for (a) changes contemplated by this
Agreement and the other Operative Documents and (b) to the extent that such
representations and warranties speak as of an earlier date, shall be true
and correct in all material respects as of the Closing Date as though made
on that date.
6.2 PERFORMANCE OF AGREEMENTS. InnerSpace and the Purchaser shall have
performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this
Agreement or any other Operative Document to be performed and complied with
by them at or prior to the Closing.
6.3 COMPLIANCE CERTIFICATE. The Company shall have received a certificate of an
officer of InnerSpace, dated the Closing Date, substantially in form and
substance reasonably satisfactory to the Company, certifying that the
conditions to the obligations of the Company in Sections 4.1, 4.2, 4.6 and
4.7 have been fulfilled.
6.4 LEGAL PROCEEDINGS. No order of any court or administrative agency shall be
in effect which enjoins, restrains, conditions or prohibits consummation of
the transactions contemplated by this Agreement or any other Operative
Document, and no litigation, investigation or administrative proceeding
shall be pending which would enjoin, restrain, condition or prevent
consummation of the transactions contemplated by this Agreement or any
other Operative Document.
6.5 APPROVALS AND CONSENTS. All transfers of material permits or material
licenses and all material approvals of or notices to public agencies,
federal, state, local or foreign, the granting or delivery of which is
necessary for the consummation of the transactions contemplated hereby and
by the other Operative Documents or for the continued operation of the
Company as now operated, shall have been obtained, and all waiting periods
specified by law shall have passed. All consents listed on Schedules 3.5
and 3.10.2 required in connection with a reverse triangular merger shall
have been obtained and delivered.
6.6 COMPLIANCE WITH LAWS. The consummation of the transactions contemplated by
this Agreement and the other Operative Documents shall be legally permitted
by all laws and regulations to which InnerSpace, the Purchaser or the
Company is subject.
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6.7 INVESTMENT BANKING AGREEMENT. The Company shall have executed an Investment
Banking Agreement with Sundance Capital Partners, LLC attached as Exhibit
5.13.
6.8 STOCK PURCHASE AGREEMENT. InnerSpace shall have executed a Stock Purchase
Agreement with Sundance Capital Fund I, LP providing for the issuance of
1,900,000 shares of Common Stock for the consideration and on the terms
described therein.
6.9 SUNDANCE ESCROW AGREEMENT. In connection with the Stock Purchase Agreement
described at Section 6.8, InnerSpace shall have executed an escrow
agreement with Sundance Capital Fund I, LP on the terms described therein.
6.10 VOTING AGREEMENT. The Founders, the Company and Sundance Capital Fund I, LP
shall have executed the Voting Agreement described at Section 3.22.
6.11 SUNDANCE WARRANT AGREEMENT. The Surviving Corporation shall have executed
the Warrant Agreement and the Registration Rights Agreement relating to the
issuance of a Warrant to Sundance Capital Partners, LLC attached as
Exhibits 5.17(a) and 5.17(b).
6.12 ASSUMPTION AGREEMENT AND REGISTRATION RIGHTS AGREEMENT. Sundance Capital
Fund I, LP and the Company shall have executed the Assumption Agreement
attached as Exhibit 5.18(a) and the Surviving Corporation shall have
executed the Registration Rights Agreement attached as Exhibit 5.18(b).
6.13 WARRANT AGREEMENT AND MUTUAL SETTLEMENT AGREEMENT AND RELEASE. The
Surviving Corporation and Nova Redwood, LLC shall have executed the Warrant
Agreement attached as Exhibit 5.19(a) and the Company and Nova Redwood, LLC
shall have executed the Mutual Settlement Agreement and Release attached as
Exhibit 5.19(b).
6.14 ASSUMPTION AGREEMENT. Sundance Capital Fund I, LP shall have executed the
Assumption Agreement attached as Exhibit 5.18(a).
ARTICLE 7
COVENANTS
Between the date of this Agreement and the Effective Time, or such later period
as set forth in Sections 7.5, 7.8 and 7.9, the parties covenant and agree as set
forth in this Article 7.
