EXHIBIT 2.1
AGREEMENT AND PLAN OF EXCHANGE
BY AND BETWEEN
ACTIVEWORLDS CORP.
ACTIVEWORLDS, INC.
X.X. XXXXXXXXX
AND
XXXXXXX X. XXXX
DATED AS OF JULY 10, 2002
AGREEMENT AND PLAN OF EXCHANGE
AGREEMENT AND PLAN OF EXCHANGE dated as of July 10, 2002 (the
"Agreement") by and between Activeworlds Corp., a corporation formed under the
laws of the State of Delaware ("Activeworlds"), Activeworlds, Inc., a
corporation formed under the laws of the State of Nevada ("Subsidiary"), X.X.
XxXxxxxxx ("XxXxxxxxx"), an individual and resident of the Commonwealth of
Massachusetts and Xxxxxxx X. Xxxx ("Xxxx"), an individual and resident of the
Commonwealth of Massachusetts. Activeworlds, Subsidiary, XxXxxxxxx and Xxxx are
referred to herein individually as a "Party" and collectively as the "Parties."
PREAMBLE
WHEREAS, a committee comprised of the three independent members of the
Board of Directors of Activeworlds has determined that the sale of the business
operations (the "Business") of Activeworlds through an exchange of the shares of
Activeworlds held by Xxxx and XxXxxxxxx for all of the shares of the Subsidiary
and the Cash Consideration (the "Transaction") is advisable and in the best
interests of Activeworlds and its stockholders, and presents an opportunity for
Activeworlds to pursue other areas of business which may achieve long-term
strategic and financial benefits;
WHEREAS, Subsidiary is a wholly-owned subsidiary of Activeworlds which
on the execution of this Agreement owns all of the operating assets (excluding
certain cash) of the Business;
WHEREAS, Xxxx and XxXxxxxxx desire to acquire the Business, including
certain assets and Assumed Liabilities thereof pursuant to an exchange
transaction whereby
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Activeworlds shall repurchase 2,595,445 shares of its common stock held by
XxXxxxxxx and Xxxx in exchange for and in consideration of (the "Exchange") the
Cash Consideration and 100% of the issued and outstanding shares of common stock
of Subsidiary (the "Exchange Shares"); and
WHEREAS, the obligations of each of Activeworlds, Subsidiary, XxXxxxxxx
and Xxxx to effect the Exchange is subject to the conditions set forth in
Article VI hereof, including but not limited to the transfer of the tangible and
intangible assets of Activeworlds to the Subsidiary as set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations and warranties contained herein, the Parties hereto,
intending to be legally bound, hereby agree as follows: CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
"ACTIVEWORLDS" refers to Activeworlds Corp., a Delaware corporation, and when
used in Article III also includes the Subsidiary except where the context
otherwise requires.
"APPLICABLE LAWS" means all domestic or foreign law, statute, regulation, rule,
policy, guideline or ordinance applicable to the Parties.
"ASSUMED LIABILITIES" means all liabilities of Activeworlds (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
liquidated or unliquidated, and whether due or to become due) which relate to
its operation of the Business including (a) all liabilities of Activeworlds for
costs and expenses of Subsidiary in excess of the amount to be paid by
Activeworlds pursuant to Section 1.01(iv) below, (b) all liabilities and
obligations of Activeworlds under any employee benefit plan, and (c) all
liabilities of
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Activeworlds under agreements, contracts (including employment agreements of
Xxxx and XxXxxxxxx), leases, licenses, and other arrangements referred to in the
definition of Transferred Assets. The Assumed Liabilities shall specifically not
include (a) any liability arising under that certain lawsuit pending between the
Company and Juno Online (hereafter the "Juno Litigation"), (b) any obligation
owing to any public relations or investment relations firm, (c) any Tax, (d) any
expense or fee relating to any SEC filing (including but not limited to the
Proxy Statement), (e) any obligation of Activeworlds to indemnify any Person by
reason of the fact that such person was a director, officer, employee or agent
of Activeworlds or was serving at the request of Activeworlds as a partner,
trustee, director, officer, employee, or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs, amounts paid
in settlement, losses, expenses or otherwise and whether such indemnification is
pursuant to any statute, charter document, bylaw, agreement or otherwise) or (f)
any fee or expense incurred for the benefit of Activeworlds following the
execution of this Agreement.
"DOLLAR" and "$" means lawful money of the United States of America.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States of
America as promulgated by the American Institute of Certified Public Accountants
and the Financial Accounting Standards Board or any successor Institutes
concerning the treatment of any accounting matter.
"KNOWLEDGE" means the knowledge of a Party after reasonable investigation.
"LIEN" means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest, encumbrance or other adverse claim of any kind in
respect of such property or asset.
"MATERIAL ADVERSE EFFECT" means any event, change or occurrence which
individually or
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together with any other event, change or occurrence insofar as can reasonably be
foreseen, could result in a materially adverse effect on Activeworlds or the
Subsidiary, or material adverse change on the financial condition, business,
properties, assets, results of operations, management or future prospects of
either of them since March 31, 2002.
"NRS" means the Nevada Revised Statutes, Chapters 78 - Private Corporations and
92A - Mergers and Exchanges of Interest, inclusive.
"PERSON" means any individual, corporation, partnership, trust or unincorporated
organization or a government or any agency or political subdivision thereof.
"SEC" means the United States Securities and Exchange Commission.
"SEC DOCUMENTS" means any registration statement, report or other document filed
with the SEC by Activeworlds.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TAX" (and, with correlative meaning, "Taxes" and "Taxable") means:
(i) any net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll employment, excise, severance, stamp, occupation, property,
environmental 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 or any penalty, addition to tax or additional amount imposed by any
governmental entity (a "Tax Authority") responsible for the imposition of any
such tax (domestic or foreign), and
(ii) any liability for the payment of any amounts of the type described
in clause (i) above as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period, and
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(iii) any liability for the payment of any amounts of the type
described in clauses (i) or (ii) above as a result of any express or implied
obligation to indemnify any other person. "TAX RETURN" means any return,
statement, report or form, including, without limitation, estimated Tax Returns
and reports, withholding Tax Returns and reports and information reports and
returns required to be filed with respect to Taxes.
ARTICLE I
THE EXCHANGE
SECTION 1.01 THE EXCHANGE.
Upon the terms and subject to the conditions set forth in this
Agreement and in accordance with the NRS, at the closing of the transactions
contemplated hereunder (the "Closing"), Xxxx and XxXxxxxxx shall transfer
1,305,948 and 1,289,497 shares, respectively, of their Activeworlds' common
stock (which represents all but 100,000 shares each of their shares of
Activeworlds common stock and those shares not being sold to Xxxxxxx Xxxxxxx) in
exchange for equal portions of the Exchange Shares and their stated share of the
Cash Consideration. In connection therewith, the following terms shall apply:
(i) Exchange Provisions. At the Closing, and subject to the terms and
conditions of this Agreement, Xxxx and XxXxxxxxx shall exchange their respective
shares of Activeworlds common stock, as such common stock is set forth on
Schedule 1.01 hereto (the "Activeworlds Shares"), in exchange for an equal
amount of the Exchange Shares as set forth on Schedule 1.01. In connection
therewith, Xxxx and XxXxxxxxx shall convey to Activeworlds good and marketable
title to the Activeworlds Shares, free and clear of all Liens, claims, debts,
obligations or other encumbrances except such restrictions as are imposed by
federal or state securities laws.
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Activeworlds shall convey to Xxxx and XxXxxxxxx good and marketable title to the
Exchange Shares as set forth on Schedule 1.01 hereto, free and clear of all
Liens, claims, debts, obligations or other encumbrances, except such
restrictions as are imposed by federal or state securities laws. The principles
governing the mechanics of the Exchange are more fully set forth under Section
1.08 hereinafter.
