AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 10, 1997 (the "Agreement"),
among Take-Two Interactive Software, Inc., a Delaware corporation ("TTIS");
Take-Two Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of TTIS ("Subsidiary"); Inventory Management Systems, Inc., a Virginia
corporation ("Inventory"); Xxxxx Xxxxx ("Xxxxx"), Xxxxx Xxxxx ("Xxxxx"), Xxxxx
Xxxxxxxx ("Xxxxx") and Xxxxx Xxxxxxxx ("Xxxxx"). David, Karen, Xxxxx and Xxxxx
are sometimes referred to as the "Shareholders."
W I T N E S S E T H :
WHEREAS, Inventory is in the business of distributing computer software at
wholesale (the "Business"); and
WHEREAS, TTIS desires to combine Inventory's Business with its existing
computer software business; and
WHEREAS, the Board of Directors of TTIS, the Board of Directors of
Subsidiary, TTIS as the sole shareholder of Subsidiary, and the Board of
Directors of Inventory and Shareholders have: (a) determined that it is in the
best interests of their respective companies for Inventory to be merged with and
into Subsidiary upon the terms and subject to the conditions set forth herein;
and (b) approved the merger of Inventory with and into Subsidiary (the "Merger")
in accordance with the General Corporation Law of the State of Delaware
("Delaware Law"), and the Stock Corporation Act of the State of Virginia
("Virginia Law"), and upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. The Merger.
1.1. The Merger. At the Effective Time (as defined in Subsection 1.2), and
subject to and upon the terms and conditions of this Agreement and the Delaware
Law and the Virginia Law, Inventory shall be merged with and into Subsidiary,
the separate corporate existence of Inventory shall cease, and Subsidiary shall
continue as the surviving corporation. Subsidiary, as the surviving corporation
after the Merger, is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2. Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Section 6, unless this Agreement shall
have been terminated and the transactions contemplated herein shall have been
abandoned pursuant to Section 8.1, Subsidiary and Inventory shall cause the
Merger to be consummated by filing a Certificate of Merger (the "Certificate of
Merger") with the Secretaries of State of the States of Delaware and Virginia in
the form of Exhibit A hereof and making such other filings as may be required by
the Delaware Law and the Virginia Law, in such form as required by and executed
in accordance with such laws (the time of the last of such filings to be made
being the "Effective Time").
1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the
-2-
applicable provisions of Delaware Law and Virginia Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
rights, privileges, powers, franchises and all property (real, personal and
mixed) of Inventory and all debts due Inventory shall vest in Subsidiary, and
all debts, liabilities, obligations and duties of Inventory shall become the
debts, liabilities, obligations and duties of Subsidiary.
1.4. Articles of Incorporation; By-Laws.
(a) The Certificate of Incorporation of Subsidiary, as in effect
immediately prior to the Effective Time (annexed hereto as Exhibit B), shall be,
subject to the name change set forth in the Certificate of Merger, the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law or such Certificate of Incorporation.
(b) The By-Laws of Subsidiary, as in effect immediately prior to the
Effective Time (annexed hereto as Exhibit C), shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by law or by the
Certificate of Incorporation of the Surviving Corporation or the By-Laws of the
Surviving Corporation.
1.5. Directors and Officers of Subsidiary.
(a) The directors of Subsidiary immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with applicable law, the Certificate of Incorporation and By-Laws
of
-3-
the Surviving Corporation until resignation, removal or replacement.
(b) Except for Xxxxx, who shall at the Effective Time be duly nominated and
appointed as President of the Surviving Corporation, the officers of Subsidiary
immediately prior to the Effective Time shall constitute the initial officers of
the Surviving Corporation, in each case to serve at the pleasure of the Board of
Directors of Subsidiary until their respective resignation, removal or
placement.
1.6. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of TTIS, Subsidiary, Inventory or the
Shareholders:
(a) Any share of Inventory Common Stock (as defined in Subsection 2.2
hereof) held in the treasury of Inventory shall be cancelled and
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(b) All of the outstanding shares (the "Shares") of the Inventory
Common Stock shall be converted into the right to receive 750,000 shares of
Common Stock, $.01 par value per share, of TTIS ("TTIS Common Stock")
(hereafter referred to as the "Share Consideration" or the "Merger
Consideration") against the surrender to Subsidiary of the certificates
representing the Shares. Any share of Inventory preferred stock, warrant,
option or other security convertible or exchangeable into Inventory capital
stock shall be cancelled and
-4-
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(c) Shares of the common stock, par value $.01 per share, of
Subsidiary issued and outstanding at the Effective Time shall remain
outstanding and unchanged and shall constitute all of the issued and
outstanding shares of the capital stock of the Surviving Corporation.
(d) At the Effective Time, the stock transfer books of Inventory shall
be closed and there shall be no further registration of transfers of any
Shares thereafter on the records of Inventory.
(e) From and after the Effective Time, the holders of certificates
evidencing ownership of Shares shall cease to have any rights with respect
to the Shares, except as otherwise provided herein or by law.
(f) Notwithstanding anything to the contrary in this Subsection 1.6,
no party hereto shall be liable to a holder of a certificate or
certificates formerly representing Shares for any amount properly paid to a
public official pursuant to any applicable property, escheat or similar
law.
(g) No fractional shares of TTIS Common Stock shall be issued in
connection with the Merger and the Shareholders will be issued a whole
share of TTIS Common Stock in lieu of any fractional shares.
2. Representations and Warranties as to Inventory. Each of the
Shareholders, jointly and severally, represents and warrants to TTIS and
Subsidiary as follows:
-5-
2.1. Organization, Standing and Power. Inventory is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Virginia, with full corporate power and corporate authority to (i)
own, lease and operate its properties, (ii) carry on its business as
currently conducted by it and (iii) execute and deliver, and perform under
this Agreement and each other agreement and instrument to be executed and
delivered by it pursuant hereto. Except as set forth on Schedule 2.1, there
are no states or jurisdictions in which the character and location of any
of the properties owned or leased by Inventory, or the conduct of its
business makes it necessary for Inventory to qualify to do business as a
foreign corporation, where the failure to so qualify would have a material
adverse effect on the business, operations or financial condition of
Inventory. True and complete copies of the Articles of Incorporation of
Inventory and all amendments thereof, and of the By-Laws of Inventory, as
amended to date, have heretofore been furnished to TTIS. Inventory's minute
books contain complete and accurate records of all meetings and other
corporate actions of Inventory's stockholders and Board of Directors
(including committees of its Board of Directors).
2.2. Capitalization. (a) The authorized capital stock of Inventory
consists of 5,000 shares of common stock, par value $.01 per share (the
"Inventory Common Stock"), of which 40 shares are issued and outstanding.
All of the Inventory Common Stock is duly authorized, validly issued, fully
paid and nonassessable. Schedule 2.2 sets forth a true and complete list
-6-
of the holders of all outstanding shares of Inventory Common Stock, and the
holders of all outstanding options and warrants issued by Inventory. Except
as set forth on Schedule 2.2, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of Inventory or any of its
subsidiaries or obligating the Shareholders or Inventory or any of their
subsidiaries to issue or sell any shares of capital stock of or other
equity interests in Inventory or any of its subsidiaries. There is no
personal liability, and there are no preemptive rights with regard to the
capital stock of Inventory or its subsidiaries, and no right-of-first
refusal or similar rights with regard to such capital stock. Except as set
forth on Schedule 2.2 and except for the transactions contemplated by this
Agreement, there are no outstanding contractual obligations or other
commitments or arrangements of Inventory or any of its subsidiaries to (A)
repurchase, redeem or otherwise acquire any shares of Inventory Common
Stock (or any interest therein) or (B) to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in
any such subsidiary or other entity, or (C) issue or distribute to any
person any capital stock of Inventory or its subsidiaries, or (D) issue or
distribute to holders of any of the capital stock of Inventory or its
subsidiaries any evidences of indebtedness or assets of Inventory or its
subsidiaries. All of the outstanding securities of Inventory have been
issued and sold by Inventory in full compliance with applicable federal and
state securities laws.
-7-
(b) The outstanding shares of capital stock of each of the
subsidiaries of Inventory, are duly authorized, validly issued, fully paid
and nonassessable, and such shares are owned by Inventory, directly or
indirectly, free and clear of all security interests, liens, adverse
claims, pledges, agreements, limitations on Inventory's voting rights,
charges and other encumbrances of any nature whatsoever.
2.3. Ownership of Inventory Common Stock. The Shareholders have good and
marketable title to all of the issued and outstanding shares of Inventory Common
Stock, free and clear of any and all liens, adverse claims, security interests,
pledges, mortgages, charges and encumbrances of any nature whatsoever, which
shares are held by them in the amounts set forth in Schedule 2.3 hereof, and on
the Closing Date (as defined in Section 7 hereof) will own all of such Inventory
Common Stock, free and clear of any and all liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever, including, but not limited to, any claims by any present or former
stockholders of Inventory.
2.4. Interests in Other Entities.
(a) Schedule 2.4 sets forth a true and complete list of all direct or
indirect subsidiaries of Inventory, together with the jurisdiction of
incorporation of each such subsidiary and the percentage of each such
subsidiary's outstanding capital stock owned by Inventory or another of
Inventory's subsidiaries. Each of such subsidiaries are duly organized
corporations, validly existing and in good standing
-8-
under the laws of the jurisdiction of its respective incorporation (as well as
all applicable foreign jurisdictions necessary to its business operations) and
have the requisite corporate power and authority and governmental authority to
own, operate or lease the properties that each purports to own, operate or lease
and to carry on its business as it is now being conducted.
(b) Except for (A) each of Terry's and David's ownership of 33.3% of the
outstanding capital stock of Creative Alliance Group, Inc., and (B) Terry's
ownership of 100% of the outstanding capital stock of Xxxxxxxx Sales, Inc.
("Xxxxxxxx"), a Virginia corporation engaged in the business of acting as
representative in the distribution of "front-line" interactive software games
and the sale of "close out" interactive software games, neither the Shareholders
(individually or jointly) nor Inventory (i) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation engaged in the same or similar business to that business
engaged in by Inventory at the Effective Time (other than not more than one
percent (1%) of the publicly-traded capital stock of corporations engaged in
such business held solely for investment purposes); (ii) have any ownership
interest, direct or indirect, of record or beneficially, in any unincorporated
entity engaged in the same or similar business to that business engaged in by
Inventory at the Effective Time; and (iii) have any obligation, direct or
indirect, present or contingent, (A) to purchase or subscribe for any interest
in, advance or loan monies to, or in any way make
-9-
investments in, any other person or entity engaged in the same or similar
business to that business engaged in by Inventory at the Effective Time, or (B)
to share any profits or capital investments or both from a entity engaged in the
same or similar business to that business engaged in by Inventory at the
Effective Time.
2.5. Authority. The execution and delivery by Inventory of this Agreement
and of all of the agreements to be executed and delivered by Inventory pursuant
hereto (collectively, the "Inventory Documents"), the performance by Inventory
of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of Inventory
(including, but not limited to, the unanimous consents of the Board of Directors
of Inventory and of the Shareholders) and Inventory has all necessary corporate
power and corporate authority with respect thereto. The Shareholders are
individuals having all necessary capacity, power and authority to execute and
deliver this Agreement and such other agreements to be executed and delivered by
either of them pursuant hereto (collectively, the "Shareholder Documents") and
to consummate the transaction consummated hereby and thereby. This Agreement is,
and when executed and delivered by Inventory and the Shareholders, each of the
other agreements to be delivered by either or both of them pursuant hereto will
be, the valid and binding obligations of Inventory and the Shareholders, to the
extent they are parties thereto, in accordance with their
-10-
respective terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally and subject to the rules of law governing (and all limitations on)
specific performance, injunctive relief, and other equitable remedies.