7.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Unless InnerSpace
shall otherwise agree in writing, the business of the Company shall be
35
conducted in and only in, and the Company shall not take any action except
in, the ordinary course of business and in a manner consistent with past
practice and in accordance with applicable law; and the Company shall use
commercially reasonable efforts to preserve intact the business
organization of the Company, to keep available the services of the current
officers, employees and consultants of the Company and to preserve the
current relationships of the Company with, and the goodwill of, customers,
suppliers and other Persons with which the Company has significant business
relations. By way of amplification and not limitation, except as otherwise
contemplated by this Agreement, the Company shall not, between the date of
this Agreement and the Effective Time, directly or indirectly do any of the
following without the prior written consent of InnerSpace:
(a) amend or otherwise change its Articles of Incorporation or Bylaws,
other than to effect a change in the Company's corporate name;
(b) except for the issuance of shares of Company Capital Stock upon the
exercise or conversion of currently outstanding Stock Purchase Rights,
issue, sell, contract to issue or sell, pledge, dispose of, grant,
encumber or authorize the issuance, sale, pledge, disposition, grant
or Encumbrance of (i) any assets of the Company, except in the
ordinary course of business and in a manner consistent with past
practice, (ii) any shares of capital stock of any class of the
Company, or (iii) any options, warrants, convertible securities or
other rights of any kind to acquire any shares of such capital stock,
or any other ownership interest (including, without limitation, any
phantom interest) of the Company;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock or other securities, property or otherwise,
with respect to any of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock or other
securities other than as provided in Section 6.10;
(e) (i) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership, other
business organization or division thereof or any material amount of
assets; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, any obligations of any Person,
or make any loans or advances, except in the ordinary course of
business and consistent with past practice; (iii) enter into any
contract or agreement other than in the ordinary course of business,
consistent with past practice; (iv) authorize any single capital
expenditure which is in excess of $1,000 or capital expenditures which
are, in the aggregate, in excess of $10,000 for the Company taken as a
whole; (v) enter into any agreement in which the obligation of the
Company exceeds $1,000 or which shall not terminate or be subject to
termination for convenience within 30 days following execution; (vi)
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license any Technology or IP Rights; or (vii) enter into or amend any
contract, agreement, commitment or arrangement with respect to any
matter set forth in this subsection (e);
(f) enter into or amend any employment, consulting or agency agreement, or
increase the compensation payable or to become payable to any of its
officers, employees, agents or consultants, or grant any severance or
termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee of the
Company, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation,
employment, termination, severance, benefit, Employee Benefit Plan or
other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee; provided, however, that
the Company shall terminate prior to any enrollment thereunder and
prior to the Closing Date its Code section 401(k) plan;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with
respect to accounting methods, policies or procedures (including,
without limitation, procedures with respect to the payment of accounts
payable and collection of accounts receivable);
(h) make any Tax election or settle or compromise any Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice;
(j) take any action that would or is reasonably likely to result in any of
the representations or warranties of the Company set forth in this
Agreement being untrue in any material respect, or in any covenant of
the Company set forth in this Agreement being breached, or in any of
the conditions to the Merger specified in Article 5 hereof not being
satisfied; or
(k) agree to do any of the foregoing.
7.2 ACCESS TO INFORMATION; CONFIDENTIALITY. From the date hereof to the
Effective Time, each party shall, and shall cause its officers, directors,
employees and agents to, afford the officers, employees and agents of the
other party access at all reasonable times to its officers, employees,
agents, properties, offices, plants and other facilities, books and records
and shall furnish the other party with all financial, operating and other
data and information as the other party, through its officers, employees or
agents, may reasonably request. From the date hereof until the Effective
Time, each party shall provide the other party with its monthly and other
financial as they become available internally, all of which financial
37
statements shall fairly present its financial position and results of
operations as of the dates and for the periods therein specified. No
investigation pursuant to this Section 7.2 shall affect any representation
or warranty in this Agreement of any party hereto or any condition to the
obligations of the parties hereto.