(ii) Cash Consideration; Escrow. As additional consideration for the Exchange,
Activeworlds shall pay to Xxxx the amount of $215,000 (less any amount paid to
him pursuant to Section 1.05) and to XxXxxxxxx the sum of $210,000 (less any
amount paid to him pursuant to Section 1.05) (the "Cash Consideration"). The
Cash Consideration shall be payable at Closing in certified bank funds. Upon the
execution of this Agreement the amount of $440,000 shall be placed in escrow
with the law firm Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP (the "Escrow
Agent"). These funds shall be released as follows: (a) in the event the
Transaction hereunder closes prior to the Termination Date, the amount of
$215,000 (less any amount paid to him pursuant to Section 1.05) shall be paid to
Xxxx; the amount of $210,000 (less any amount paid to him pursuant to Section
1.05) shall be paid to XxXxxxxxx; an amount equal to the amount of XxXxxxxxx and
Xxxx'x counsel's legal fees incurred in connection with the Transaction (up to
$15,000) shall be paid to Xxxxxx Xxxxxx LLP (the "Legal Fees"); and any balance
shall be paid to Activeworlds; or (b) in the event the Transaction does not
close prior to the Termination Date, all funds deposited with the Escrow Agent
shall be paid to Activeworlds, less the amount of any Legal Fees, which amount
shall be released to counsel for XxXxxxxxx and Xxxx.
(iii) Exemption from Registration. The Parties intend that the exchange
of the Exchange Shares, to be conveyed by Activeworlds to Xxxx and XxXxxxxxx,
shall be exempt
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from the registration requirements of the Securities Act pursuant to Section
4(2) of the Securities Act and the rules and regulations promulgated thereunder.
(iv) Legal Fees. Activeworlds shall pay at the Closing (a) all legal
fees incurred by Xxxx and XxXxxxxxx in connection with their consummating the
Exchange up to an aggregate of $15,000, (b) all legal fees incurred by
Activeworlds and owed to Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP in
connection with their consummating the Exchange up to $15,000, and (c) all legal
fees incurred by Activeworlds and owed to Xxxxxx & Xxxxxxx, LLP in connection
with their consummating the Exchange.
SECTION 1.02 CLOSING.
The Closing will take place at the offices of Xxxxxxx, Savage,
Kaplowitz, Wolf & Marcus, LLP ("GSK"), at 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, on the day immediately following the satisfaction or waiver of the
conditions precedent set forth in Article VI or at such other date or in such
other manner as the Parties shall agree (the "Closing Date"), but in any event
no later than August 15, 2002.
SECTION 1.03 EFFECT OF THE EXCHANGE.
At and after the Closing, the Exchange shall be effective as provided
by the applicable provisions of the NRS. The existence of the Subsidiary, with
all of its purposes and powers, shall continue unaffected and unimpaired by the
Exchange, and shall remain governed by the laws of the State of Nevada, with the
exception that it shall be wholly owned by Xxxx and XxXxxxxxx. The existence of
Activeworlds shall continue unaffected and unimpaired as a corporation governed
by the laws of Delaware.
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SECTION 1.04 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Pursuant to the Exchange:
(i) The Articles of Incorporation and Bylaws of the Subsidiary as in
effect immediately prior to the Closing shall be the initial Articles of
Incorporation and Bylaws of Subsidiary following the Exchange.
(ii) The officers and directors of the Subsidiary following the
Exchange shall initially be those persons listed on Schedule 1.04.
SECTION 1.05 ACTIVEWORLDS' LIABILITY FOR BUSINESS COSTS.
Upon execution of this Agreement, (a) Activeworlds shall cease to be
responsible for any and all costs and expenses relating to or arising from in
any manner, from the operation of the business being conducted by the Subsidiary
or will be conducted by it following the Closing, including but not limited to
costs, expenses, taxes and the like for salaries, rent, and general operating
overhead (which shall not include any expenses incurred in connection with
Activeworlds' being a public company or which are expressly excluded from the
definition of Assumed Liabilities), (b) all operating revenue payable to
Activeworlds (which specifically excludes interest paid on Activeworlds' bank
account) or the Subsidiary shall be forwarded to or retained by the Subsidiary,
and (c) any proceeds obtained by Activeworlds from a final resolution or
settlement of the Juno Litigation shall remain the property of Activeworlds.
From the date of execution of this Agreement until the Closing Date,
Activeworlds shall advance to each of Xxxx and XxXxxxxxx an amount equal to
their gross salaries payable in accordance with their respective employment
agreements and current practices. If the transaction closes as
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contemplated hereunder, then all salaries paid to Xxxx and XxXxxxxxx shall be
considered an advance of the cash consideration to be paid to each of them under
this Agreement. If the transaction does not close as contemplated hereunder,
then the employment agreements of each of Xxxx and XxXxxxxxx shall be reinstated
as of the termination date of this Agreement as though such agreements had never
been cancelled except that Activeworlds shall have no liability for the salaries
not paid to them.
SECTION 1.06 FURTHER ACTIONS.
If at any time after the Closing, Xxxx and XxXxxxxxx shall consider or
be advised that any further assignment or assurances or any other things that
are necessary or desirable to vest, perfect or confirm, of record or otherwise,
in the Subsidiary, the title to any property or right of the Subsidiary acquired
or to be acquired by reason of or as a result of the Exchange, then Activeworlds
and its respective officers and directors in office shall use all reasonable
efforts to execute and deliver, or cause to be executed and delivered, all such
proper deeds, assignments and assurances and do all things reasonably necessary
and proper to vest, perfect or confirm title to such property or rights in the
Subsidiary and otherwise carry out the purpose of this Agreement.
SECTION 1.07 RESTRICTIONS ON RESALE.
The Exchange Shares will not be registered under the Securities Act, or
the securities laws of any state, and absent an exemption from registration
contained in such laws, cannot be transferred, hypothecated, sold or otherwise
disposed of until; (i) a registration statement with respect to such securities
is declared effective under the Securities Act, or (ii) the Subsidiary
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receives an opinion of counsel that an exemption from the registration
requirements of the Securities Act is available.
The certificates representing the number of Exchange Shares for which
Xxxx and XxXxxxxxx shall acquire pursuant to this Agreement shall contain
legends substantially as follows:
"THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER
SUCH ACT, OR ACTIVEWORLDS, INC. RECEIVES AN OPINION OF COUNSEL FOR
ACTIVEWORLDS, INC. REASONABLY SATISFACTORY TO SUCH COUNSEL THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE."
SECTION 1.08 EXCHANGE OF CERTIFICATES.
(i) Exchange of Certificates. At Closing, Xxxx and XxXxxxxxx shall be
required to surrender all of their Activeworlds Shares listed on Schedule 1.01
hereto to GSK (the "Exchange Agent"), with executed stock powers endorsed with
medallion guarantees, and Xxxx and XxXxxxxxx shall be entitled upon such
surrender to receive in exchange therefor certificates representing their
proportionate number of Exchange Shares. All certificates representing
Activeworlds Shares exchanged for Exchange Shares pursuant to this Article I
shall be issued to Xxxx and XxXxxxxxx subsequent to delivery thereof to the
Exchange Agent pursuant to this Agreement.
(ii) Full Satisfaction of Rights. All Exchange Shares for which the
Activeworlds Shares shall have been exchanged pursuant to this Article I shall
be deemed to have been issued in full satisfaction of all rights pertaining to
the Activeworlds Shares.
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ARTICLE II
TRANSFER OF PROPERTIES AND ASSETS
SECTION 2.01 TRANSFER.