2.6. Noncontravention. Except as set forth on Schedule 2.6, neither the
execution and delivery by Inventory or the Shareholders of this Agreement or of
any other Inventory Documents or Shareholder Documents to be executed and
delivered by either or both of them, nor the consummation of any of the
transactions contemplated hereby or thereby, nor the performance by either or
both of them of any of their respective obligations hereunder or thereunder,
will (nor with the giving of notice or the lapse of time or both would) (a)
conflict with or result in a breach of any provision of the Certificate of
Incorporation, ByLaws or other constituent documents of Inventory, each as
amended to date, or (b) give rise to a default, or any right of termination,
cancellation or acceleration, or otherwise be in conflict with or result in a
loss of contractual benefits to any of them, under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which either or both of them is a party or by
which either or both of them or any of their respective assets may be bound, or
require any consent, approval or notice under the terms of any such document or
instrument, or (c) violate any order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental authority which
-11-
is applicable to either or both of them, or (d) result in the creation or
imposition of any lien, adverse claim, restriction, charge or encumbrance upon
any of the assets of Inventory (the "Assets"), or (e) interfere with or
otherwise adversely affect the ability of Subsidiary to carry on the Business
after the Effective Date on substantially the same basis as is now conducted by
Inventory.
2.7. Financial Statements. Inventory has heretofore delivered to each of
TTIS and Subsidiary (a) its financial statements consisting of the unaudited
balance sheets for the years ended October 31, 1995 and 1996, and the related
statements of income, stockholders' equity and cash flows for the two years then
ended, which have been compiled by Xxxxx & Xxxxxx, P.C., independent certified
public accountants, and (b) its unaudited balance sheet at May 31, 1997 (the
"Balance Sheet") statements of income, stockholders' equity and cash flows for
the seven months ended May 31, 1997 (collectively, the "Inventory Financial
Statements"). The Inventory Financial Statements were prepared in accordance
with generally accepted accounting principals ("GAAP"), consistently applied,
and present fairly the financial position of Inventory as at the dates thereof
and the results of operations for the periods and the cash flow indicated. The
books and records of Inventory are complete and correct, have been maintained in
accordance with good business practices, and accurately reflect the basis for
the financial condition, results of operations and cash flow of Inventory as set
forth in the Inventory Financial Statements.
-12-
2.8. Guaranties. Schedule 2.8 hereto is a complete and accurate list and
summary description of all written guaranties currently in effect heretofore
issued by the Shareholders to any bank or other lender in connection with any
credit facilities extended by such creditors to Inventory (collectively, the
"Guaranties"), including the name of such creditor and the amount of the
indebtedness, together with any interest and fees currently owing and expected
to be outstanding as of the Effective Time.
2.9. Absence of Undisclosed Liabilities. Inventory has no liabilities or
obligations of any nature whatsoever, whether accrued, matured, unmatured,
absolute, contingent, direct or indirect or otherwise, which have not been (a)
in the case of liabilities and obligations of a type customarily reflected on a
corporate balance sheet, prepared in accordance with GAAP, set forth on the
Balance Sheet, or (b) incurred in the ordinary course of business since May 31,
1997, or (c) in the case of other types of liabilities and obligations,
described in any of the Schedules delivered pursuant hereto or omitted from said
Schedules in accordance with the terms of this Agreement, or arising under
contracts or leases listed in such Schedules or other contracts or leases which
are omitted from such Schedules in accordance with the terms of this Agreement,
or (d) incurred, consistent with past practice, in the ordinary course of
business of Inventory (in the case of liabilities and obligations of the type
referred to in clause (a) above).
-13-
2.10. Properties. Except as set forth on Schedule 2.10, Inventory has
marketable title to all of the properties and assets, reflected on the Balance
Sheet or thereafter acquired, except properties or assets sold or otherwise
disposed of in the ordinary course of business, free and clear of any and all
mortgages, liens (including liens for current Taxes, as defined in Subsection
2.16(c) hereof), pledges, claims, charges and encumbrances of any nature
whatsoever (hereinafter collectively, "Liens"), other than Liens set forth in
Schedule 2.10 not yet due and payable or being contested in good faith by
appropriate proceedings, and other than such Liens or imperfections of title, if
any, which are not material in character, amount or extent and do not materially
interfere with the present or continued use of such property or otherwise
materially adversely affect the value or transferability thereof or otherwise
materially impair the Business or operations of Inventory as conducted on the
date hereof. All plants, structures and equipment which are utilized in the
Business, or are material to the condition (financial or otherwise) of Inventory
are owned or leased by Inventory and are in good operating condition and repair
(ordinary wear and tear excepted), and are adequate and suitable for the
purposes for which they are used. Schedule 2.10 sets forth all (a) real property
which is owned, leased (whether as lessor or lessee) or subject to contract or
commitment of purchase or sale or lease (whether as lessor or lessee) by
Inventory, or which is subject to a title retention or conditional sales
agreement or other security
-14-
device, and (b) tangible personal property which is owned, leased (whether as
lessor or lessee) or subject to contract or commitment of purchase or sale or
lease (whether as lessor or lessee) by Inventory.
2.11. Accounts Receivable; Inventories. The accounts and notes receivable
which are reflected on the Balance Sheet are good and collectible in the
ordinary course of business at the aggregate recorded amounts thereof, less the
respective amount of the allowances for doubtful accounts and notes receivable,
if any, reflected thereon, and are not subject to offsets other than in the
ordinary course of business. The accounts and notes receivable of Inventory
which were added after May 31, 1997, are good and collectible in the ordinary
course of business, less the amount of the allowance(s) for doubtful accounts
and notes receivable, if any, reflected thereon (which allowances were
established on a basis consistent with prior practice), and are not subject to
offsets other than in the ordinary course of business. The inventories reflected
on the Balance Sheet and thereafter added consist of items of a quality and
quantity usable or saleable in the ordinary course of business, except for
obsolete materials, slow-moving items, materials of below standard quality and
not readily marketable items, all of which have been written down to net
realizable value or adequately reserved against on the books and records of
Inventory. All inventories are stated at the lower of cost or market in
accordance with generally accepted accounting principles.
-15-
2.12. Absence of Changes. Since May 31, 1997, there have not been (a) any
adverse change (other than as is normal in the ordinary course of business,
e.g., inventory level changes) in the condition (financial or otherwise),
assets, liabilities, business, prospects, results of operations or cash flows of
Inventory (including, without limitation, any such adverse change resulting from
damage, destruction or other casualty loss, whether or not covered by
insurance), (b) any waivers by Inventory of any right, or cancellation of any
debt or claim, of material value, (c) any declarations, set asides or payments
of any dividend or other distributions or payments in respect of the Inventory
Common Stock, or (d) any changes in the accounting principles or methods which
are utilized by Inventory.
2.13. Litigation. Except as set forth in Schedule 2.13, there are no
claims, suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending or, to the best knowledge of Inventory and
the Shareholders, threatened, against or relating to Inventory or the
Shareholders, the transactions contemplated hereby or any of the Assets. There
are no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to Inventory, this Agreement, the transactions contemplated, the
Business or any of the Assets, the effect of which is (a) to limit, restrict,
regulate, enjoin or prohibit any business practice of Inventory in any area, or
the acquisition by Inventory of any properties, assets or businesses, or (b)
-16-
otherwise materially adverse to the Business or any of the Assets.
2.14. No Violation of Law. Inventory is not engaging in any activity or
omitting to take any action as a result of which it is in violation of any law,
rule, regulation, zoning or other ordinance, statute, order, injunction or
decree, or any other requirement of any court or governmental or administrative
body or agency, applicable to Inventory, the Business or any of the Assets,
including, but not limited to, those relating to: occupational safety and health
matters; issues of environmental and ecological protection (e.g., the use,
storage, handling, transport or disposal of pollutants, contaminants or
hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations; labor practices; employee benefits; and
zoning and other land use laws and regulations.
2.15. Intangibles/Inventions. Schedule 2.15 identifies (by a summary
description) the Intangibles (as defined below) the ownership thereof and, if
applicable, Inventory's authority for use of the same, which Schedule is
complete and correct and encompasses: (A) all United States and foreign patents,
trademark and trade name registrations, trademarks and trade names, brandmarks
and brand name registrations, servicemarks and servicemark registrations,
assumed names and copyrights and copyright registrations, owned in whole or in
part, licensed, or used by Inventory, and all applications therefor
(collectively, the "Marks"), (B) all inventions,
-17-
discoveries, improvements, processes, formulae, technology, know-how, processes
and other intellectual property, proprietary rights and trade secrets relating
to the Business (collectively, the "Inventions") and (C) all licenses and other
agreements to which Inventory is a party or otherwise bound which relate to any
of the Intangibles or the Inventions or Inventory's use thereof in connection
with the Business (collectively, the "Licenses, and together with the Marks and
the Inventions, the "Intangibles"). No violations of the terms of any of the
aforesaid licenses and/or agreements have occurred. Except as disclosed on
Schedule 2.15, (A) Inventory owns or is authorized to use in connection with the
Business all of the Intangibles; (B) no proceedings have been instituted, are
pending, or to the best knowledge of the Shareholders, are threatened which
challenge the rights of Inventory with respect to the Intangibles or their use
thereof in connection with the Business and/or the Assets or the validity
thereof and, there is no valid basis for any such proceedings; (C) neither
Inventory's ownership of the Intangibles nor their use thereof in connection
with the Business and/or the Assets violates any laws, statutes, ordinances or
regulations, or has at any time infringed upon or violated any rights of others,
or is being infringed by others; (D) none of the Intangibles, or Inventory's use
thereof in connection with the Business and/or the Assets is subject to any
outstanding order, decree, judgment, stipulation or any lien, security interest
or other encumbrance; and (E) Inventory has not granted any license to third
parties with regard to its Intangibles.
-18-
2.16. Tax Matters.
(a) Inventory has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes (as
defined herein) shown to be due or claimed to be due on such tax returns and
reports. The provisions for Taxes which are set forth on the Balance Sheet are
adequate for all accrued and unpaid taxes of Inventory as of May 31, 1997,
whether (i) incurred in respect of or measured by income of Inventory for any
periods prior to the close of business on that date, or (ii) arising out of
transactions entered into, or any state of facts existing, on or prior to such
date. Inventory has duly withheld all payroll taxes, FICA and other federal,
state and local taxes and other items requiring to be withheld by it from
employee wages, and has duly deposited the same in trust for or paid over to the
proper taxing authorities. Inventory has not executed or filed with any taxing
authority any agreement extending the periods for the assessment or collection
of any Taxes, and is not a party to any pending or, to the best knowledge of the
Shareholders, threatened, action or proceeding by any governmental authority for
the assessment or collection of Taxes. Within the past three years, the United
States federal income tax returns of Inventory have not been examined by the
Internal Revenue Service ("the IRS"), nor has the State of Virginia or any
taxing authority thereof examined any merchandize, personal property, sales or
use tax returns of Inventory.
-19-
(b) Except for adjustments to the income tax returns of the Shareholders
with respect to income derived from or attributable to the business of
Inventory, as set forth in Schedule 2.16 (the "Tax Adjustments"), which shall be
the sole responsibility of the Shareholders, Inventory (i) has not agreed to or
been required to make any adjustment pursuant to Section 481(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) has no knowledge that the
IRS or any other taxing authority has proposed any such adjustment or change in
accounting method, and (iii) has no application pending with any governmental
authority requesting permission for any change in accounting method.