7.3 NO ALTERNATIVE TRANSACTIONS. Unless this Agreement shall have been
terminated in accordance with its terms, the Company shall not, directly or
indirectly, through any officer, director, agent or otherwise, solicit,
initiate or encourage the submission of any proposal or offer from any
Person relating to any acquisition or purchase of all or any material
portion of the assets of, or any equity interest in, the Company or any
business combination with the Company or participate in any negotiations
regarding, or furnish to any other Person any information with respect to,
or otherwise cooperate or negotiate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing. The Company shall notify
InnerSpace promptly if any such proposal or offer, or any inquiry or
contact with any Person with respect thereto, is made and shall, in any
such notice to InnerSpace, indicate in reasonable detail the identity of
the Person making such proposal, offer, inquiry or contact and the terms
and conditions of such proposal, offer, inquiry or contact. The Company
agrees not to release any third party from, or waive any provision of, any
confidentiality or standstill agreement (e.g. agreement not to invest in or
seek change of control of the Company) to which the Company is a party.
7.4 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice to the
other parties of (a) the occurrence or nonoccurrence of any event which
would be likely to cause any representation or warranty made by such party
contained in this Agreement to be untrue or inaccurate in any material
respect and (b) any material failure by such party to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by such party hereunder; provided, however, that the delivery of
any notice pursuant to this Section 6.4 shall not limit or otherwise affect
the rights or remedies available to the parties hereunder.
7.5 FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use commercially
reasonable efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, including, without limitation, using its
commercially reasonable efforts to obtain all waivers, licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and of other Persons as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions to the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or the other Operative Documents, each party to this Agreement
shall use commercially reasonable efforts to promptly take all such action.
After the Closing, each party hereto, at the request of and without any
further cost or expense to the other parties, will take any further actions
necessary or desirable to carry out the purposes of this Agreement or any
38
other Operative Document, to vest in the Surviving Corporation full title
to all properties, assets and rights of the Company, and to effect the
issuance of the InnerSpace Common Stock to the Shareholders pursuant to the
terms and conditions hereof.
7.6 SHAREHOLDER APPROVAL. The Company will seek the approval at a special
meeting of its shareholders or the written consent of such shareholders at
the earliest practicable date approving this Agreement, the other Operative
Documents, the Merger and related matters, which approval will be
recommended by the Board of Directors of the Company.
7.7 DISCLOSURE. The Company will furnish to its shareholders all information
relating to the Merger necessary to satisfy all requirements of applicable
state and federal securities laws. The Company and InnerSpace each shall be
solely responsible for any statement, information or omission relating to
it or its affiliates based on written information furnished by it. The
Company and InnerSpace will not provide or publish to the Shareholders any
material concerning them or their affiliates that violate the Securities
Act or the Exchange Act with respect to the transactions contemplated
hereby.
7.8 DISSENTING SHARES. Prior to the Closing Date, the Company shall furnish
InnerSpace with the name and address of each Shareholder who, prior to the
Closing, has requested appraisal rights pursuant to Arizona Law and the
number of Dissenting Shares owned by such Shareholder.
7.9 PUBLICITY. No party hereto shall issue any press release or otherwise make
any statements to any third party with respect to this Agreement or the
transactions contemplated hereby, other than the issuance by InnerSpace and
the Company of a joint press release announcing this Agreement and the
transactions contemplated hereby or as required by law.
7.10 AUDITED FINANCIAL STATEMENTS. By May 31, 2003, the Company shall have
exercised its best efforts to deliver to InnerSpace an audited balance
sheet, an audited statement of income and expenses, an audited statement of
cash flow and an audited statement of shareholders equity of the Company as
of and for the fiscal year ended February 28, 2003. These audited financial
statements shall not reflect any material adverse change from the Financial
Statements as, at and for the same periods.
7.11 INTERWEST ESCROW AGREEMENT. Prior to the exchange of certificates described
in Section 2.3, the Shareholder Representative, on behalf of the
Shareholders, and the Interwest Escrow Agent shall have executed and
delivered the Interwest Escrow Agreement to InnerSpace.
7.12 REVERSE STOCK SPLIT. Prior to the exchange of certificates described in
Section 2.3, InnerSpace will complete a 1 for 10 reverse stock split such
that, prior to the issuance of shares in connection therewith, InnerSpace
will have 3,500,000 shares issued and outstanding.