Subject to the terms and conditions of this Agreement, and in reliance
on the representations, warranties, undertakings and agreements of Xxxx and
XxXxxxxxx made hereunder, and in consideration of the Exchange, Activeworlds
hereby agrees to transfer, convey, assign and deliver to Subsidiary at or prior
to the Closing all those assets of Activeworlds set forth in Schedule 2.01
attached hereto, which shall include but not be limited to: (a) all fixed assets
including, but not limited to, equipment and fixtures as the same may exist on
the Closing Date, which assets shall be in substantially the same condition and
form on the Closing Date as such fixed assets are on the date of the execution
of this Agreement, subject to normal wear and tear (the "Fixed Assets"); (b) all
contracts, including without limitation, certain leases and leasehold rights
held by Activeworlds as the same may exist on the Closing Date (the
"Contracts"); and (c) all intangible assets including Activeworlds' patents,
trademarks and trade names on a worldwide basis, the Activeworlds source code,
object code and other technology and all licenses held by the Company in and to
any software (the "Intangible Assets") (the Fixed Assets, Contracts and
Intangible Assets are collectively referred to as the "Transferred Assets") free
and clear from any and all Liens , together with all rights now or hereafter
attaching thereto. It is understood and agreed that the assets listed as
"Excluded Assets" on Schedule 2.01(b) attached hereto shall be excluded from the
Transferred Assets (the "Excluded Assets").
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SECTION 2.02 ASSUMPTION OF LIABILITIES.
Subsidiary shall assume all of the Assumed Liabilities, and agree to be
liable for all obligations thereunder. It is understood and agreed that
Subsidiary will not assume and be liable for any of Activeworlds' other
liabilities not included in or excluded from the definition of Assumed
Liabilities.
SECTION 2.03 INSTRUMENT OF CONVEYANCE, TRANSFER, ASSUMPTION, ETC.
(i) Conveyance, Transfer and Assumption. Activeworlds shall properly
execute and deliver to Subsidiary at the Closing assignments with respect to
each of the contracts, leases and other agreements and rights to be assigned to
Subsidiary hereunder, including without limitation, certain leases and leasehold
rights held by Activeworlds and where required for such assignment, the consent
or waiver of any third party, in each case in form reasonably satisfactory to
Xxxx and XxXxxxxxx. On the Closing Date, the Subsidiary shall have obtained the
assignments with respect to each of the leases listed on Schedule 2.03 attached
hereto and, where required for such assignments, the consent of each lessor.
(ii) Possession. Simultaneously with the Closing, Activeworlds shall
take all steps requisite to put Subsidiary in actual possession and operating
control of the Transferred Assets.
SECTION 2.04 FURTHER ASSURANCES.
At the Closing and from time to time after the Closing as may
reasonably be requested by Xxxx or XxXxxxxxx from time to time and without
further consideration, (i) Activeworlds shall promptly execute and deliver to
Subsidiary certificates and other instruments of assumption conveyance,
assignment or transfer, and take such other action to confirm any obligation
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assumed by Subsidiary and to convey, assign and transfer to and vest in
Subsidiary or to put Subsidiary in possession of the Transferred Assets. To the
extent that any consents, waivers or approvals necessary to convey items of
Transferred Assets to Subsidiary are not obtained prior to the Closing,
Activeworlds shall provide to Subsidiary, at the reasonable request of Xxxx or
XxXxxxxxx, the benefits of any such Transferred Asset, or hold the same in trust
for Subsidiary.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF XXXX AND XXXXXXXXX
Xxxx and XxXxxxxxx, jointly and severally, both personally and in their
capacities as officers and directors of Activeworlds, hereby represent and
warrant to Activeworlds, as of the date of this Agreement and as of the Closing
Date, as follows:
SECTION 3.01 STANDING AND POWER.
This Agreement constitutes Xxxx and XxXxxxxxx'x valid and legally
binding obligation, enforceable against each of them in accordance with its
terms. Xxxx and XxXxxxxxx represent that they have full power and authority to
execute and deliver this Agreement to perform their obligation hereunder.
SECTION 3.02 INVESTMENT PURPOSE.
Each of Xxxx and XxXxxxxxx are acquiring the Exchange Shares for their
own account, for investment and not with a view to the distribution thereof, nor
with any present intention of distributing the same in violation of the
Securities Act, and the rules and regulations promulgated thereunder, or any
applicable state securities laws, rules and regulations (collectively, "Blue Sky
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Laws"). Each of Xxxx and XxXxxxxxx understand that the Exchange Shares have not
been registered under the Securities Act or registered or qualified under any
Blue Sky Laws, by reason of their issuance in a transaction which does not
require registration under the Securities Act, or registration or qualification
under any Blue Sky Laws, and that the securities must be held indefinitely
unless a subsequent disposition thereof exempt from registration or
qualification. Xxxx and XxXxxxxxx are the only executive officers of the
Subsidiary and are therefore "accredited investors" as defined under Regulation
D promulgated under the Securities Act.
SECTION 3.03 DISCLOSURE OF INFORMATION.
Xxxx and XxXxxxxxx believe that they have received all the information
they consider necessary or appropriate for deciding whether to surrender their
Activeworlds Shares in exchange for the Exchange Shares. Xxxx and XxXxxxxxx
further represent that they have had an opportunity to ask questions and receive
answers from Activeworlds regarding the terms and conditions of this Agreement.
By reason of their business and financial experience and the fact that they are
executive officers of Subsidiary, each of Xxxx and XxXxxxxxx has the capacity to
protect his own interest in connections with the transactions contemplated
herein. Except for the representations and warranties of Activeworlds set forth
herein, neither Xxxx nor XxXxxxxxx are relying on any other representation or
warranty of Activeworlds.
SECTION 3.04 CONSIDERATION.
The Parties acknowledge and agree that the consideration provided for
under this Agreement represents fair consideration and reasonable equivalent
value for the sale and transfer of the Transferred Assets and the transactions
covenants, and agreements set forth in this
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Agreement, which consideration was agreed upon as the result of arms'-length
good faith negotiations between the Parties and their respective
representatives.
SECTION 3.05 RIGHT AND TITLE.
Xxxx and XxXxxxxxx represent that they own their Activeworlds Shares
free and clear of any Liens and no other Person has any equity interest in, or
right (contingent or otherwise) to acquire their Activeworlds Shares .
SECTION 3.06 ORGANIZATION, STANDING AND POWER.
Activeworlds is a corporation duly formed, validly existing and in good
standing under the laws of the State of Delaware, and has full corporate power
and authority to conduct its business as presently conducted by it and to enter
into and perform this Agreement and to carry out the transactions contemplated
by this Agreement. Activeworlds is duly qualified to do business in each state
or other jurisdiction in which it owns or leases real property and where the
failure to be so qualified and in good standing would have a Material Adverse
Effect. Activeworlds does not have any ownership interest in any corporation,
partnership (general or limited), limited liability company or other entity,
whether foreign or domestic (collectively such ownership interests including
capital stock) other than the Subsidiary.
SECTION 3.07 CAPITALIZATION.
As of the date of this Agreement, there were 8,515,235 issued and
outstanding shares of common stock of Activeworlds. No shares of preferred stock
of Activeworlds are issued and outstanding. Except as disclosed in the Financial
Statements, no Person is entitled to any rights
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with respect to the issuance or transfer of the Activeworlds' common stock. The
shares of Activeworlds' common stock have been issued in compliance with all
Applicable Laws.
SECTION 3.08 FINANCIAL STATEMENTS.
Activeworlds' unaudited balance sheet and accompanying income statement
and statement of cash flow as of March 31, 2002, (the "Activeworlds Financial
Statements Date") attached hereto as Exhibit B (collectively, the "Activeworlds
Financial Statements") are true, correct and complete and accurately reflect the
financial condition of the Activeworlds as of such dates. The Activeworlds
Financial Statements fairly present the financial condition of Activeworlds and
cash flows as of the date thereof, and have been prepared in accordance with
GAAP consistently applied. The Activeworlds Financial Statements include all
adjustments necessary to present fairly the information for such period.