(c) As used herein, the term "Taxes" means all federal, state, county,
local and other taxes and governmental assessments, including but not limited to
income taxes, estimated taxes, withholding taxes, excise taxes, ad valorem
taxes, payroll related taxes (including but not limited to premiums for worker's
compensation insurance and statutory disability insurance), employment taxes,
franchise taxes and import duties, together with any related liabilities,
penalties, fines, additions to tax or interest.
2.17. Insurance. Schedule 2.17 is a complete and correct list and summary
description of all contracts and policies of insurance relating to any of the
Assets, the Business or the Shareholders in which Inventory or any creditor is
an insured party, beneficiary or loss payable payee. Such policies are in full
force and effect, all premiums due and payable with
-20-
respect thereto have been paid, and no notice of cancellation or termination has
been received by Inventory with respect to any such policy.
2.18. Banks; Powers of Attorney. Schedule 2.18 is a complete and correct
list showing (a) the names of each bank in which Inventory has an account or
safe deposit box and the names of all persons authorized to draw thereon or who
have access thereto, and (b) the names of all persons, if any, holding powers of
attorney from Inventory.
2.19. Employee Arrangements. Schedule 2.19 is a complete and correct list
and summary description of all (a) union, collective bargaining, employment,
management, termination and consulting agreements to which any of Inventory is a
party or otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and arrangements;
pension and retirement plans and arrangements; profit-sharing and thrift plans
and arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or reimbursement
programs; holiday, sick leave, severance, vacation, tuition reimbursement,
personal loan and product purchase discount policies and arrangements; and other
plans or arrangements providing for benefits for employees of Inventory. Said
Schedule also lists the names and compensation of all employees of Inventory
whose earnings during the last fiscal year were $25,000 or more (including
bonuses and other incentive
-21-
compensation), and all employees who are expected to receive at least said
amount in respect of the current fiscal year.
2.20. ERISA.
(a) Plans. Schedule 2.20 lists Inventory's "employee pension benefit plan"
("Inventory Pension Plan"), as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
Inventory's "welfare benefit plan" (collectively called "Inventory Welfare
Plans") as such term is defined in Section 3(1) of ERISA, which is maintained by
Inventory or to which they contribute or are obligated or required to
contribute. The Inventory Pension Plans and Inventory Welfare Plans are
hereinafter sometimes collectively referred to as the "Plans" and severally
referred to as a "Plan".
(b) Qualification. Each Inventory Pension Plan and the trust (if any)
forming a part thereof has been determined by the IRS to be qualified under
Section 401(a) of the Code, and is exempt from taxation under Section 501(a) of
the Code, and nothing has occurred since the date of such determination which
would adversely affect such qualification.
(c) Plan Documents. Inventory has heretofore delivered to TTIS and
Subsidiary, true, complete and correct copies of (i) the Plans, and all related
trust agreements, (ii) all written interpretations and summary plan descriptions
relating thereto, (iii) the two most recent annual reports (Form 5500 Series)
and accompanying schedules which were prepared in connection with each Plan,
(iii) all IRS
-22-
determination letters relating to the Plans, and (iv) the two most recent
actuarial evaluation reports which were prepared in connection with any of the
Plans.
(d) No Prohibited Transactions. Neither Inventory, nor any of the Plans,
nor any trust created thereunder, nor any trustee or administrator thereof, have
engaged in a transaction which would subject Inventory or any of the Plans to
the tax on prohibited transactions imposed by Section 4975 of the Code or to a
civil penalty assessed pursuant to Section 502(i) of ERISA.
(e) No Accumulated Funding Deficiency. None of the Inventory's Pension
Plans has incurred any "accumulated funding deficiency", as such term is defined
in Section 302 of ERISA and Section 412 of the Code, whether or not waived.
(f) Termination, etc. Inventory has not incurred, and are not expected to
incur, directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to the Inventory Pension Plan. The PBGC
has not instituted proceedings to terminate the Inventory Pension Plan, nor has
it notified Inventory, either formally or informally, of its intention to
institute any such proceedings.
(g) Reportable Events. There have not been, with respect to any of the
Plans, any "reportable events", as such term is defined in Section 4043(b) of
ERISA.
(h) Multiemployer Plans. Inventory has not ever maintained or contributed
to, or been obligated or required
-23-
to contribute to, a "multiemployer plan", as such term is defined in Section
3(37) of ERISA.
(i) Contributions; Benefits. Inventory has paid in full all amounts which
were required to have been paid by them on or prior to the date hereof as
contributions to the Inventory Pension Plans. The current value of all accrued
benefits under Inventory Pension Plans did not, as of the latest valuation date
thereof, exceed the then current value of the assets of such Inventory Pension
Plan allocable to such accrued benefits, based upon the actuarial assumptions
then being utilized with respect thereto.
(j) Claims. There is not pending, and to the best of the knowledge of
Inventory or the Shareholders, there is not threatened, any claims against any
of the Plans or any fiduciary thereof (other than claims for benefits made in
the ordinary course).
2.21. Systems and Software. Inventory and its subsidiaries owns or has the
right to use pursuant to lease, license, sublicense, agreement, or permission
all computer hardware, software and information systems necessary for the
operation of the businesses of Inventory and its subsidiaries as presently
conducted (collectively, "Systems"). Each System owned or used by Inventory or
its subsidiaries immediately prior to the Effective Time will be owned or
available for use by TTIS, the Subsidiary or their respective affiliates on
identical terms and conditions immediately subsequent to the Effective Time.
With respect to each System owned by a third party and used by
-24-
Inventory or its subsidiaries pursuant to lease, license, sublicense, agreement
or permission: (a) the lease, license, sublicense, agreement or permission
covering the System is legal, valid, binding, enforceable, and in full force and
effect; (b) the lease, license, sublicense, agreement or permission will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the Effective Time; (c) no party to any such lease,
license, sublicense, agreement or permission is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, and permit termination, modification or acceleration thereunder; (d)
no party to any such lease, license, sublicense, agreement or permission has
repudiated any provision thereof; (e) neither Inventory nor its subsidiaries
have granted any sublicense, sublease or similar right with respect to any such
lease, license, sublicense, agreement or permission; (f) Subsidiary and its
affiliates use and continued use of such Systems will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
intellectual property rights of third parties as a result of the continued
operation of its business as presently conducted. Schedule 2.21 is a complete
and correct list and summary description of all Systems.
2.22. Environmental Matters. Inventory and each of its subsidiaries has
obtained and is in compliance with the terms and conditions of all required
permits, licenses, registrations and other authorizations required under
Environmental Laws (as hereinafter defined). No asbestos in a
-25-
friable condition, equipment containing polychlorinated biphenyls, leaking
underground or above-ground storage tanks are contained in or located at any
facility currently, or was contained or located at any facility previously
owned, leased or controlled by Inventory or any of its subsidiaries. Inventory
has not released, discharged or disposed of on, under or about any facility
currently or previously owned, leased or controlled by the Company or any of its
subsidiaries, any Hazardous Substance (as hereinafter defined), and to the best
of Inventory's knowledge, no third party has released, discharged or disposed of
on, under or about any facility currently or previously owned, leased or
controlled by Inventory or any of its subsidiaries, and Hazardous Substances (as
hereinafter defined). Inventory and each of its subsidiaries is in compliance
with all applicable Environmental Laws. Inventory has fully disclosed to TTIS
all past and present noncompliance with, or liability under, Environmental Laws,
and all past discharges, emissions, leaks, releases or disposals by it of any
substance or waste regulated under or defined by Environmental Laws that have
formed or could reasonably be expected to form the basis of any claim, action,
suit, proceeding, hearing or investigation under any applicable Environmental
Laws. Neither Inventory nor any of its subsidiaries has received notice of any
past or present events, conditions, circumstances, activities, practices,
incidents, actions or plans of Inventory or its subsidiaries that have resulted
in or threaten to result in any common law or legal liability, or otherwise form
the basis of any claim, action,
-26-
suit, proceeding, hearing or investigation under, any applicable Environmental
Laws. For purposes of this Section 2.22, (a) "Environmental Laws: mean
applicable federal, state, local and foreign laws, regulations and codes
relating in any respect to pollution or protection of the environment and (b)
"Hazardous Substances" means any toxic, caustic or otherwise dangerous substance
(whether or not regulated under federal, state or local environmental statutes,
rules, ordinances, or orders), including (i) "hazardous substance" as defined in
42 U.S.C. Section 9601, and (ii) petroleum products, derivatives, byproducts and
other hydrocarbons.
2.23. Certain Business Matters. Except as is set forth in Schedule 2.23,
(a) Inventory is not a party to or bound by any distributorship, dealership,
sales agency, franchise or similar agreement which relates to the sale or
distribution of any of the products and services of the Business, (b) Inventory
has no sole-source supplier of significant goods or services (other than
utilities) with respect to which practical alternative sources are not available
on comparable terms and conditions, (c) there are no pending or, to the best
knowledge of the Shareholders, threatened labor negotiations, work stoppages or
work slowdowns involving or affecting the Business, and no union representation
questions exist, and there are no organizing activities, in respect of any of
the employees of Inventory, (d) the product and service warranties given by
Inventory or by which it is bound (complete and correct copies or descriptions
of which have heretofore been delivered by Inventory to TTIS) entail no
-27-
greater obligations than are customary in the Business, (e) neither Inventory
nor the Shareholders is a party to or bound by any agreement which limits its or
his, as the case may be, freedom to compete in any line of business or with any
person, or which is otherwise materially burdensome to Inventory or the
Shareholders, and (f) Inventory is not a party to or bound by any agreement in
which any officer, director or stockholder of Inventory (or any affiliate of any
such person) has, or had when made, a direct or indirect material interest.
2.24. Certain Contracts. Schedule 2.24 is a complete and correct list of
all material contracts, commitments, obligations and understandings which are
not set forth in any other Schedule delivered hereunder and to which Inventory
is a party or otherwise bound, except for (a) purchase orders from vendors or
customers and (b) each of those which (i) were made in the ordinary course of
business and (ii) either (A) are terminable by Inventory (and will be terminable
by Subsidiary) without liability, expense or other obligation on 30 days' notice
or less, or (B) may be anticipated to involve aggregate payments to or by
Inventory of $5,000 (or the equivalent) or less calculated over the full term
thereof, and (C) are not otherwise material to the Business or Inventory.
Complete and correct copies of all contracts, commitments, obligations and
undertakings set forth on any of the Schedules delivered pursuant to this
Agreement have been furnished by Inventory to TTIS. Except as expressly stated
on any of such Schedules, (1) each of agreements listed on Schedule 2.24 is in
full force and effect,
-28-
no person or entity which is a party thereto or otherwise bound thereby is in
material default thereunder, and no event, occurrence, condition or act exists
which does (or which with the giving of notice or the lapse of time or both
would) give rise to a material default or right of cancellation, acceleration or
loss of contractual benefits thereunder; (2) there has been no threatened
cancellations thereof, and there are no outstanding disputes thereunder; (3)
none of them is materially burdensome to Inventory; and (4) each of them is
fully assignable without the consent, approval, order or any waiver by, or any
other action of or with any individual or individuals, without the payment of
any penalty, the incurrence of any additional debt, liability or obligation of
any nature whatsoever or the change of any term.