39
7.13 EMPLOYEE STOCK PLAN. As soon as practicable, the Board of Directors of the
Surviving Corporation will adopt an employee stock plan, reserving for
issuance thereunder a pool of 4,666,500 shares to be granted to the
Surviving Corporation's key executives and other individuals pursuant to
the terms set forth therein.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the Shareholders):
(a) by mutual written consent;
(b) by either the Company or InnerSpace, if the Merger has not been
consummated by June 30, 2003; provided, however, that the right to
terminate this Agreement under this subsection (b) shall not be
available to any party (i) whose failure to fulfill or cause to be
fulfilled any obligation under this Agreement has been the cause of,
or resulted in, the failure of the Effective Time to occur on or
before such date or (ii) for a period of 10 business days after the
expiration by its terms of any temporary restraining order ("TRO")
prohibiting or enjoining the Merger or a ruling on any preliminary
injunction motion relating to such TRO;
(c) by either the Company or InnerSpace, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any
judgment, injunction, order or decree enjoining InnerSpace, the
Purchaser or the Company from consummating the Merger is entered and
such judgment, injunction, order or decree shall become final and
nonappealable; provided, however, that the party seeking to terminate
this Agreement pursuant to this subsection (c) shall have used all
reasonable efforts to remove such judgment, injunction, order or
decree;
(d) by the Company, in the event of a material breach by InnerSpace of any
representation, warranty or agreement contained herein which has not
been cured or is not curable by June 30, 2003;
(e) by InnerSpace, in the event of a material breach by the Company of any
representation, warranty or agreement contained herein which has not
been cured or is not curable by June 30, 2003.
8.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement
pursuant to Section 8.1 hereof, there shall be no further obligation on the
part of any party hereto, except that nothing herein shall relieve any
party from liability for any willful breach hereof.
40
8.3 AMENDMENT. This Agreement may not be amended except by an instrument in
writing signed by InnerSpace, the Purchaser and the Company; provided,
however, that after approval of this Agreement by the Company's
shareholders, no amendment will be made which by applicable law requires
the further approval of the Company's shareholders without obtaining such
further approval.
8.4 WAIVER. At any time prior to the Effective Time, InnerSpace may (a) extend
the time for the performance of any obligation or other act of the Company,
(b) waive any inaccuracy in the representations and warranties of the
Company contained herein or in any document delivered pursuant hereto, or
(c) waive compliance with any agreement of the Company or any condition to
the obligations of InnerSpace and the Purchaser contained herein. At any
time prior to the Effective Time, the Company may (a) extend the time for
the performance of any obligation or other act of InnerSpace or the
Purchaser, (b) waive any inaccuracy in the representations and warranties
of InnerSpace or the Purchaser contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any agreement of
InnerSpace or the Purchaser or any condition to the obligations of the
Company contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
ARTICLE 9
SURVIVAL AND INDEMNIFICATION
9.1 SURVIVAL. All representations and warranties contained in this Agreement or
in the other Operative Documents or in any certificate delivered pursuant
hereto or thereto shall survive the Closing for a period of 12 months after
the Effective Time (the "Survival Period"); provided, however, that any
claim based on fraud shall survive the Closing indefinitely. The covenants
and agreements contained in this Agreement or in the other Operative
Documents shall survive the Closing and shall continue until all
obligations with respect thereto shall have been performed or satisfied or
shall have been terminated in accordance with their terms. The waiver of
any condition based on the accuracy of any representation or warranty, or
on the performance of or compliance with any covenant or obligation, will
not affect the right to indemnification or any other remedy based on such
representations, warranties, covenants and obligations.
9.2 INDEMNIFICATION BY THE HOLDERS OF INNERSPACE CAPITAL STOCK. Subject to the
limitations set forth in this Article 9, from and after the Closing, each
Shareholder shall indemnify and hold InnerSpace, its officers, directors
and affiliates (as "affiliate" is defined in Rule 12b-2 of the Exchange
Act) harmless from and against, and shall reimburse the indemnified parties
for, any and all losses, damages, debts, liabilities, obligations,
judgments, orders, awards, writs, injunctions, decrees, fines, penalties,
Taxes, costs or expenses (including, but not limited to, any reasonable
legal or accounting fees or expenses and any Taxes or other costs or
damages arising under, caused by or related to Section 280G of the Code or
any comparable provision of state, local or foreign law) ("Losses") arising
out of (i) any inaccuracy or misrepresentation in, or breach of, any
representation or warranty made by the Company or such Shareholder in this
41
Agreement or in any other Operative Document or (ii) any failure by the
Company or such Shareholder to perform or comply, in whole or in part, with
any covenant or agreement in this Agreement or in any other Operative
Document.