SECTION 3.09 LITIGATION.
Other than as listed on Schedule 3.09 attached hereto, there is no
action, suit, litigation, audit or proceeding pending against, or to the best
knowledge of Xxxx and XxXxxxxxx, threatened against or affecting, Activeworlds
or any of its assets or properties before any court or arbitrator or any
governmental body, agency or official.
SECTION 3.10 RESTRICTIONS ON BUSINESS ACTIVITIES.
There is no agreement (non-compete or otherwise), commitment, judgment,
injunction, order or decree to which Activeworlds is a party or otherwise
binding upon Activeworlds which has or may have the effect of prohibiting or
impairing any business practice of Activeworlds, any
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acquisition of property (tangible or intangible) by Activeworlds or the conduct
of business by Activeworlds. Without limiting the foregoing, Activeworlds has
not entered into any agreement under which Activeworlds is restricted from
selling, licensing or otherwise distributing any of its technology or products
to or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
SECTION 3.11 INTERESTED PARTY TRANSACTIONS.
Activeworlds is not indebted to any officer or director of
Activeworlds, and no such person is indebted to Activeworlds.
SECTION 3.12 COMPLIANCE WITH APPLICABLE LAWS.
The business of Activeworlds has not been, and is not being, conducted
in violation of any Applicable Laws, except for possible violations which could
not reasonably be expected to have a Material Adverse Effect on Activeworlds. No
investigation or review by any governmental entity with respect to Activeworlds
is pending or threatened, nor has any governmental entity indicated an intention
to conduct the same, except for investigations or reviews which could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.13 GOVERNMENTAL AUTHORIZATION.
There are no consents, licenses, permits, grants or other
authorizations issued to Activeworlds by a governmental entity (i) pursuant to
which Activeworlds currently operates or holds any interest in any of its
properties or (ii) which is required for the
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operation of the business of Activeworlds or the holding of any such interest
(collectively, the "Activeworlds Authorizations").
SECTION 3.14 ABSENCE OF CHANGES.
Since the Activeworlds Financial Statements Date, other than as
reflected in the Activeworlds Financial Statements, there has not been:
(i) any event, occurrence, development or state of circumstances or
facts which would, individually or in the aggregate, have a Material Adverse
Effect on Activeworlds;
(ii) any amendment of any material term of any outstanding security of
Activeworlds;
(iii) any incurrence, assumption or guarantee by Activeworlds of any
indebtedness for borrowed money;
(iv) any creation or other incurrence by Activeworlds of any Lien on
any material asset;
(v) the making of any loan, advance or capital contributions to or
investment in any Person;
(vi) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or any asset(s) of Activeworlds
which would, individually or in the aggregate, have a Material Adverse Effect on
Activeworlds;
(vii) any transaction or commitment made, or any contract or agreement
entered into, by Activeworlds or any relinquishment by Activeworlds of any
contract or other right;
(viii) any change in any method of accounting, method of tax
accounting, or accounting practice by Activeworlds;
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(xi) any tax election or any settlement or compromise of any tax
liability, in either case that is material to Activeworlds.
SECTION 3.15 OPERATIONS SINCE FINANCIAL STATEMENTS DATE.
Since March 31, 2002, except for as contemplated by this Agreement or
in Activeworlds unaudited financial statements prepared as of such date (the
"Activeworlds Financial Statements"), Activeworlds:
(i) has operated its businesses substantially as it was operated prior
to that date and only in the ordinary course;
(ii) has not declared or otherwise become liable with respect to any
dividend or distribution of cash, assets or capital stock;
(iii) has maintained or kept current its books, accounts, records,
payroll, and filings in the usual and ordinary course of business, consistent in
all material respects with past practice; and
(iv) has not made any capital expenditure, commitment or investment
other than in the ordinary course of business.
SECTION 3.16 NO UNDISCLOSED LIABILITIES.
Except as set forth in Schedule 3.16 or in the Activeworlds' Financial
Statements or as incurred in the ordinary course of Activeworlds' business since
the Financial Statements Date, there are no liabilities or debts of Activeworlds
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
liability
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or debt.
SECTION 3.17 INSURANCE.
Activeworlds has obtained and maintained in full force and effect
insurance with responsible and reputable insurance companies or associations in
such amounts, on such terms and covering such risks, including fire and other
risks insured against by extended coverage, as is reasonably prudent. With
respect to the insurance policies and fidelity bonds covering the assets,
business, equipment, properties and operations of Activeworlds, there is no
claim by Activeworlds pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Activeworlds is otherwise in material compliance with
the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). Activeworlds and Activeworlds have no
Knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
SECTION 3.18 TITLE TO PROPERTIES; LIENS.
Activeworlds does not own any real property. All of the assets of
Activeworlds, except those disposed of in the ordinary course of business, are
free and clear of all Liens except (i) as disclosed on the Activeworlds
Financial Statements, (ii) Liens for current taxes not yet due and payable,
(iii) Liens in favor of any lessor with respect to capital lease obligations
disclosed in Schedule 2.03 attached hereto, (iv) such imperfections of title or
zoning restrictions, easements or encumbrances, if any, as do not materially
interfere with the present use of such property or
20
assets, and (vi) Liens which arise by operation of law.
SECTION 3.19 MATERIAL CONTRACTS.
Except for: (i) contracts with clients and other contracts executed by
Activeworlds in the ordinary course of business; (ii) other material contracts
which are listed on Schedule 2.03 hereof, Activeworlds is not a party to or
bound by any material indenture, lease, license, loan agreement, other agreement
or other instrument (collectively, the "Material Contracts"). Activeworlds'
Material Contracts are enforceable in accordance with their respective terms,
and Activeworlds and Subsidiary are not in violation of, and have received no
notice of being in violation of such Material Contracts.
SECTION 3.20 NON-CONTRAVENTION.
The execution and delivery by Activeworlds and Subsidiary of this
Agreement and the consummation by Activeworlds of the transactions contemplated
hereby and performance of their obligations hereunder do not and will not (i)
violate the Certificate or Articles of Incorporation of Activeworlds or of
Subsidiary, (ii) violate any applicable law, rule, regulation, judgment,
injunction, order or decree, (iii) require any consent or other action by any
Person under, constitute a default under, result in a violation of, conflict
with, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of Activeworlds, or to a loss of any benefit to which
Activeworlds is entitled under any provision of any agreement or other
instrument binding upon Activeworlds, or any license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating in
any way to, the assets or business of Activeworlds, or (iv) result in the
creation or imposition of any Lien on any asset of
21
Activeworlds.
SECTION 3.21 INTELLECTUAL PROPERTY.
Activeworlds (or the Subsidiary) has title to all material patents,
trademarks or trade secrets, or adequate licenses and rights to use the patents,
trademarks, copyrights, trade names and trade secrets of others, necessary to
the conduct of its business. The business of Activeworlds is being carried on
without known conflicts with patents, licenses, trademarks, copyrights, trade
names and trade secrets of others and, to the Knowledge of Activeworlds, no
other persons are conducting their businesses in conflict with patents,
licenses, trademarks, copyrights, trade names and trade secrets used by
Activeworlds.
SECTION 3.22 BROKERS' AND FINDERS' FEES.
Activeworlds has not incurred, nor will it incur, directly or
indirectly, any liability for brokers' or finders' fees or agents' commissions
or investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby, provided, however, this
representation is based upon the assumption that Xxxxxxx Xxxxxxx and/or Baytree
Capital Associates, LLC has waived any right to a commission it may have for the
transaction contemplated by this Agreement.
SECTION 3.23 TAX RETURNS AND PAYMENT.