2.25. Customers and Suppliers. Inventory has previously provided to TTIS a
complete and correct list setting forth, for the twelve months ended October 31,
1996 and the seven months ended May 31, 1997, (a) the 20 largest customers of
the Business and the amount for which each such customer was invoiced, and (b)
the 20 largest suppliers of the Business and the amount of goods and services
purchased from each such supplier. There are no (i) threatened cancellations by
the aforesaid customers or suppliers with respect to the Business, (ii)
outstanding disputes by such customers or suppliers with Inventory and the
Business, or (iii) any adverse changes in the business relationship between the
Business and any such customer or supplier. The aforesaid suppliers and
customers will continue
-29-
their respective relationships with the Business after the Closing Date on
substantially the same basis as now exists.
2.26. Business Practices and Commitments. Set forth on Schedule 2.26 is a
description of (a) Inventory's rebate and volume discount practice, and
obligations, (b) Inventory's allowance and customer return practice and
obligations, (c) Inventory's co-op advertising and other promotional practices,
(d) Inventory's warranty practices and obligations, (e) price protection
agreements, and (f) return policies and historical return rates, as each of the
foregoing relate to Inventory's customers and suppliers.
2.27. Approvals/Consents. Except as set forth on Schedule 2.27, Inventory
currently holds all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which are
necessary for the operation of the Business, all of which are in full force and
effect and are transferable to Subsidiary without the payment of any penalty,
the incurrence of any additional debt, liability or obligation of any nature
whatsoever or the change of any term. Schedule 2.27 is a complete and correct
list of all such governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises. No material
violations of the terms thereof have heretofore occurred or are known by the
Shareholders to exist as of the date of this Agreement.
2.28. Information as to Inventory. None of the representations or
warranties made by the Shareholders in this
-30-
Agreement is, or contained in any of the Inventory Documents to be executed and
delivered hereto will be, false or misleading with respect to any material fact,
or omits to state any material fact necessary in order to make the statements
therein contained not misleading.
2.29. Poolability. Except as set forth on Schedule 2.29:
(a) None of Inventory nor the Shareholders own or will have, since the
date two years prior to the Effective Date, owned any shares of TTIS Common
Stock, nor shall Inventory have been a subsidiary or a division of another
entity since the date two years prior to the Closing date.
(b) Inventory has no equity investments or rights to purchase equity
investments of any kind in TTIS other than as pursuant to this Agreement
and the other agreements referenced herein; and
(c) Inventory has not disposed of a significant amount of assets other
than in the ordinary course of business since the date two years prior to
the Closing Date.
The equity transactions and the capital stock transactions for Inventory
and for each Shareholder since the date two years prior to the date hereof
Closing Date are set forth on Schedule 2.29.
2.30. Securities Act Representation. Each Shareholder is acquiring the TTIS
Common Stock solely for investment purposes, with no intention of distributing
or reselling any such stock or any interest therein. Each
-31-
Shareholder is aware that the TTIS Common Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and that neither the
TTIS Common Stock nor any interest therein may be sold, pledged, or otherwise
transferred unless the TTIS Common Stock is registered under the Securities Act
or qualifies for an exemption under the Securities Act.
3. Representations and Warranties as to TTIS and Subsidiary. TTIS and
Subsidiary, jointly and severally, represent and warrant to Inventory and the
Shareholders as follows:
3.1. Organization, Standing and Power. Each of TTIS and Subsidiary is
a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, with full corporate power and corporate
authority to (i) own, lease and operate its properties, (ii) carry on its
business as currently conducted by it and (iii) execute and deliver, and
perform under this Agreement and each other agreement and instrument to be
executed and delivered by it pursuant hereto. Except as set forth on
Schedule 3.1, there are no states or jurisdictions in which the character
and location of any of the properties owned or leased by TTIS or
Subsidiary, or the conduct of their business makes it necessary for either
of them to qualify to do business as a foreign corporation, where the
failure to so qualify would have a material adverse effect on the business,
operations or financial condition of TTIS or Subsidiary. True and complete
copies of the Certificates of Incorporation of TTIS and of Subsidiary, and
of the By-Laws of
-32-
TTIS and of Subsidiary, as amended to date, have heretofore been furnished
to Inventory. The minute books of TTIS and of Subsidiary contain complete
and accurate records of all meetings and other corporate actions of their
respective stockholders and Board of Directors (including committees of its
Boards of Directors).
3.2. Interests in Other Entities. Schedule 3.2 sets forth a true and
complete list of all direct or indirect subsidiaries of TTIS (other than
the Subsidiary) that are material to the financial condition of TTIS and it
subsidiaries, together with the jurisdiction of incorporation of each such
subsidiary and the percentage of each such subsidiary's outstanding capital
stock owned by TTIS or another of TTIS's subsidiaries. Each of such
subsidiaries are duly organized corporations, validly existing and in good
standing under the laws of the jurisdiction of its respective incorporation
(as well as all applicable foreign jurisdictions necessary to its business
operations) and have the requisite corporate power and authority and
governmental authority to own, operate or lease the properties that each
purports to own, operate or lease and to carry on its business as it is now
being conducted.
3.3. Capitalization. (a) The authorized capital stock of TTIS consists
of 15,000,000 shares of TTIS Common Stock and 5,000,317 shares of Preferred
Stock, par value $.01 per share (of which 317 shares of Series A Preferred
Stock, $1.00 par value per share, are outstanding). As of the date hereof,
(i) 7,847,455 shares of TTIS Common Stock are issued and outstanding,
-33-
all of which are duly authorized, validly issued, fully paid and
nonassessable, (ii) 1,100,311 shares of TTIS Common Stock are issuable upon
exercise of options and (iii) 2,337,234 shares of TTIS Common Stock are
reserved for future issuance upon exercise of outstanding common stock
purchase warrants. There is no personal liability, and there are no
preemptive rights with regard to the capital stock of TTIS, and no
right-of-first refusal or similar rights with regard to such capital stock.
All of the shares of TTIS Common Stock issuable in connection with the
Merger will be offered, issued and sold by TTIS in full compliance with
applicable federal and state securities laws.
(b) The outstanding shares of capital stock of each of the
subsidiaries of TTIS, including Subsidiary, are duly authorized, validly
issued, fully paid and nonassessable, and, except as set forth in the SEC
Reports (defined in Subsection 3.8 hereof) or on Schedule 3.3, such shares
are owned by TTIS, directly or indirectly, free and clear of all security
interests, liens, adverse claims, pledges, agreements, limitations on
TTIS's voting rights, charges and other encumbrances of any nature
whatsoever. Except as noted in the SEC Reports (defined in Subsection 3.8
hereof) or on Schedule 3.3, TTIS owns all issued and outstanding shares of
capital stock of each Subsidiary and there are no options, warrants or
similar right outstanding with respect to shares of capital stock of any
subsidiary.
3.4. Authority. The execution and delivery by TTIS and Subsidiary of this
Agreement and of each agreement to be
-34-
executed and delivered by either of them pursuant hereto (collectively, the
"TTIS Documents"), the performance by each of them of its obligations hereunder
and thereunder, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of TTIS and Subsidiary, and TTIS and Subsidiary have all necessary
corporate power and corporate authority with respect thereto. This Agreement is,
and when executed and delivered by TTIS and Subsidiary each other TTIS Document
will be, the valid and binding obligation of TTIS or Subsidiary, as the case may
be to the extent it is a party thereto, in accordance with the respective terms,
thereof, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally and subject to the rules of law governing (and all limitations on)
specific performance, injunctive relief, and other equitable remedies.
3.5. Noncontravention. Except as set forth on Schedule 3.5, neither the
execution and delivery by TTIS or Subsidiary of any TTIS Document, nor the
consummation of any of the transactions contemplated hereby or thereby, nor the
performance by either of them of any of its respective obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would) (a) conflict with or result in a breach of any provision of the
Certificates of Incorporation or By-Laws of either TTIS or Subsidiary, or (b)
give rise to a default, or any right of termination, cancellation
-35-
or acceleration, or otherwise be in conflict with, or result in a loss of
contractual benefits to, either of them, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which either of them is a party or by which either
of them or their respective assets may be bound, or require any consent,
approval or notice under the terms of any such document or instrument, or (c)
violate any order, writ, injunction, decree, law, statute, rule or regulation of
any court or governmental authority which is applicable to either of them, or
(d) result in the creation or imposition of any lien, adverse claim,
restriction, charge or encumbrance upon any of their assets, or (e) interfere
with or otherwise adversely affect the ability of TTIS or Subsidiary to carry on
its business on substantially the same basis as is now conducted by it.
3.6. Absence of Litigation. Except as may be disclosed in the SEC Reports
(defined in Subsection 3.8 hereof) or as set forth in Schedule 3.6 hereof, there
are no claims, actions, suits, proceedings or investigations pending or, to the
knowledge of TTIS and Subsidiary, threatened against or relating to TTIS,
Subsidiary, this Agreement, the transactions contemplated hereby, or any
properties or assets of TTIS or Subsidiary. Neither TTIS nor any of its
subsidiaries (including the Subsidiary), nor any of their respective properties
is subject to any order, writ, judgment, injunction, decree, determination or
award which, if enforced, would have a material adverse effect on the business,
the results of the operations,
-36-
cash flows or financial condition of TTIS separately or of TTIS and its
subsidiaries taken as a whole.
3.7. ERISA.
(a) Plans. Schedule 3.7 lists TTIS's "employee pension benefit plan" ("TTIS
Pension Plan"), as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and TTIS's
"welfare benefit plan" (collectively called "TTIS Welfare Plans") as such term
is defined in Section 3(1) of ERISA, which is maintained by TTIS or to which
they contribute or be obligated or required to contribute. The TTIS Pension
Plans and TTIS Welfare Plans are hereinafter sometimes collectively referred to
as the "Plans" and severally referred to as a "Plan".
(b) Qualification. Each TTIS Pension Plan and the trust (if any) forming a
part thereof has been determined by the IRS to be qualified under Section 401(a)
of the Code, and is exempt from taxation under Section 501(a) of the Code, and
nothing has occurred since the date of such determination which would adversely
affect such qualification.
(c) Plan Documents. Inventory has heretofore delivered to Inventory and to
the Shareholders, true, complete and correct copies of (i) the Plans, and all
related trust agreements, (ii) all written interpretations and summary plan
descriptions relating thereto, (iii) the two most recent annual reports (Form
5500 Series) and accompanying schedules which were prepared in connection with
each Plan, (iii) all IRS determination letters relating to the Plans, and (iv)
the two
-37-
most recent actuarial evaluation reports which were prepared in connection with
any of the Plans.
(d) No Prohibited Transactions. Neither TTIS, nor any of the Plans, nor any
trust created thereunder, nor any trustee or administrator thereof, have engaged
in a transaction which would subject TTIS or any of the Plans to the tax on
prohibited transactions imposed by Section 4975 of the Code or to a civil
penalty assessed pursuant to Section 502(i) of ERISA.
(e) No Accumulated Funding Deficiency. None of the TTIS's Pension Plans has
incurred any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived.
(f) Termination, etc. TTIS has not incurred, and is not expected to incur,
directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to the TTIS Pension Plan. The PBGC has not
instituted proceedings to terminate the TTIS Pension Plan, nor has it notified
TTIS, either formally or informally, of its intention to institute any such
proceedings.
(g) Reportable Events. There have not been, with respect to any of the
Plans, any "reportable events", as such term is defined in Section 4043(b) of
ERISA.
(h) Multiemployer Plans. TTIS has not ever maintained or contributed to, or
been obligated or required to contribute to, a "multiemployer plan", as such
term is defined in Section 3(37) of ERISA.