9.3 THRESHOLD AND LIMITATIONS; ADJUSTMENT OF MERGER CONSIDERATION
(a) Innerspace, each Shareholder and the Company, as the case may be shall
not be entitled to receive any indemnification payment with respect to
any claims for indemnification under this Article 9 ("Claims") until
the aggregate Losses for which the indemnified parties would otherwise
be entitled to receive indemnification exceed $25,000 (the
"Threshold"); provided, however, that once such aggregate Losses
exceed the Threshold, the indemnified parties shall be entitled to
indemnification for the aggregate amount of all Losses without regard
to the Threshold.
(b) (i) Except for Losses based upon a claim of fraud, the obligation of
the Shareholders to indemnify InnerSpace under Section 9.2 shall be
InnerSpace's sole remedy under this Agreement or under any other
Operative Document against the Shareholders. Except as otherwise
provided in Sections 9.5(b)(ii) and 9.5(b)(iii) such indemnity
obligations shall be limited to 10% of the Base Amount in the
aggregate (the "Initial Loss Limit"), and at no time shall such
indemnity obligations of any Shareholder exceed such Shareholder's pro
rata portion of the Interwest Escrow Shares constituting the Initial
Loss Limit (as determined in accordance with Section 9.5(d) below).
(ii) Notwithstanding any other provision of this Agreement to the
contrary, the indemnity obligations of the Shareholders under Section
9.2 for Losses (A) based upon claims arising in connection with
Section 3.14 and (B) relating to any third party with whom the Company
has executed a nondisclosure or similar agreement shall be limited to
the Interwest Escrow Shares, and at no time shall any Shareholder's
indemnity obligations under Section 9.2 exceed such Shareholder's pro
rata portion of the Interwest Escrow Shares (as determined in
accordance with Section 9.5(d) below). (iii) Notwithstanding any other
provision of this Agreement to the contrary, the indemnity obligations
of the Shareholders under Section 9.2 for Losses based upon claims of
fraud shall not be limited.
(c) An indemnifying party shall not be obligated to defend and hold
harmless an indemnified party, or otherwise be liable to such party,
with respect to any claims made by the indemnified party after the
expiration of the applicable time period as set forth in Section 9.1
hereof. Notwithstanding the foregoing, indemnity may be sought after
the expiration of the Survival Period pursuant to this Article 9 if a
Claim Notice (as defined in Section 9.5(a) hereof) shall have been
delivered to the indemnifying party prior to the expiration of the
Survival Period.
42
(d) The indemnification obligations of the Shareholders under this Article
9 shall be satisfied by means of the release from escrow to InnerSpace
of Interwest Escrow Shares in accordance with the provisions of the
Interwest Escrow Agreement. The number of Interwest Escrow Shares to
be released from escrow to InnerSpace in payment of any Claims shall
be determined by dividing (x) the aggregate dollar amount of such
Claims by (y) the Closing Price. The aggregate value of Claims paid by
means of such release to InnerSpace of Interwest Escrow Shares shall
be deemed to reduce the total Merger Consideration otherwise payable
to the Shareholders pursuant to Section 1.7 of this Agreement. Any
such Claims shall be deemed to reduce the Interwest Escrow Shares, pro
rata with respect to each Shareholder, as determined by reference to
the number of shares comprising the Merger Consideration such
Shareholder is entitled to receive in the Merger as compared to all
other Shareholders; provided, however, that any Claims paid with
respect to any Loss related to any representation, warranty, covenant
or agreement of a Shareholder shall not result in a pro rata reduction
of the Interwest Escrow Shares but shall reduce only the Interwest
Escrow Shares of such Shareholder.