Except as disclosed in the Activeworlds Financial Statements, there is
no material claim for Taxes that is a lien against the property of Activeworlds
other than Liens for Taxes not yet due and payable. No extension or waiver of
the statute of limitations on the assessment of any
22
Taxes has been granted to Activeworlds which is currently in effect, and
Activeworlds is not a party to any agreement, contract or arrangement with any
Tax Authority, which may result in the payment of any material amount in excess
of the amount reflected on the Activeworlds Financial Statements.
SECTION 3.24 WARRANTY CLAIMS.
There are no material pending or threatened material claims against
Activeworlds for any work performed by Activeworlds for any client, including
but not limited to, any services rendered under any warranties.
SECTION 3.25 FILINGS WITH THE SEC.
Activeworlds has made all filings with the SEC that it has been
required to make under the Securities Act and the Exchange Act. All documents
required to be filed as exhibits to any registration statement, report or other
document filed with the SEC by Activeworlds (the "SEC Documents") have been so
filed, and all material contracts so filed as exhibits are in full force and
effect, except those which have expired in accordance with their terms, and
neither Activeworlds nor any of its subsidiaries is in material default of these
material contracts. Each of Activeworlds' SEC Documents has complied in all
material respects with the Securities Act and the Exchange Act in effect as of
their respective dates. None of Activeworlds' SEC Documents, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
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SECTION 3.26 LIMITATION ON REPRESENTATIONS AND WARRANTIES.
No undisclosed action taken by the Board of Directors of the Company
without the knowledge of X.X. XxXxxxxxx or Xxxxxxx X. Xxxx shall be considered
to be a breach of any of the foregoing representations and warranties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACTIVEWORLDS
Activeworlds represents and warrants to Xxxx and XxXxxxxxx, as of the
date of this Agreement and as of the Closing, as follows:
SECTION 4.01 STANDING AND POWER.
This Agreement constitutes the valid and legally binding obligation of
Activeworlds, enforceable against it in accordance with its terms. Activeworlds
represents that it has full power and authority to execute and deliver this
Agreement and to perform its obligation hereunder.
ARTICLE V
CERTAIN COVENANTS AND AGREEMENTS
SECTION 5.01 PRE-CLOSING COVENANTS OF THE PARTIES.
The Parties covenant and agree that, during the period from the date of
this Agreement until the Closing, Activeworlds and Subsidiary shall conduct
their businesses as presently operated and solely in the ordinary course, and
consistent with such operation therewith:
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(i) shall not amend their Certificate of Incorporation or Bylaws;
(ii) shall not hire any employees or enter into any contracts or
agreements for employment;
(iii) shall not merge or consolidate with any other entity or acquire
or agree to acquire any other entity;
(iv) shall not sell, transfer, or otherwise dispose of any assets
required for the operations of their respective businesses except in the
ordinary course of business consistent with past practices or as contemplated by
this Agreement;
(v) shall not create, incur, assume, or guarantee any indebtedness for
money borrowed except in the ordinary course of business, or create or suffer to
exist any mortgage, Lien or other encumbrance on any of its assets, except those
in existence on the date hereof or those granted pursuant to agreements in
effect on the date of this Agreement;
(vi) shall not make any capital expenditure or series of capital
expenditures except in the ordinary course of business;
(vii) shall not declare or pay any dividends on or make any
distribution of any kind with respect to the Exchange Shares;
(viii) shall maintain its facilities, assets and properties in
reasonable repair, order and condition, reasonable wear and tear excepted;
(ix) shall maintain in full force and effect all present insurance
coverage of the types and in the amounts as are in effect as of the date of this
Agreement;
(x) shall seek to preserve the present reputation and business
organization of Activeworlds and Subsidiary and their relationship with their
clients and others having business dealings with them;
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(xi) shall not issue any additional shares or take any action affecting
the capitalization of Activeworlds or Subsidiary;
(xii) shall use commercially reasonable efforts to comply with and not
be in default or violation under any law, regulation, decree or order applicable
to their businesses, operations or assets where such violation would have a
Material Adverse Effect;
(xii) shall not change any of the accounting principles or practices
used by it, except as may be required as a result of a change in law or in GAAP,
whether in respect of Taxes or otherwise;
(xiv) shall not terminate or waive any right of substantial value other
than in the ordinary course of business;
(xv) shall not enter into any material contract or commitment other
than in the ordinary course of business; and
(xvi) shall provide such assistance to Activeworlds as may be
reasonably requested with regard to matters relating to Activeworlds, its
obligations to continue to file reports with the SEC, the Information Statement
required to be filed in order to consummate the transactions contemplated by
this Agreement, other reports and registrations previously filed by Activeworlds
with the SEC and the pending Juno Litigation.
SECTION 5.02 POST-CLOSING COVENANTS OF ACTIVEWORLDS.
(i) Trademarks and Intellectual Property. Activeworlds shall promptly
after the Closing, and in no event later than ninety (90) days thereafter change
its corporate, company and trading name to a name which is not reasonably likely
to cause confusion with Subsidiary, which name shall not contain the word
"Activeworlds." From and after the Closing Date, Activeworlds
26
will not adopt, use, register or attempt to obtain rights with respect to any
corporate, company or trading name or trademark, trade name, trade dress, brand
xxxx, brand name, service xxxx or copyright which includes, or is similar in
sound or appearance to Subsidiary's corporate or company name. Activeworlds will
take no action which might have the effect of reflecting adversely on or
diminishing the value of any of the intellectual property of Subsidiary. Except
with the express written consent of Subsidiary, in promoting and advertising,
Activeworlds will not, from and after the Closing Date, directly or indirectly
refer to any prior association with the development, manufacture, marketing or
sales of any of the products of the Subsidiary.
(ii) Transfer Tax. All transfer Taxes, realty documentary stamp Taxes
and sales and use Taxes, if any, payable by reason of this transaction or the
sale, transfer or delivery of the Transferred Assets shall be paid and borne by
Activeworlds.
SECTION 5.03 COVENANTS OF XXXX AND XXXXXXXXX.
(i) Resignations of Xxxx and XxXxxxxxx. Xxxx and XxXxxxxxx shall, on
the date of this Agreement, resign as officers and directors of Activeworlds,
effective immediately. Xxxx and XxXxxxxxx shall be provided with a copy of an
executed board resolution of the remaining directors of Activeworlds which
reappoints each of them to the positions they held prior to such resignations
and which reinstates their employment agreements with Activeworlds (which are
being terminated pursuant to Section 5.04 (iii) hereof, which resolution shall
only become effective in the event that this Agreement is terminated prior to a
closing of the Transaction. Xxxx and XxXxxxxxx shall continue to serve as the
sole officers and directors of the Subsidiary.
(ii) Options and Warrants. Xxxx and XxXxxxxxx shall take such action as
to cause any and all options and warrants issued to them as of the date of this
Agreement to be cancelled
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on the Closing Date. Xxxx and XxXxxxxxx shall not be entitled to receive any
remuneration for such cancellation.
SECTION 5.04 COVENANTS OF THE PARTIES.
(i) Announcement. Neither Activeworlds and Subsidiary, on the one hand,
nor Xxxx and XxXxxxxxx on the other hand, shall issue any press release or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior consent of the other Party
(which consent shall not be unreasonably withheld), except as may be required by
Applicable Laws. Notwithstanding anything in this Section 5.04 to the contrary,
the Parties will, to the extent practicable, consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
such press release or other public statements with respect to this Agreement and
the transactions contemplated hereby.
(ii) Notification of Certain Matters. Activeworlds and Subsidiary shall
give prompt notice to Xxxx and XxXxxxxxx, and Xxxx and XxXxxxxxx shall give
prompt notice to Activeworlds and Subsidiary, of:
(a) The occurrence, or nonoccurrence, of any event the
occurrence, or nonoccurrence, of which would be reasonably likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Closing; and
(b) Any material failure to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
(iii) Employment Agreements. Xxxx and XxXxxxxxx shall, effective
immediately, cancel their respective employment agreements with Activeworlds and
release Activeworlds
28
from any and all liability thereunder. In the event that this Agreement is
terminated such employment agreements shall be reinstated and shall continue in
full force and effect.