-38-
(i) Contributions; Benefits. TTIS has paid in full all amounts which were
required to have been paid by them on or prior to the date hereof as
contributions to the TTIS Pension Plans. The current value of all accrued
benefits under TTIS Pension Plans did not, as of the latest valuation date
thereof, exceed the then current value of the assets of such TTIS Pension Plan
allocable to such accrued benefits, based upon the actuarial assumptions then
being utilized with respect thereto.
(j) Claims. There is not pending, and to the best of the knowledge of TTIS
or the Subsidiary, there is not threatened, any claims against any of the Plans
or any fiduciary thereof (other than claims for benefits made in the ordinary
course).
3.8. Securities and Exchange Commission Filings; Financial Statements.
(a) TTIS has filed all forms, reports, statements and documents required to
be filed with the Securities and Exchange Commission ("SEC") (collectively, the
"SEC Reports"), each of which has complied in form in all material respects with
the applicable requirements of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as applicable, each as in effect on
the date so filed. TTIS has delivered to Inventory, in the form filed with the
SEC (including any amendments thereto), its Registration Statement on Form SB-2,
effective April 14, 1997, and its Quarterly Report on Form 10-QSB for the
quarter ended April 30, 1997. None of such reports (including but not limited to
any financial statements or
-39-
schedules included or incorporated by reference therein) filed by TTIS, when
filed (except to the extent revised or superseded by a subsequent filing with
the SEC) contained any untrue statement of a material fact.
(b) Each of the consolidated financial statements contained in the SEC
Reports has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may otherwise be indicated in the notes thereto) and each presents fairly, in
all material respects, the consolidated financial position of TTIS and its
subsidiaries as at the respective dates thereof and the consolidated results of
its operations and cash flow position for the periods indicated.
(c) Except as and to the extent set forth on the balance sheet of TTIS and
its subsidiaries as at May 31, 1997, including the notes thereto, and TTIS and
its subsidiaries taken as a whole, do not have any liabilities or obligations,
whether or not accrued, contingent or otherwise, that would be required to be
included on a balance sheet prepared in accordance with GAAP, except for
liabilities or obligations incurred in the ordinary course of business since May
31, 1997, none of which would, individually or in the aggregate, have a material
adverse effect on the financial condition, or results of the operations or cash
flows of TTIS and its subsidiaries, on a consolidated basis.
3.9. Stock Issuable in Merger. The Share Consideration, when issued, will
be duly authorized and validly
-40-
issued, fully paid and non-assessable, will be delivered hereunder free and
clear of any liens, adverse claims, security interests, pledges, mortgages,
charges and encumbrances of any nature whatsoever, except that the shares of
TTIS Common Stock constituting the Share Consideration will be "restricted
securities", as such term is defined in the rules and regulations of the SEC
promulgated under the Securities Act, and will be subject to restrictions on
transfers pursuant to such rules and regulations.
3.10. Properties. Except as set forth on Schedule 3.10, TTIS and the
Subsidiary have good title to all of the properties and assets, reflected on
their balance sheets or thereafter acquired, except properties or assets sold or
otherwise disposed of in the ordinary course of business, free and clear of any
and all Liens, other than Liens not yet due and payable or being contested in
good faith by appropriate proceedings, and other than such Liens or
imperfections of title, if any, which are not substantial in character, amount
or extent and do not materially interfere with the present or continued use of
such property or otherwise materially adversely affect the value or
transferability thereof or otherwise materially impair the business operations
of TTIS as conducted on the date hereof. All plants, structures and equipment
which are utilized in the business operations of TTIS, or are material to the
condition (financial or otherwise) of TTIS, are owned or leased by TTIS, are in
good operating condition and repair (ordinary wear and
-41-
tear excepted) and are adequate and suitable for the purposes for which they are
used.
3.11. Absence of Changes. Since May 31, 1997, there have not been (a) any
material adverse change (other than as is normal in the ordinary course of
business, e.g., inventory level changes) in the condition (financial or
otherwise), assets, liabilities, business, prospects, results of operations or
cash flows of TTIS and Subsidiary (including, without limitation, any such
adverse change resulting from damage, destruction or other casualty loss,
whether or not covered by insurance), (b) any waivers by TTIS of any right, or
cancellation of any debt or claim, of substantial value, (c) any declarations,
set asides or payments of any dividend or other distributions or payments in
respect of the TTIS Common Stock, or (d) any changes in the accounting
principles or methods which are utilized by TTIS or Subsidiary.
3.12. No Violation of Law. Neither TTIS nor Subsidiary is engaging in any
activity or omitting to take any action as a result of which it is in violation
of any law, rule, regulation, zoning or other ordinance, statute, order,
injunction or decree, or any other requirement of any court or governmental or
administrative body or agency, applicable to either TTIS or Subsidiary, their
respective business operations or any of their respective assets, including, but
not limited to, those relating to: occupational safety and health matters;
issues of environmental and ecological protection (e.g., the use, storage,
handling, transport or disposal of pollutants, contaminants or
-42-
hazardous or toxic materials or wastes, and the exposure of persons thereto);
business practices and operations; labor practices; employee benefits; and
zoning and other land use laws and regulations.
3.13. Intangibles/Inventions. Schedule 3.13 identifies (by a summary
description) the TTIS Intangibles (as defined below) the ownership thereof and,
if applicable, TTIS's and Subsidiary's authority for use of the same, which
Schedule is complete and correct and encompasses: (A) all United States and
foreign patents, trademark and trade name registrations, trademarks and trade
names, brandmarks and brand name registrations, servicemarks and servicemark
registrations, assumed names and copyrights and copyright registrations, owned
in whole or in part or used by TTIS, and all applications therefor
(collectively, the "Marks"), (B) all inventions, discoveries, improvements,
processes, formulae, technology, know-how, processes and other intellectual
property, proprietary rights and trade secrets relating to the business of TTIS
(collectively, the "Rights") and (C) all licenses and other agreements to which
TTIS is a party or otherwise bound which relate to any of the Intangibles or the
Rights or TTIS's use thereof in connection with its business (collectively, the
"TTIS Licenses, and together with the Marks and the Rights, the "TTIS
Intangibles"). No violations of the terms of any of the aforesaid licenses
and/or agreements have occurred. Except as disclosed in the SEC Reports or on
Schedule 3.13, (A) TTIS owns or is authorized to use in connection with the
Business all of
-43-
the TTIS Intangibles; (B) no proceedings have been instituted, are pending, or
to the best knowledge of TTIS, are threatened which challenge the rights of TTIS
with respect to the TTIS Intangibles or their use thereof in connection with the
business of TTIS or the validity thereof and, there is no valid basis for any
such proceedings; (C) neither TTIS's ownership of the TTIS Intangibles nor their
use thereof by TTIS violates any laws, statutes, ordinances or regulations, or
has at any time infringed upon or violated any rights of others, or is being
infringed by others; (D) none of the TTIS Intangibles, or TTIS's use thereof is
subject to any outstanding order, decree, judgment, stipulation or any lien,
security interest or other encumbrance; and (E) TTIS has not granted any license
to third parties with respect thereto.
3.14. Tax Matters.
(a) TTIS has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes
shown to be due or claimed to be due on such tax returns and reports. The
provisions for Taxes which are set forth on its balance sheets are adequate for
all accrued and unpaid taxes of TTIS as of May 31, 1997, whether (i) incurred in
respect of or measured by income of TTIS for any periods prior to the close of
business on that date, or (ii) arising out of transactions entered into, or any
state of facts existing, on or prior to such date. TTIS has duly withheld all
payroll taxes, FICA and other federal, state
-44-
and local taxes and other items requiring to be withheld by it from employer
wages, and has duly deposited the same in trust for or paid over to the proper
taxing authorities. TTIS has not executed or filed with any taxing authority any
agreement extending the periods for the assessment or collection of any Taxes,
and is not a party to any pending or, to the best knowledge of TTIS, threatened,
action or proceeding by any governmental authority for the assessment or
collection of Taxes. Within the past three years, the United States federal
income tax returns of TTIS have not been examined by the IRS, nor has the State
of Delaware or any taxing authority thereof examined any merchandize, personal
property, sales or use tax returns of TTIS.
(b) TTIS (i) has not agreed to or been required to make any adjustment
pursuant to Section 481(a) of the Code, (ii) has no knowledge that the IRS or
any other taxing authority has proposed any such adjustment or change in
accounting method, and (iii) has no application pending with any governmental
authority requesting permission for any change in accounting method.
3.15. Approvals/Consents. Except as set forth on Schedule 3.15, TTIS
currently holds all governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises which are
necessary for the operation of its business. Schedule 3.15 is a complete and
correct list of all such governmental and administrative consents, permits,
appointments, approvals, licenses, certificates and franchises. No material
violations of the terms
-45-
thereof have heretofore occurred or are known by TTIS to exist as of the date of
this Agreement.
3.16. Information as to TTIS and Subsidiary. None of the representations or
warranties made by TTIS or Subsidiary in this Agreement, or contained in any of
the TTIS Documents, to be executed and delivered hereto, is or will be, false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements therein contained not misleading.
4. Indemnification.
4.1. Indemnification by the Shareholders. Each of Inventory and the
Shareholders, jointly and severally, hereby indemnifies and agrees to defend and
hold harmless each of TTIS and Subsidiary from and against any and all losses,
obligations, deficiencies, liabilities, claims, damages, costs and expenses
(including, without limitation, the amount of any settlement entered into
pursuant hereto, and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of any matter
indemnified pursuant hereto) which either of them may sustain, suffer or incur
and which arise out of, are caused by, relate to, or result or occur from or in
connection any misrepresentation of a material fact contained in any
representation of Inventory and/or the Shareholders contained in, or the breach
by Inventory, or the Shareholders of any warranty or covenant made by any one or
all of them in, any Inventory Document and/or the Shareholders Document,
including without limitation any and all losses, obligations, deficiencies,
-46-
limitations, claims, damages, costs and expenses which TTIS or the Subsidiary
may sustain, suffer or incur and which arise out of, or caused by, relate to, or
result from or in connection with any claims brought by the United States
Internal Revenue Service or applicable state taxing authority pertaining to
income tax returns filed by the Shareholders with respect to income of Inventory
for all periods prior to Closing. The foregoing indemnification shall also apply
to direct claims by TTIS and/or Subsidiary against the Shareholders.
4.2. Indemnification by TTIS and Subsidiary. Each of TTIS and Subsidiary,
jointly and severally, indemnifies and agrees to defend and hold harmless each
of Inventory (before the Effective Time) and the Shareholders from and against
any and all losses, obligations, deficiencies, liabilities, claims, damages,
costs and expenses (including, without limitation, the amount of any settlement
entered into pursuant hereto, and all reasonable legal and other expenses
incurred in connection with the investigation, prosecution or defense of any
matter indemnified pursuant hereto), which it or he may sustain, suffer or incur
and which arise out of, are caused by, relate to, or result or occur from or in
connection with any misrepresentation of a material fact contained in any
representation of TTIS and/or Subsidiary contained in, or the breach by TTIS or
Subsidiary of any warranty or covenant made by either or both of them in, any
TTIS Document. The foregoing indemnification shall also apply to direct claims
by Inventory or the Shareholders against TTIS and/or Subsidiary.