9.4 INDEMNIFICATION BY INNERSPACE AND PURCHASER. Subject to the limitations set
forth in this Article 9, from and after the Closing InnerSpace and
Purchaser shall indemnify and hold the Shareholders and the Company, its
officers, directors and affiliates (as "affiliate" is defined in Rule 12b-2
of the Exchange Act (the "Company") harmless from and against, and shall
reimburse Shareholder or Company for, any and all losses, damages, debts,
liabilities, obligations, judgments, orders, awards, writs, injunctions,
decrees, fines, penalties, Taxes, costs or expenses (including, but not
limited to, any reasonable legal or accounting fees or expenses and any
Taxes or other costs or damages arising under, caused by or related to
Section 2806 of the Code or comparable provision of state, local or foreign
law) ("Losses") arising out of (i) any inaccuracy or misrepresentation in,
or breach of, any representation or warranty made by InnerSpace or
Purchaser in this Agreement or in any other Operative Document or (ii) any
failure by InnerSpace or Purchaser to perform or comply, in whole or in
party, with any covenant or agreement in this Agreement or in any other
Operative Document.
9.5 PROCEDURE FOR INDEMNIFICATION
(a) An indemnified party shall give written notice (the "Claim Notice") of
any Claim for indemnification under this Article 9 to the indemnifying
party, reasonably promptly after the assertion against an indemnified
party of any claim by a third party (a "Third Party Claim") or, if
such Claim is not in respect of a Third Party Claim, reasonably
promptly after the discovery of facts upon which the indemnified party
intends to base a Claim for indemnification pursuant to this Article
9.5.
(b) The procedures to be followed by the indemnified party with respect to
contesting whether a Claim is an indemnifiable Claim shall be as set
forth in the Interwest Escrow Agreement.
43
(c) (i) Subject to the rights of or duties to any insurer or other third
party having potential liability therefor, the indemnifying party,
shall have the right, upon written notice to the indemnified party
within 30 days after receipt of the notice from the indemnified party
of any Third Party Claim, to assume the defense or handling of such,
Third Party Claim, at the indemnifying party's sole expense, in which
case the provisions of Section 9.5(c)(ii) hereof shall govern;
provided, however, that, notwithstanding the foregoing, the
indemnified party may elect to assume the defense and handle any such
Third Party Claim if it determines in good faith that the resolution
of such Third Party Claim could result in an adverse impact on the
business, operations, assets, liabilities (absolute, accrued,
contingent or otherwise), condition (financial or otherwise) or
prospects of indemnified party, in which case the provisions of
Section 9..5(d)(ii) hereof shall govern. (ii) The indemnifying party,
on behalf of the indemnifying party, shall select counsel reasonably
acceptable to the indemnified party in connection with conducting the
defense or handling of such Third Party Claim, and the indemnifying
party shall defend or handle the same in consultation with the
indemnified party and shall keep the indemnified party timely apprised
of the status of such Third Party Claim. The indemnifying party shall
not, without the prior written consent of the indemnified party, agree
to a settlement of any Third Party Claim, unless (A) the settlement
provides an unconditional release and discharge of the indemnified
party and the indemnified party is reasonably satisfied with such
discharge and release and (B) the indemnified party shall not have
reasonably objected to any such settlement on the ground that the
circumstances surrounding the settlement could result in an adverse
impact on the business, operations, assets, liabilities (absolute,
accrued, contingent or otherwise), condition (financial or otherwise)
or prospects of the indemnified party. The indemnified party shall
cooperate with the indemnifying party and shall be entitled to
participate in the defense or handling of such Third Party Claim with
its own counsel and at its own expense.
(d) (i) If (A) the indemnifying party does not give written notice to the
indemnified party pursuant to Section 9.5(c)(i) within 30 days after
receipt of the notice from the indemnified party of any Third Party
Claim of the indemnifying party's election to assume the defense or
handling of such Third Party Claim or (B) indemnified party elects to
assume the defense and the handling of such Third Party Claim pursuant
to Section 9.5(c)(i), the provisions of Section 9.5(d)(ii) hereof
shall govern. (ii) The indemnified party may, at the indemnifying
party's expense (which shall be paid from time to time by the
indemnifying party, on behalf of the indemnifying party, as such
expenses are incurred by the indemnified party), select counsel, after
consultation with the indemnifying party, in connection with
conducting the defense or handling of such Third Party Claim and
defend or handle such Third Party Claim in such manner as the
indemnified party may deem appropriate; provided, however, that the
indemnified party shall keep the indemnifying party timely apprised of
the status of such Third Party Claim and shall not settle such Third
44
Party Claim without the prior written consent of the indemnifying
party, which consent shall not be unreasonably withheld. If the
indemnified party defends or handles such Third Party Claim, the
indemnifying party shall cooperate with the indemnified party and
shall be entitled to participate in the defense or handling of such
Third Party Claim with its own counsel and at its own expense.