(iv) Future Cooperation. Xxxx and XxXxxxxxx shall cooperate with
Activeworlds in the future with regard to any registration statements and
reports filed by Activeworlds with the SEC to the extent it relates to periods
in which they were officers of Activeworlds, any business that may have
originated while Xxxx and XxXxxxxxx were officers of Activeworlds and with
regard to the Juno Litigation. Xxxx and XxXxxxxxx agree to cooperate with
Activeworlds in connection with its defending against a claim being made by the
Xxxxxxxxxx public relations firm. XxXxxxxxx shall, prior to the Closing, prepare
the financial statements required to be contained in, and agrees to cooperate
with Activeworlds in its preparation of, Activeworld's its form 10-QSB for the
quarter ended June 30, 2002.
(v) Reasonable Best Efforts. Before Closing, upon the terms and subject
to the conditions of this Agreement, the Parties agree to use their respective
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable (subject to
applicable laws) to consummate and make effective the transactions contemplated
by this Agreement as promptly as practicable including, but not limited to:
(a) The preparation and filing of all forms, registrations and
notices required to be filed to consummate the Exchange, including without
limitation, the preliminary information statement to be sent to the Activeworlds
stockholders on Schedule 14C (including the definitive and any amendments
thereto, the "Information Statement"), and the other approvals, consents,
orders, exemptions or waivers by any third party or governmental entity; and
(b) The satisfaction of the other Party's conditions precedent
to Closing.
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(vi) Information Statement. Upon the execution of this Agreement,
Activeworlds will use its reasonable best efforts to prepare an Information
Statement relating to the Transaction and file it with the SEC. Simultaneous
with execution of this Agreement, Xxxx and XxXxxxxxx shall deliver irrevocable
proxies to Xxxxxxx Xxxxxxx in the forms attached as Exhibit A hereto. Such
Information Statement shall contain the written consents to the Transaction of
the outstanding shares of Activeworlds common stock beneficially owned by
Xxxxxxx Xxxxxxx (including the Activeworlds Shares subject to irrevocable
proxies given by Xxxx and XxXxxxxxx). Activeworlds shall expeditiously inform
its public Activeworlds stockholders of the action intended to be taken pursuant
to the Exchange Act. As promptly as is reasonably practicable after the date.
Any Information Statement to be sent to the Activeworlds stockholders in
connection with the Consents will, when the Information Statement is mailed to
the Activeworlds stockholders as contemplated by this Section 5.04, contain the
information required by the Exchange Act and the rules and regulations of the
SEC thereunder. The Information Statement will not, at the time of mailing,
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, in
light of the circumstances under which they were made, not misleading, except
that Activeworlds makes no representations as to statements or omissions
regarding information solely relating to Activeworlds such statements or
omissions. Activeworlds will comply with the requirements of all federal and
state securities or Blue Sky laws and the rules and regulations under such laws
with respect to such corporate action in connection therewith.
30
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS.
The obligations of the Parties as provided herein shall be subject to
each of the following conditions precedent, unless waived by each of
Activeworlds, Subsidiary, Xxxx and XxXxxxxxx:
(i) Consents and Approvals. The Parties shall have obtained all
necessary consents and approvals of their respective boards of directors and
stockholders, and all material consents, including any material consents and
waivers by the Parties' respective lenders and other third-parties, if
necessary, to the consummation of the transactions contemplated by this
Agreement.
(ii) Absence of Certain Litigation. No action or proceeding shall be
threatened or pending before any governmental entity or authority which, in the
reasonable opinion of counsel for the Parties, is likely to result in a
restraint, prohibition or the obtaining of damages or other relief in connection
with this Agreement or the consummation of the Exchange.
(iii) Execution of Mutual Release. The parties hereto and each of Xxxx
Xxxxx, Xxxxxxxxx Xxxxxxx, Xxxxx Xxxxxx, Xxxxxxx Xxxxxxx, and the other
plaintiffs in the action filed in the Court of Chancery for the State of
Delaware in and for New Castle County, captioned Xxxxxx Xxxxxx, et al v. X.X.
XxXxxxxxx and Xxxxxxx X. Xxxx (the "Suit") shall have entered into a mutual
release and settlement agreement which shall be in the form of Exhibit C
attached hereto and which shall dismiss the Suit with prejudice.
(iv) Indemnification of Xxxxxxx Xxxxxxx. Activeworld's shall enter into
an agreement with Xxxxxxx Xxxxxxx providing him with the same indemnification
rights as each of its current directors have under written agreements
notwithstanding the fact that he is not a director.
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SECTION 6.02 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ACTIVEWORLDS.
The obligations of Activeworlds as provided herein shall be subject to
each of the following conditions precedent, unless waived by Xxxx, XxXxxxxxx and
Subsidiary:
(i) Consents and Approvals. Activeworlds shall have obtained all
material consents, including any material consents and waivers by third parties,
if necessary, to the consummation of the transactions contemplated by this
Agreement.
(ii) Representations and Warranties. The representations and warranties
by Xxxx and XxXxxxxxx herein shall be true and accurate in all material respects
on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made at and as of the Closing Date,
except to the extent that any changes therein are specifically contemplated by
this Agreement.
(iii) Performance. Xxxx and XxXxxxxxx shall have performed and complied
in all material respects with all agreements to be performed or complied with by
them pursuant to this Agreement at or prior to the Closing.
(iv) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to Activeworlds and its counsel, and
Activeworlds and its counsel shall have received all such counterpart originals
(or certified or other copies) of such documents as they may reasonably request.
(v) Cooperation in the Juno Litigation. Xxxx and XxXxxxxxx shall have
cooperated with Activeworlds and its counsel in the lawsuit filed by
Activeworlds including, but not limited
32
to, responding to request for information and documents, giving sworn statements
under oath and appearing for deposition if noticed by Juno or Activeworlds.
SECTION 6.03 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF XXXX AND XXXXXXXXX.
The obligation of Xxxx and XxXxxxxxx on the Closing Date as provided
herein shall be subject to the satisfaction, on or prior to the Closing Date, of
the following conditions precedent, unless waived by them:
(i) Representations And Warranties. The representations and warranties
by Activeworlds herein shall be true and accurate in all material respects on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made at and as of the Closing Date,
except to the extent that any changes therein are specifically contemplated by
this Agreement.
(ii) Performance. Activeworlds shall have performed and complied in all
material respects with all agreements to be performed or complied with by it
pursuant to this Agreement prior to or at the Closing.
(iii) Proceedings And Documents. All proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be reasonably satisfactory in substance and
form to Xxxx and XxXxxxxxx and their counsel, and Xxxx and XxXxxxxxx and their
counsel shall have received all such counterpart originals (or certified or
other copies) of such documents as they may reasonably request.
33
(iv) Completion of Sale of Shares. The transactions contemplated by the
Securities Purchase Agreement by and between each of Xxxxxxx X. Xxxx and X.X.
XxXxxxxxx, on the one hand, and Xxxxxxx Xxxxxxx, on the other, shall have been
completed.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01 TERMINATION.
This Agreement may be terminated and the Exchange may be abandoned at
any time (with each such event being a "Termination") prior to the Closing by:
(i) The mutual written consent of the Parties;
(ii) If any governmental entity or court of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the Parties shall use their commercially
reasonable best efforts to lift), which restrains, enjoins or otherwise
prohibits the Exchange or the acceptance for exchange of the Exchange Shares
pursuant to the Exchange and such order, decree, ruling or other action shall
have become final and non-appealable;
(iii) If Activeworlds shall have breached in any material respect any
of their representations, warranties, covenants or other agreements contained in
this Agreement, and the breach cannot be or has not been cured within 15
calendar days after the giving of written notice by Xxxx, XxXxxxxxx or
Subsidiary;
(iv) If Xxxx or XxXxxxxxx shall have breached in any material respect
any of their representations, warranties, covenants or other agreements
contained in this Agreement, and the
34
breach cannot be or has not been cured within 15 calendar days after the giving
of written notice by Activeworlds;
(v) Without any action on the part of the Parties if required by
Applicable Laws; or
(vi) Any Party if the Closing has not occurred by August 15, 2002.