-47-
4.3. Third Party Claims. If a claim by a third party is made against any
party or parties hereto and the party or parties against whom said claim is made
intends to seek indemnification with respect thereto under Subsections 4.1 or
4.2, the party or parties seeking such indemnification shall promptly notify the
indemnifying party or parties, in writing, of such claim; provided, however,
that the failure to give such notice shall not affect the rights of the
indemnified party or parties hereunder except to the extent that such failure
materially and adversely affects the indemnifying party or parties due to the
inability to timely defend such action. The indemnifying party or parties shall
have 10 business days after said notice is given to elect, by written notice
given to the indemnified party or parties, to undertake, conduct and control,
through counsel of their own choosing (subject to the consent of the indemnified
party or parties, such consent not to be unreasonably withheld) and at their
sole risk and expense, the good faith settlement or defense of such claim, and
the indemnified party or parties shall cooperate with the indemnifying parties
in connection therewith; provided: (a) all settlements require the prior
reasonable consultation with the indemnified party and the prior written consent
of the indemnified party, which consent shall not be unreasonably withheld, and
(b) the indemnified party or parties shall be entitled to participate in such
settlement or defense through counsel chosen by the indemnified party or
parties, provided that the fees and expenses of such counsel shall be borne by
the
-48-
indemnified party or parties. So long as the indemnifying party or parties are
contesting any such claim in good faith, the indemnified party or parties shall
not pay or settle any such claim; provided, however, that notwithstanding the
foregoing, the indemnified party or parties shall have the right to pay or
settle any such claim at any time, provided that in such event they shall waive
any right of indemnification therefor by the indemnifying party or parties. If
the indemnifying party or parties do not make a timely election to undertake the
good faith defense or settlement of the claim as aforesaid, or if the
indemnifying parties fail to proceed with the good faith defense or settlement
of the matter after making such election, then, in either such event, the
indemnified party or parties shall have the right to contest, settle or
compromise (provided that all settlements or compromises require the prior
reasonable consultation with the indemnifying party and the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld) the claim at their exclusive discretion, at the risk and expense of
the indemnifying parties.
4.4. Assistance. Regardless of which party is controlling the defense of
any claim, each party shall act in good faith and shall provide reasonable
documents and cooperation to the party handling the defense.
4.5. Exclusive Remedy. The provisions of this Section 4 shall be the sole
and exclusive remedy, other than equitable relief, of the parties hereto.
-49-
4.6. Limitation. Neither TTIS and Subsidiary, on the one hand, nor the
Shareholders on other hand, shall be entitled to any claim for indemnification
under this Section 4 until the aggregate amount of losses, for which indemnity
is claimed exceeds $50,000, and once such threshold amount is met, then the
indemnity shall apply to amounts over such threshold.
5. Covenants
5.1. Investigation.
(a) Between the date hereof and the Closing Date, TTIS and/or Subsidiary,
on the one hand, and Inventory and the Shareholders, on the other hand, may,
directly and through their representatives, make such investigation of each
other corporate party and their respective businesses and assets of the other
corporate party or parties as each deems necessary or advisable (the entity
and/or its representatives making such investigation being the "Investigating
Party"), but such investigation shall not affect any of the representations and
warranties contained herein or in any instrument or document delivered pursuant
hereto. In furtherance of the foregoing, the Investigating Party shall have
reasonable access, during normal business hours after the date hereof, to all
properties, books, contracts, commitments and records of each other, and shall
furnish to the other and their representatives such financial and operating data
and other information as may from time to time be reasonably requested relating
to the transactions contemplated by this Agreement. Each of TTIS and Subsidiary,
on the one hand, and Inventory and the Shareholders, on the other, and the
-50-
respective management, employees, accountants and attorneys of the corporate
parties shall cooperate fully with the Investigating Party in connection with
such investigation.
(b) The parties hereto hereby agree that all confidential information of a
party to which an Investigating Party obtains access shall be governed by and
subject to all of the terms and conditions of the confidentiality covenants set
forth in the Letter of Intent dated June 6, 1997 ("Confidentiality Agreement")
among various parties, including the parties hereto (with TTIS signing on behalf
of Subsidiary) and Subsidiary agrees to be bound to the Confidentiality
Agreement.
(c) As used in this Section, the term "Confidential Information" shall mean
any and all information (verbal and written) relating to the Business,
including, but not limited to, information relating to: identity and description
of goods and services used; purchasing; costs; pricing; sources; machinery and
equipment; technology; research, test procedures and results; customers and
prospects; marketing; and selling and servicing;
(d) After the Effective Time each of the Shareholders agrees not to, at any
time, directly or indirectly, use, communicate, disclose or disseminate any
Confidential Information in any manner whatsoever except such disclosures which
are necessary to comply with their duties as officers of the Subsidiary.
-51-
5.2. Noncompete Covenant. Except with respect to Terry's ownership of
Xxxxxxxx, each of the Shareholders hereby agrees after the Effective Time not
to, until the first anniversary of the Effective Time directly or indirectly (A)
engage or become interested in any business (whether as owner, manager,
operator, licensor, licensee, lender, partner, stockholder, joint venturer,
employee, consultant or otherwise) engaged in the business then engaged in by
TTIS or Subsidiary in any of the areas in which TTIS or Subsidiary then conducts
business or (B) take any other action which constitutes an interference with or
a disruption of TTIS or Subsidiary's operation of the Business or Subsidiary's
use, ownership and enjoyment of the Assets.
5.3. Certain Activities. For purposes of clarification, but not of
limitation (1) each Shareholder acknowledges and agrees that the provisions of
subsection 5.2 above shall serve as a prohibition against him, directly or
indirectly, hiring, offering to hire, enticing away or in any other manner
persuading or attempting to persuade any officer, employee, agent, lessor,
lessee, licensor, licensee, customer, prospective customer or supplier of the
Business of the Subsidiary or TTIS to discontinue or alter his or its
relationship with the Business.
5.4. Injunctive Relief, etc. The parties hereto hereby acknowledge and
agree that (i) TTIS and/or Subsidiary would be irreparably injured in the event
of a breach by any of the Shareholders of any of their obligations under this
Section
-52-
5, (ii) monetary damages would not be an adequate remedy for any such breach,
and (iii) TTIS and/or Subsidiary shall be entitled to injunctive relief, in
addition to any other remedy which it may have, in the event of any such breach.
It is hereby also agreed that the existence of any claims which Shareholders may
have against TTIS or the Subsidiary, whether under this Agreement or otherwise,
shall not be a defense to the enforcement by TTIS and/or Subsidiary of any of
the rights under this Section 5.
5.5. Scope of Restriction. It is the intent of the parties hereto that the
covenants contained in this Agreement shall be enforced to the fullest extent
permissible under the laws of and public policies of each jurisdiction in which
enforcement is sought (the Shareholders hereby acknowledge that said
restrictions are reasonably necessary for the protection of TTIS and
Subsidiary). Accordingly, it is hereby agreed that if any one or more of the
provisions of subsections 5.2 or 5.3 shall be adjudicated to be invalid or
unenforceable for any reason whatsoever, said provision shall be (only with
respect to the operation thereof in the particular jurisdiction in which such
adjudication is made) construed by limiting and reducing it so as to be
enforceable to the extent permissible.
5.6. Additional Undertakings. The provisions of this subsection 5.6 shall
be in addition to, and not in lieu of, any other obligations with respect to the
subject matter hereof, whether arising as a matter of contract, by law or
otherwise, including, but not limited to, any obligations which may be
-53-
contained in any Employment or Consulting Agreements between Subsidiary and the
Shareholders.
5.7. Consummation of Transaction. Each of the parties hereto hereby agrees
to use its best efforts to cause all conditions precedent to his or its
obligations (and to the obligations of the other parties hereto to consummate
the transactions contemplated hereby) to be satisfied, including, but not
limited to, using all reasonable efforts to obtain all required (if so required
by this Agreement) consents, waivers, amendments, modifications, approvals,
authorizations, novations and licenses; provided, however, that nothing herein
contained shall be deemed to modify any of the absolute obligations imposed upon
any of the parties hereto under this Agreement or any agreement executed and
delivered pursuant hereto.
5.8. Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees to fully cooperate with the
other parties hereto in preparing and filing any notices, applications, reports
and other instruments and documents which are required by, or which are
desirable in the reasonable opinion of any of the parties hereto, or their
respective legal counsel, in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the transactions
contemplated by this Agreement.
(b) Each of the parties hereto hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such
-54-
other documents as may be required by this Agreement and as TTIS and/or
Subsidiary, on the one hand, and/or Inventory and/or the Shareholders, on the
other, or their respective legal counsel may reasonably require in order to
document and carry out the transactions contemplated by this Agreement.
5.9. Accuracy of Representations. Each party hereto agrees that prior to
the Effective Date he, she or it will enter into no transaction and take no
action, and will use his or its best efforts to prevent the occurrence of any
event (but excluding events which occur in the ordinary course of business and
events over which such party has no control), which would result in any of his
or its representations, warranties or covenants contained in this Agreement or
in any agreement, document or instrument executed and delivered by him or it
pursuant hereto not to be true and correct, or not to be performed as
contemplated, at and as of the time immediately after the occurrence of such
transaction or event.
5.10. Notification of Certain Matters. Inventory and the Shareholders shall
give prompt notice to TTIS and Subsidiary, and TTIS or Subsidiary shall give
prompt notice to Inventory and the Shareholders, as the case may be, of (a) the
occurrence, or nonoccurrence, or any event the occurrence, or nonoccurrence, of
which would be likely to cause any representation contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time and (b) any material failure of Inventory and/or the Shareholders, on the
one hand, and of TTIS and/or Subsidiary, on
-55-
the other, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by him or it hereunder; provided, however, that the
delivery of any notice pursuant to this Subsection 5.5 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.11. Broker. Each of TTIS, Subsidiary, Inventory, and the Shareholders
represents and warrants to the other parties that no broker or finder was
engaged or dealt with in connection with any of the transactions contemplated by
this Agreement, and each of the parties shall indemnify and hold the other
harmless from and against any and all claims or liabilities asserted by or on
behalf of any alleged broker or finder for broker's fees, finder's fees,
commissions or like payments.
5.12. Merger Costs. Each party hereto shall be responsible for paying their
respective costs and expenses relating to the Merger and related transactions.
5.13. No Solicitation of Transactions. Prior to the earlier of the
Effective Time or the termination of this Agreement, neither Inventory nor the
Shareholders will, directly or indirectly, through any director, officer,
employee, agent or otherwise, solicit, initiate or encourage the submission of
proposals or offers from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) any portion of the
Inventory Common Stock, Assets or Business of, or any equity interest in,
Inventory, or any business combination with Inventory (other than the Merger)
and
-56-
other than with TTIS and/or Subsidiary, participate in any negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate 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. Inventory and the Shareholders shall immediately cease and cause to
be terminated any existing discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing (other than in respect
of the transaction contemplated hereby). Inventory and the Shareholders shall
promptly notify TTIS 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
TTIS, indicate in reasonable detail the identity of the offeror and the terms
and conditions of any proposal or offer.
5.14. Employment and Consulting Agreements. At the Closing, Xxxxx will
enter into an employment agreement substantially in the form of Exhibit D hereto
(the "Employment Agreement"). At the Closing, Xxxxx will enter into a consulting
agreement substantially in the form of Exhibit E hereto (the "Consulting
Agreement").
5.15. Registration Rights. At the Closing, TTIS shall enter into a
registration rights agreement substantially in the form of Exhibit F hereto (the
"Registration Rights Agreement"), whereby TTIS would grant the Shareholders
certain "piggyback" registration rights.