9.6 REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided, the
indemnification provisions of this Article 9 are the sole and exclusive
remedy of any party to this Agreement for a breach of any representation,
warranty or covenant contained herein. Notwithstanding the preceding
sentence, each of the parties acknowledges and agrees that the other
parties hereto would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
hereto agrees that the other parties hereto shall be entitled to an
injunction to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof
(including the indemnification provisions hereof) in any competent court
having jurisdiction over the parties, in addition to any other remedy to
which they may be entitled at law or in equity.
ARTICLE 10
GENERAL
10.1 EXPENSES. Provided the transactions contemplated by this Agreement are
consummated, the Surviving Corporation shall pay all fees and expenses
(including, without limitation, legal and accounting fees and expenses)
incurred by the parties hereto incident to the negotiation, preparation and
execution of this Agreement and the other Operative Documents.
10.2 NOTICES. Any notice, request or demand desired or required to be given
hereunder shall be in writing given by personal delivery, confirmed
facsimile transmission, or overnight courier service, in each case
addressed as respectively set forth below or to such other address as any
party shall have previously designated by such a notice. The effective date
of any notice, request or demand shall be the date of personal delivery,
the date on which successful facsimile transmission is confirmed or the
date actually delivered by a reputable overnight courier service, as the
case may be, in each case properly addressed as provided herein and with
all charges prepaid.
TO INNERSPACE OR THE PURCHASER:
InnerSpace Corporation
0000X Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Chief Executive Officer
With a copy to:
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Xxxxxx X. Xxxxx, P.C.
0000X Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
TO THE COMPANY:
SurfNet Media Group, Inc.
0000 Xxxx Xxxxxxxxxx Xxxxx, Xxxxx 0
Xxxxx, XX 00000
Attention: President
With a copy to:
Xxxxx & XxXxxxx, P.L.C.
0000 X. Xxxxxx Xxxx, Xxxxx X
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. XxXxxxx
10.3 SEVERABILITY. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent
possible.
10.4 ENTIRE AGREEMENT. This Agreement and the other Operative Documents
constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof and thereof.
10.5 ASSIGNMENT. This Agreement shall not be assigned prior to the Closing by
operation of law or otherwise.
10.6 PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely
to the benefit of the parties hereto and their respective successors,
heirs, legal representatives and permitted assigns, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any
other Person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
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10.7 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware applicable to contracts
executed in and to be performed in that state. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined
in any Delaware court.
10.8 HEADINGS. The descriptive headings contained in this Agreement are included
for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.9 COUNTERPARTS. This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement. To expedite the process of
entering into this Agreement, the parties acknowledge that Transmitted
Copies of this Agreement will be equivalent to original documents until
such time as original documents are completely executed and delivered.
"Transmitted Copies" will mean copies that are reproduced or transmitted
via photocopy, facsimile or other process of complete and accurate
reproduction and transmission.
10.10 WAIVER OF JURY TRIAL. Each of InnerSpace, the Company and the Purchaser
hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement, the transactions contemplated
hereby or the actions of such parties in the negotiation, administration,
performance and enforcement hereof.
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IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement and Plan of Merger as of the date and year first above written.
INNERSPACE CORPORATION
/s/ Xxxxxx X. Xxxxx
By:____________________________
Xxxxxx X. Xxxxx,
Chief Executive Officer
SURFNET NEW MEDIA, INC.
/s/ Xxxxxxx Xxxxxxx
By:____________________________
Xxxxxxx Xxxxxxx,
President
SURFNET MEDIA GROUP, INC.
/s/ Xxxxxxx Xxxxxxx
By:____________________________
Xxxxxxx Xxxxxxx,
President