SECTION 7.02 EFFECT OF TERMINATION.
If this Agreement is terminated as provided in Section 6.01, written
notice of such termination shall be given by the terminating Party to the other
Party specifying the provision of this Agreement pursuant to which such
termination is made, this Agreement shall become null and void and there shall
be no liability on the part of any of the Parties, provided, that nothing in
this Agreement shall relieve any Party from any liability or obligation with
respect to any willful breach of this Agreement.
ARTICLE VIII
CONFIDENTIALITY; NON-SOLICITATION; EXCLUSIVITY
SECTION 8.01 CONFIDENTIALITY.
Activeworlds, on the one hand, and Xxxx and XxXxxxxxx, on the other
hand, will keep confidential all information and documents obtained from the
other, including but not limited to any information or documents provided
pursuant to this Agreement, which are designated by such Party as confidential
(except for any information disclosed to the public pursuant to a press release
authorized by the Parties or in a filing by Activeworlds with the SEC) and in
the event the Closing does not occur or this Agreement is terminated for any
reason, will promptly return
35
such documents and all copies of such documents and all notes and other evidence
thereof, including material stored on a computer, and will not use such
information for its own advantage, except to the extent that (i) the information
must be disclosed by law, (ii) the information becomes publicly available by
reason other than disclosure by the Party subject to the confidentiality
obligation, (iii) the information is independently developed without use of or
reference to the other Party's confidential information, (iv) the information is
obtained from another source not obligated to keep such information
confidential, or (v) the information is already publicly known or known to the
receiving Party when disclosed as demonstrated by written documentation in the
possession of such Party at such time.
SECTION 8.02 EXCLUSIVITY.
Except for the transactions contemplated by this Agreement, on or
before the earlier to occur of the Closing Date or the Termination, Xxxx,
XxXxxxxxx and Subsidiary shall not (i) solicit, initiate, or encourage the
submission of any proposal or offer relating to the acquisition of any capital
stock or other voting securities or any substantial portion of the assets of
Activeworlds or Subsidiary (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. Neither Activeworlds nor Subsidiary
shall recommend to its stockholders any merger, consolidation or share exchange
except as set forth in this Agreement or provided by law. Xxxx or XxXxxxxxx
shall immediately notify Activeworlds with copies to its counsel if any Person
makes any proposal, offer, inquiry or contact with respect to any of the
foregoing.
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ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION BY XXXX AND XXXXXXXXX.
Xxxx and XxXxxxxxx shall, jointly and severally, indemnify, defend and
hold harmless each of Activeworlds and its respective legal representatives,
successors and assigns against all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities or judgments or amounts
that are paid in settlement of or in connection with any threatened or actual
claim, action, suit, proceeding or investigation (whether or not involving a
claim made by a third party ("Third Party Claim") based in whole or in part on
or arising in whole or in part out of (i) failure of Subsidiary to satisfy any
of its obligations arising out of any of the liabilities set forth in Section
2.02, or (ii) any breach of this Agreement by Xxxx or XxXxxxxxx, including but
not limited to failure of any representation or warranty to be true and correct
at or before the Closing.
SECTION 9.02 INDEMNIFICATION BY ACTIVEWORLDS AND SUBSIDIARY.
Activeworlds shall indemnify, defend and hold harmless each of Xxxx and
XxXxxxxxx and their respective heirs, legal representatives, successors and
assigns against all losses, claims, damages, costs, expenses (including
attorneys' fees and expenses), liabilities or judgments or amounts that are paid
in settlement of or in connection with any threatened or actual claim, action,
suit, proceeding or investigation (whether or not involving a Third Party Claim)
based in whole or in part on or arising in whole or in part out of (i) any
breach of this Agreement by Activeworlds, including but not limited to failure
of any representation or warranty to be true and
37
correct at or before the Closing, or (ii) any act, omission or conduct of any
officer, director or agent of Activeworlds (other than Xxxx and XxXxxxxxx) prior
to the Closing, whether asserted or claimed prior to, or at or after, the
Closing.
SECTION 9.03 THIRD PARTY CLAIMS.
Promptly after receipt by a Person entitled to indemnity under Article
IX of notice of the assertion of a Third-Party Claim against it, such Party
(hereafter, an "Indemnified Party") shall give notice to the Indemnifying Party
of the assertion of such Third-Party Claim; provided that the failure to notify
the Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to any Indemnified Party, except to the extent that the
Indemnifying Party demonstrates that the defense of such Third-Party Claim is
prejudiced by the Indemnified Party's failure to give such notice.
If an Indemnified Party gives notice to the Indemnifying Party pursuant
to Article IX of the assertion of such Third-Party Claim, the Indemnifying Party
shall be entitled to participate in the defense of such Third-Party Claim and,
to the extent that it wishes (unless the Indemnifying Party is also a Party
against whom the Third-Party Claim is made and the Indemnified Party determines
in good faith that joint representation would be inappropriate, or the
Indemnifying Party fails to provide reasonable assurance to the Indemnified
Party of its financial capacity to defend such Third-Party Claim and provide
indemnification with respect to such Third-Party Claim), to assume the defense
of such Third-Party Claim with counsel satisfactory to the Indemnified Party.
After notice from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of such Third-Party Claim, the Indemnifying Party
shall not, as long as it diligently conducts such defense, be liable to the
Indemnified Party under Article IX
38
for any fees of other counsel or any other expenses with respect to the defense
of such Third-Party Claim, in each case subsequently incurred by the Indemnified
Party in connection with the defense of such Third-Party Claim, other than
reasonable costs of investigation. If the Indemnifying Party assumes the defense
of a Third-Party Claim, such assumption will conclusively establish for purposes
of this Agreement that the claims made in that Third-Party Claim are within the
scope of and subject to indemnification; and no compromise or settlement of such
Third-Party Claims may be effected by the Indemnifying Party without the
Indemnified Party's Consent unless there is no finding or admission of any
violation of any applicable law the sole relief provided is monetary damages
that are paid in full by the Indemnifying Party, and the Indemnified Party shall
have no liability with respect to any compromise or settlement of such
Third-Party Claims effected without its consent. If notice is given to the
Indemnifying Party of the assertion of any Third-Party Claim and the
Indemnifying Party does not, within 10 days after the Indemnified Party's notice
is given, give notice to the Indemnified Party of its election to assume the
defense of such Third-Party Claim, the Indemnifying Party shall be bound by any
determination made in such Third-Party Claim or any compromise or settlement
effected by the Indemnified Party.
Notwithstanding the foregoing, if an Indemnified Party determines in
good faith that there is a reasonable probability that a Third-Party Claim may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
Indemnified Party may, by notice to the Indemnifying Party, assume the exclusive
right to defend, compromise, or settle such Third-Party Claim, but the
Indemnifying Party shall not be bound by any determination of any Third-Party
Claim so
39
defended for the purposes of this Agreement or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
With respect to any Third-Party Claim subject to indemnification under
this Article IX: both the Indemnified Party and the Indemnifying Party, as the
case may be, shall keep the other party fully informed of the status of such
Third-Party Claims and any related proceedings at all stages thereof where such
party is not represented by its own counsel, and the Parties agree (each at its
own expense) to render to each other such assistance as they may reasonably
require of each other and to cooperate in good faith with each other in order to
ensure the proper and adequate defense of any Third-Party Claim.