-57-
5.16. Prohibited Conduct. Each of Inventory and the Shareholders, jointly
and severally, covenants and agrees that, during the period from the date hereof
to the Effective Time, except pursuant to the terms hereof or unless TTIS shall
otherwise agree in writing, the Business shall be conducted only, and Inventory
shall not take any action except, in the ordinary course of business and in a
manner consistent with past practice and in compliance with applicable laws; and
Inventory shall use its best efforts to preserve intact its Assets, the Business
and the business organization of Inventory, to keep available the services of
the present officers, employees and consultants of Inventory, and to preserve
the present relationships of Inventory with customers, suppliers and other
persons with whom Inventory has business relations. By way of illustration, and
not limitation, neither Inventory nor the Shareholders shall, between the date
of this Agreement and the Effective Time, directly or indirectly do, or propose
or commit to do, any of the following without the prior written consent of TTIS:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the Inventory Common Stock, or (ii)
split, combine or reclassify any of the Inventory Common Stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of the Inventory Common Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether
-58-
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise
encumber, any shares of Inventory Common Stock, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities convertible securities or any
other securities or equity equivalents;
(c) (i) increase the compensation payable or to become payable to any
officer, director, employees or consultant of Inventory, except pursuant to
the terms of contracts, policies or benefit arrangements in effect on the
date hereof, or (ii) grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer,
other employee or consultant of Inventory or any of its subsidiaries,
except pursuant to the terms of contracts, policies and benefit
arrangements in effect on the date hereof, or (iii) establish, adopt, enter
into or amend any collective bargaining (other than in accordance with past
practice), bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers, employees or
consultants of Inventory;
(d) amend the Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents of Inventory or alter
through merger, liquidation,
-59-
reorganization, restructuring, or in any other fashion, the corporate
structure or ownership of Inventory;
(e) acquire, or agree to acquire, (i) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any business or corporation, partnership, joint
venture, association or other business organization or division thereof, or
(ii) any assets that are material, individually or in the aggregate, to
Inventory, except purchases consistent with past practice;
(f) sell, lease, license, mortgage or otherwise encumber or subject to
any lien, security interest, pledge or encumbrance or otherwise dispose of
any of the Assets, except sales in the ordinary course of business
consistent with past practice;
(g) permit Inventory to incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Inventory, guarantee any debt securities of another person, or enter into
any arrangement having the economic effect of any of the foregoing, except
for short-term borrowings incurred in the ordinary course of business
consistent with past practice, or (ii) permit the Shareholders to issue any
guaranties of any indebtedness of Inventory;
(h) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of
Inventory to purchase,
-60-
sell, lease or otherwise dispose of assets or require payment by Inventory
in excess of $10,000;
(i) make any capital expenditures;
(j) adopt a plan of complete or partial liquidation of Inventory or
resolutions providing for or authorizing such a liquidation or the
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization of Inventory;
(k) cause Inventory to recognize any labor union (unless legally
required to do so) or enter into or amend any collective bargaining
agreement;
(l) change any accounting principles used by Inventory, unless
required by the Financial Accounting Standards Board;
(m) make any tax election of, or settle, compromise any income tax
liability of, or file any federal income tax return prior to the last day
(including extensions) prescribed by law, in the case of any of the
foregoing, material to the business, financial condition or results of the
operations of Inventory and it s Subsidiaries, if any, taken as a whole;
(n) settle or compromise any litigation in which Inventory is a
defendant (whether or not commenced prior to the date of this Agreement) or
settle, pay or compromise any claims not required to be paid, which
payments are individually in an amount in excess of $5,000 and in the
aggregate in an amount in excess of $50,000; and
-61-
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.17. Tax Covenant. The Stockholders shall use their best efforts to cause
the Merger to qualify, and will not (both before and after consummation of the
Merger) take any actions which could prevent the Merger from qualifying as a
reorganization under the provisions of Section 368 of the Code and the
regulations promulgated thereunder. Each of TTIS and the Subsidiary will not
(after the consummation of the Merger) take any actions which will prevent the
Merger from qualifying as a reorganization under the provisions of Section 368
of the Code and the regulations promulgated thereunder. Each of TTIS, the
Subsidiary and the Shareholders shall report the Merger as a reorganization
under the provisions of Section 368 of the Code and the regulations promulgated
thereunder and, to the extent permitted, on all state and local tax returns.
5.18. Pooling. Neither Inventory nor the Shareholders shall take any action
which would affect the likelihood of treating, for financial reporting purposes,
the Merger as a pooling of interests.
5.19. Bank Guaranties.
(a) Immediately following the consummation of the Merger, TTIS and the
Subsidiary shall use their reasonable efforts to cause, on or before the
sixtieth (60th) day after the Effective Time, each of the Shareholders to be
released from the forms of guaranty (the "Guaranties") executed by such
Shareholders in connection with that line of
-62-
credit secured by, among other things, a commercial note dated February 21, 1995
from Crestar Bank (the "Line of Credit"); provided that TTIS and Subsidiary
shall not be obligated to prepay such obligations. The Shareholders covenant to
continue such guaranties until the foregoing releases have been obtained.
(b) Notwithstanding anything to the contrary contained in this Section
5.19, Subsidiary hereby indemnifies and agrees to defend and hold harmless each
of the Shareholders from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, reasonable legal expenses incurred in connection with the
defense of any matter indemnified pursuant hereto) finally suffered or charged
to any of such Shareholders (the "Loss"), which Loss arises out of, or results
from, the Guaranties by reason of any act or omission of the Subsidiary
subsequent to the Effective Time with respect to the Line of Credit; provided,
however, that the Subsidiary shall not be obligated to indemnify or defend the
Shareholders with respect to any Loss (i) resulting from a claim or assertion of
liability arising out of or caused by acts or omissions of any of the
Shareholders prior to the Effective Time; (ii) incurred or accruing prior to the
Effective Time; or (iii) arising out of, relating to, or resulting from
negligent or tortious conduct by any of the Shareholders.
-63-
6. Conditions of Merger.
6.1. Conditions to Obligations of TTIS and Subsidiary to Effect the Merger.
The respective obligations of TTIS and Subsidiary to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Creative Alliance Group Merger. All of the transactions to be
consummated on or before the closing pursuant to that certain Agreement and
Plan of Merger by and among TTIS, the Subsidiary, Creative Alliance Group,
Inc. and the shareholders (the "Creative Merger"), shall have been
effected.
(b) Accuracy of Representations and Warranties. The representations
and warranties of each of Inventory and the Shareholders contained herein
or in any Shareholders Document or Inventory Document delivered by either
or both of them shall have been true when made, and, in addition, shall be
true in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date.
(c) Performance of Agreements. Each of Inventory and the Shareholders,
as the case may be, shall have performed, observed and complied in all
material respects with all of their obligations, covenants and agreements,
and shall have satisfied or fulfilled in all material respects conditions
-64-
contained in any Shareholders Document or Inventory Document and required
to be performed, observed or complied with, or to be satisfied or
fulfilled, by Inventory or the Shareholders at or prior to the Effective
Date.
(d) Results of Investigation. TTIS and Subsidiary shall be satisfied
with the results of any investigation of the business and affairs of
Inventory undertaken by them pursuant to Subsection 5.1 hereof.
(e) Pooling of Interests. TTIS shall have received an opinion from
Coopers & Xxxxxxx that the Merger will be treated, for financial reporting
purposes, as a pooling of interests.
(f) Opinion of Counsel for Inventory. TTIS and Subsidiary shall have
received an opinion of Xxxxx & Xxxx, counsel for Inventory and the
Shareholders, dated the Closing Date, in substantially the form of Exhibit
G hereto.
(g) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated
hereby, and no claim, suit, action, inquiry, investigation or proceeding in
which it will be, or it is, sought to restrain, prohibit or change the
terms of or obtain damages or other relief in connection with this
Agreement or any of the transactions contemplated hereby, shall have been
instituted or threatened by any person or entity, and which, in the
reasonable judgment of TTIS (based on the likelihood of success and
material consequences of such claim,
-65-
suit, action, inquiry or proceeding), makes it inadvisable to proceed with
the consummation of such transactions.
(h) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments or modifications to existing agreements
with third parties) required as a precondition to the performance by
Inventory and the Shareholders of their respective obligations hereunder
and under any agreement delivered pursuant hereto, or which in TTIS's
reasonable judgment are necessary to continue unimpaired, subsequent to the
Effective Time, any rights in and to the Assets and/or the Business which
could be impaired by the Merger, shall have been duly obtained and shall be
in full force and effect.
(i) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1997, or such later date as all of the parties shall
agree in a written instrument.
(j) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates and other documents delivered by
Inventory and the Shareholders pursuant hereto, shall be satisfactory in
all material respects to TTIS and its counsel.
(k) No Material Adverse Change. Except as otherwise provided by this
Agreement, there shall not have occurred after the date hereof, in the
reasonable judgment of
-66-
TTIS, a material adverse change in the financial or business condition of
Inventory and its subsidiaries, taken as a whole.
(l) Employment and Consulting Agreements. Xxxxx shall have executed
and delivered the Employment Agreement with Subsidiary. Xxxxx shall have
executed and delivered the Consulting Agreement with Subsidiary.
(m) Satisfaction of Officer/Director Loans from Inventory. All loans
or other indebtedness due from the Shareholders to Inventory, as reflected
on the Balance Sheet, shall have been paid, irrespective of any other due
date contained in the documents executed in connection with any such loan
or indebtedness.
(n) Closing Certificate. Each of the Shareholders shall have furnished
TTIS and Subsidiary with certificates, all dated the Closing Date, to the
effect that all the representations and warranties of Inventory and the
Shareholders are true and complete and all covenants to be performed by
Inventory or the Shareholders at or as of the Closing have been performed
and conditions to be satisfied at or as of the Closing have been waived or
satisfied.
(o) Audited Financials. TTIS shall have received from Coopers &
Xxxxxxx an audit of Inventory's books and records with respect to the
fiscal years ended October 31, 1995 and 1996.
(p) Tax Liabilities. The Shareholders shall have paid (and/or made
adequate allowance for payment of) any and
-67-
all tax liabilities having accrued prior to the Closing Date with respect
to the Tax Adjustments.
6.2. Conditions to Obligations of Inventory and the Shareholders to Effect
the Merger. The obligations of Inventory and the Shareholders to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following conditions:
(a) Creative Merger. All of the transactions to be consummated on or
before the closing of the Creative Merger shall have been effected.
(b) Accuracy of Representations and Warranties. The representations
and warranties of Subsidiary and TTIS contained in any TTIS Documents
delivered by either Subsidiary or TTIS or both of them shall have been true
when made, and, in addition, shall be true in all material respects, on and
as of the Closing Date with the same force and effect as though made on and
as of the Closing Date.
(c) Performance of Agreements. Each of TTIS and Subsidiary shall have
performed, observed and complied, in all material respects, with all
obligations, covenants and agreements, and shall have satisfied or
fulfilled in all material respects all conditions contained in any TTIS
Document and required to be performed, observed or complied with, or
satisfied or fulfilled, by either or both of them at or prior to the
Closing Date.
(d) Opinion of Counsel. Inventory and the Shareholders shall have
received an opinion of Xxxxxx Xxxxxxxxxx LLP, counsel for TTIS and
Subsidiary, dated the Closing Date, in
-68-
substantially the form of Exhibit H attached hereto.