With respect to any Third-Party Claim subject to indemnification under
this Article IX, the Parties agree to cooperate in such a manner as to preserve
in full (to the extent possible) the confidentiality of all confidential
information and the attorney-client and work-product privileges. In connection
therewith, each party agrees that: (i) it shall use its best efforts, in respect
of any Third-Party Claim in which it has assumed or participated in the defense,
to avoid production of confidential information (consistent with applicable law
and rules of procedure), and (ii) all communications between any party hereto
and counsel responsible for or participating in the defense of any Third-Party
Claim shall, to the extent possible, be made so as to preserve any applicable
attorney-client or work-product privilege.
The Indemnification provisions of Article IX shall be enforceable
regardless of whether the liability is based on past, present or future acts,
claims or legal requirements (including any past, present or future
environmental law, fraudulent transfer act, occupational safety and health law,
or products liability, securities or other legal requirement), and regardless of
whether any Person (including the Person from whom indemnification is sought)
alleges or proves the sole,
40
concurrent, contributory or comparative negligence of the Person seeking
indemnification, or the sole or concurrent strict liability imposed on the
Person seeking indemnification.
SECTION 9.04 SURVIVAL OF INDEMNIFICATION.
All rights to indemnification under this Article IX shall survive the
consummation of the Exchange. In the event that this Agreement is terminated
prior to the Exchange, all indemnification rights hereunder shall be null and
void and of no effect. The provisions of this Article IX are intended to be for
the benefit of, and shall be enforceable by, each of the Parties.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 EXPENSES.
Except as contemplated by this Agreement, all costs and expenses
incurred in connection with this Agreement and the consummation of the
transactions contemplated by this Agreement shall be paid by the Party incurring
such expenses.
SECTION 10.02 APPLICABLE LAW.
Except to the extent that the law of the State of Nevada is mandatorily
applicable to the Exchange (which shall be governed by the NRS), this Agreement
shall be governed by the laws of the State of Delaware as applied to agreements
entered into and to be performed in such state.
SECTION 10.03 NOTICES.
All notices and other communications under this Agreement shall be in
writing and shall
41
be deemed to have been duly given or made as follows:
(i) If sent by registered or certified mail in the United States,
return receipt requested, upon receipt;
(ii) If sent by reputable overnight air courier (such as Federal
Express), two business days after being sent;
(iii) If sent by facsimile transmission, with a copy mailed on the same
day in the manner provided in clauses (i) or (ii) above, when transmitted and
receipt is confirmed by telephone; or
(iv) If otherwise actually personally delivered, when delivered.
All notices and other communications under this Agreement shall be sent
or delivered as follows:
If to Activeworlds or Subsidiary, to:
Activeworlds Corp.
Xxxxxxxxx X. Xxxxxxx
00 Xxxxxxxxxxxx Xxxxx
Xxxxxxxx Xxxxx, XX 00000
Xxxx Xxxxx
Xxxxx & Co.
000 Xxxxxxxx Xxxxx
Xxx Xxxxxx, XX 00000
Xxxxx Xxxxxx
000 Xxxxxxx Xxxxxxx Xxxx
Xxxxxx, XX 00000
with a copy to (which shall not constitute notice):
42
Xxxxxx & Xxxxxxx, LLP
0000 Xxxx Xxxxx Xxxxx Xxxx.
Xxxxx 000
Xxxx Xxxx Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP
000 X. 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx X. Xxxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 212-980-5192
If to Xxxxxxx X. Xxxx, to:
00 Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 978-499-0221
with a copy to (which shall not constitute notice):
Xxxxxx Xxxxxx LLP
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
If to X.X. XxXxxxxxx, to:
00 Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Telephone: 000-000-0000
Fax: 000-000-0000
with a copy to (which shall not constitute notice):
43
Xxxxxx Xxxxxx LLP
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each Party may change its address by written notice in accordance with
this Section.
SECTION 10.04 ENTIRE AGREEMENT.
This Agreement (including the documents and instruments referred to in
this Agreement) contains the entire understanding of the Parties with respect to
the subject matter contained in this Agreement, and supersedes and cancels all
prior agreements, negotiations, correspondence, undertakings and communications
of the Parties, oral or written, respecting such subject matter.
SECTION 10.05 ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned by any of the Parties (whether by
operation of law or otherwise) without the prior written consent of the other
Parties. Subject to the immediately foregoing sentence of this Section 10.05,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by, the Parties and their respective successors and assigns.
SECTION 10.06 HEADINGS; REFERENCES.
The article, section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to "Articles" or
"Sections" shall be deemed to be references to Articles or Sections of this
Agreement unless otherwise indicated.
44
SECTION 10.07 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which shall be considered one
and the same agreement.
SECTION 10.08 SEVERABILITY; ENFORCEMENT.
Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provisions shall be interpreted to be only
so broad as is enforceable.
SECTION 10.09 RULES OF CONSTRUCTION.
The Parties agree that they have been represented by counsel during the
negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
SECTION 10.10 EXHIBITS.
All of the exhibits to this Agreement are hereby incorporated in this
Agreement and shall be deemed and construed to be a part of this Agreement for
all purposes.
45
SECTION 10.11 INTERPRETATION.
The words "include," "includes" and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation." The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
[SIGNATURES ON THE FOLLOWING PAGE]
46
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
ACTIVEWORLDS CORP.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ACTIVEWORLDS, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
XXXXXXX X. XXXX
------------------------------
X.X. XXXXXXXXX
-------------------------------
47
EXHIBIT A
Proxies
48
EXHIBIT B
The Unaudited Financial Statements contained in Activeworlds Corp.'s
Form 10-QSB for the period ended March 31, 2002 are hereby incorporated by
reference.
49
EXHIBIT C
SETTLEMENT AGREEMENT
[TO BE SUPPLIED]
50
SCHEDULE 1.01
Ownership of Capital Stock Being Exchanged
Ownership of Activeworlds Corp. Common Stock by Xxxx and XxXxxxxxx
Xxxxxxx X. Xxxx 1,305,948 shares
X.X. XxXxxxxxx 1,289,497 shares
Ownerships of Activeworlds, Inc. Common Stock following Exchange
Xxxxxxx X. Xxxx 1,767,953.5 shares (50%)
X.X. XxXxxxxxx 1,767,953.5 shares (50%)
51
SCHEDULE 1.05
Officers and Directors of Subsidiary
Xxxxxxx X. Xxxx President and Director
X.X. XxXxxxxxx Treasurer, Secretary and Director
52
SCHEDULE 2.01
Assets Being Transferred to Subsidiary
All tangible andintangible assets relating to the operation of the Business
excepting the Excluded Assets, which shall include but not be limited to the
Activeworlds source code, object code and related technologies.
53
SCHEDULE 2.01 (B)
Excluded Assets
All rights in Juno Litigation and all cash and cash equivalents (CD's,
investment shares, etc.) excepting the operating revenue retained by the
Subsidiary pursuant to Section 1.05.
54
SCHEDULE 2.03
Assigned Leases
Real Property Lease for 00 Xxxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxxxxxx
Lease of Honda Accord
55
SCHEDULE 3.09
Litigation
1. Activeworlds, Corp. f/k/a Xxxxxxxxxxxx.xxx, Inc. vs. Juno Online
Services, Inc., Netzero, Inc., and United Online, Inc., Supreme Court
of the State of New York County of New York, Index No. 605484/01.
2. Xxxxxxxxxx Public Relations has threatened to file a claim against
Activeworlds Corp. in the amount $40,200 for services rendered during
October 2001 through January 2002. No suit has been filed.
56
SCHEDULE 3.16
Undisclosed Liabilities
Any amounts that may become due as a result of the potential Xxxxxxxxxx
Public Relations claim listed in Schedule 3.09 above.
57