(e) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated
hereby, and no claim, suit, action, inquiry, investigation or proceeding in
which it will be, or it is, sought to restrain, prohibit or change the
terms of or obtain damages or other relief in connection with this
Agreement or any of the transactions contemplated hereby shall have been
instituted or threatened by any person or entity, and which in the
reasonable judgment of the Shareholders (based on the likelihood of success
and material consequences of such claim, suit, action, inquiry or
proceeding), makes it inadvisable to proceed with the consummation of such
transactions.
(f) Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments and modifications to existing agreements
with third parties) required as a precondition to the performance by
Subsidiary and TTIS of their respective obligations hereunder and under any
agreement delivered pursuant hereto, shall have been duly obtained and
shall be in full force and effect.
(g) Date of Consummation. The Merger shall have been consummated on or
prior to July 31, 1997, or such later date as all of the parties shall
agree in a written instrument.
(h) Validity of Transactions. The validity of all transactions
contemplated hereby, as well as the form and substance of all agreements,
instruments, opinions, certificates
-69-
and other documents delivered by TTIS and Subsidiary pursuant hereto, shall
be satisfactory in all material respects to the Shareholders and its
counsel.
(i) No Material Adverse Change. There shall not have occurred after
the date hereof, in the reasonable judgment of Inventory or the
Shareholders, a material adverse change in the financial or business
condition of TTIS or Subsidiary, taken as a whole.
(j) Employment and Consulting Agreements. Subsidiary shall have
executed and delivered to Xxxxx the Employment Agreement and shall have
executed and delivered to Xxxxx the Consulting Agreement.
(k) Closing Certificate. Each of TTIS and Subsidiary shall have
furnished Inventory with certificates, each executed by their respective
presidents, dated the Closing Date, to the effect that all the
representations and warranties of TTIS or Subsidiary, as the case may be,
are true and complete in all material respects and all covenants to be
performed by each of TTIS or Subsidiary, as the case may be, at or as of
the Closing have been performed in all material respects and conditions to
be satisfied at or as of the Closing have been waived or satisfied in all
material respects.
7. The Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8, the closing of the Merger (the "Closing") will take place at the offices of
Xxxxxx Xxxxxxxxxx LLP as promptly as practicable (and in any event within five
business
-70-
days) after satisfaction or waiver of the conditions set forth in Section 6 but
in no event later than July 31, 1997 (the "Closing Date"); or such later date as
shall have been fixed by a written instrument signed by the parties.
7.1. Deliveries by TTIS and Subsidiary at the Closing. At the Closing, TTIS
and Subsidiary shall deliver the following:
(a) stock certificate(s), representing the Share Consideration
registered in the names of the Shareholders;
(b) copies of (i) (A) resolutions adopted by the Board of Directors of
TTIS authorizing TTIS to execute and deliver the TTIS Documents to which it
is a party and to perform its obligations thereunder, upon the terms and
subject to the conditions set forth therein and authorizing Subsidiary to
execute and deliver the TTIS Documents to which it is a party, to perform
its obligations thereunder, and to effect the Merger upon the terms and
subject to the conditions set forth therein, duly certified by the
Secretary or Assistant Secretary of Subsidiary.
(c) Confirmation, in the form of satisfactory to the parties hereto,
from the States of Delaware or Virginia that the Agreement of Merger of
Inventory with and into the Subsidiary has been filed with such Secretaries
of State; together with a copy of the executed form of such agreement.
(d) Certificates of the Secretary or Assistant Secretary of each of
TTIS and Subsidiary certifying as to the incumbency and specimen signatures
of the officers of TTIS
-71-
and Subsidiary executing the TTIS Documents on behalf of such corporation.
7.2. Deliveries by Inventory and/or the Shareholders at the Closing. At the
Closing, Inventory and/or the Shareholders, as applicable, shall deliver to TTIS
and/or Subsidiary, as the case may be, the following:
(a) stock certificate(s) representing the Inventory Common Stock, duly
executed by the Shareholders;
(b) a copy of the resolutions of the Board of Directors of Inventory,
and the written consent of the Shareholders, authorizing Inventory to
execute and deliver the Inventory Documents, to perform its obligations
thereunder and to effect the Merger, duly certified by the Secretary or
assistant Secretary of Inventory;
(c) Certificates of the Secretary or Assistant Secretary of Inventory
certifying as to the incumbency and specimen signatures of the officers of
Inventory executing the Inventory Documents on behalf of such corporation;
(d) the Employment Agreement, duly executed by Xxxxx;
(e) the Consulting Agreement, duly executed by Xxxxx.
7.3. Other Deliveries. In addition, the parties shall execute and deliver
such other documents as may be required by this Agreement and as either of them
or their respective counsel may reasonably require in order to document and
carry out the transactions contemplated by this Agreement.
-72-
8. Termination, Amendment and Waiver.
8.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) By mutual consent of the Boards of Directors of TTIS, Subsidiary
and Inventory; or
(b) By TTIS and Subsidiary, on the one hand, or Inventory and the
Shareholders, on the other hand, if (i) the Merger shall not have been
consummated by July 31, 1997, or such later date as the parties shall have
fixed by written instrument signed by the parties hereto; provided,
however, that the right to terminate this Agreement under this Subsection
shall not be available to any party whose failure to fulfill 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) a court of
competent jurisdiction or governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other action the parties
hereto shall use their reasonable efforts to vacate), in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement.
(c) By TTIS and Subsidiary, on the one hand, or by Inventory and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Inventory and the Shareholders, as the case may be, (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall have been determined that the transaction
-73-
contemplated by this Agreement has become inadvisable or impracticable by
reason of the institution or threat by state, local or federal governmental
authorities or by any other person of material litigation or proceedings
against TTIS or Inventory.
(d) By TTIS and Subsidiary, on the one hand, or Inventory and the
Shareholders, on the other hand, if, in the reasonable judgment of TTIS and
Subsidiary or Inventory or the Shareholders, as the case may be (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall be determined that the business or assets
or financial condition of the other unrelated corporate party hereto has
been materially and adversely affected since May 31, 1997, whether by
reason of changes, developments or operations in the normal course of
business or otherwise.
8.2. Effect of Termination. In the event of the termination of this
Agreement as provided in this Section 8, this Agreement shall, forthwith become
null and void and there shall be no liability on the part of any party hereto
and nothing herein shall relieve any party from liability for any wilful breach
hereof. Such termination shall not, however, affect the obligations of the
parties under the Confidentiality Agreement.
8.3. Fees and Expenses. Each of the parties shall be responsible for, and
shall pay, its or his respective fees and expenses incurred by such party in
connection with the Merger and the transactions contemplated by this Agreement.
-74-
8.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
8.5. Waiver. At any time prior to the Effective Time, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
9. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that: (i) representations and
warranties made by or on behalf of him or it in this Agreement or in any
document or instrument delivered pursuant hereto with respect to tax matters,
environmental compliance and ERISA matters shall survive the respective statutes
of limitations for such matters; and (ii) all other representations or
warranties made herein shall survive the Closing Date for a period of one (1)
year after the Effective Time.
10. General Provisions.
10.1. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, if delivered personally, or one (1) business day
-75-
after having been deposited with courier, if sent by overnight courier, or being
sent by telecopy, if sent by telecopy (receipt confirmed), or three (3) business
days after having been mailed, if mailed by registered or certified mail
(postage prepaid, return receipt requested), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
If to TTIS or Subsidiary: Take-Two Interactive Software, Inc.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxx
Chief Executive Officer
Facsimile #:
with a copy to: Xxxxxx Xxxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Facsimile #: (000) 000-0000
If to Inventory or the Shareholders:
Inventory Management Systems, Inc.
0000 Xxxx Xxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx Xxxxx
Facsimile #
with a copy to: Xxxxx & Xxxx, P.C.
0000 Xxxxxxx Xxxx
X.X. Xxx 00000
Xxxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxx, Esq.
Facsimile #:
10.2. 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
-76-
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 an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the greatest extent
possible.
10.3. Entire Agreement. This Agreement, the Confidentiality Agreement, the
Inventory Documents, the Shareholder Documents and the TTIS Documents (including
the Employment and Consulting Agreement) constitute the entire agreement, 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.
10.4. No Assignment. This Agreement shall not be assigned by operation of
law or otherwise, and any assignment shall be null and void.
10.5. Headings. Headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
10.6. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York without regard to its choice
of law principles. Each of TTIS, Subsidiary, Inventory and the Shareholders
hereby irrevocably and unconditionally consents to submit to the
-77-
jurisdiction of the courts of the State of New York and of the United States
located in the County of New York, State of New York for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agrees not to commence any litigation relating thereto except in such
courts), waives any objection to the laying of venue of any such litigation in
such courts and agrees not to plead or claim that such litigation brought in any
such courts has been brought in an inconvenient forum.
10.7. Attorneys' Fees. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its reasonable attorneys' fees and costs
incurred in litigating, arbitrating, or otherwise settling or resolving such
dispute.
10.8. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
-78-
IN WITNESS WHEREOF, each of Take-Two Interactive Software, Inc.,
Subsidiary, Inventory Management Systems, Inc., by their respective officers
thereunto duly authorized, the Shareholders, individually, have caused this
Agreement to be executed as of the date first written above.
TAKE-TWO INTERACTIVE SOFTWARE, INC.
By:/s/ Xxxx Xxxxx
-----------------------------------------
TAKE TWO ACQUISITION CORP.
By:/s/ Xxxx Xxxxx
-----------------------------------------
INVENTORY MANAGEMENT SYSTEMS, INC.
By:/s/ Xxxxx Xxxxx
-----------------------------------------
Xxxxx Xxxxx
By:/s/ Xxxxx Xxxxx
-----------------------------------------
Xxxxx Xxxxx
By: /s/ Xxxxx Xxxxxxxx
-----------------------------------------
Xxxxx Xxxxxxxx
By: /s/ Xxxxx Xxxxxxxx
-----------------------------------------
Xxxxx Xxxxxxxx
-79-
TABLE OF CONTENTS
1. The Merger.............................................................. 2
1.1. The Merger........................................................ 2
1.2. Effective Time.................................................... 2
1.3. Effect of the Merger.............................................. 3
1.4. Articles of Incorporation; By-Laws................................ 3
1.5. Directors and Officers of Subsidiary.............................. 3
1.6. Conversion of Securities.......................................... 4
2. Representations and Warranties as to Inventory.......................... 6
2.1. Organization, Standing and Power.................................. 6
2.2. Capitalization.................................................... 6
2.3. Ownership of Inventory Common Stock............................... 8
2.4. Interests in Other Entities....................................... 9
2.5. Authority......................................................... 10
2.6. Noncontravention.................................................. 11
2.7. Financial Statements.............................................. 12
2.8. Guaranties........................................................ 13
2.9. Absence of Undisclosed Liabilities................................ 13
2.10. Properties....................................................... 14
2.11. Accounts Receivable; Inventories................................. 15
2.12. Absence of Changes............................................... 16
2.13. Litigation....................................................... 16
2.14. No Violation of Law.............................................. 17
2.15. Intangibles/Inventions........................................... 17
2.16. Tax Matters...................................................... 19
2.17. Insurance........................................................ 20
2.18. Banks; Powers of Attorney........................................ 21
2.19. Employee Arrangements............................................ 21
2.20. ERISA............................................................ 22
Plans ........................................................ 22
(b) Qualification......................................... 22
(c) Plan Documents........................................ 22
(d) No Prohibited Transactions............................ 23
(e) No Accumulated Funding Deficiency..................... 23
(f) Termination, etc...................................... 23
(g) Reportable Events..................................... 23
(h) Multiemployer Plans................................... 23
(i) Contributions; Benefits............................... 24
(j) Claims................................................ 24
2.21. Systems and Software............................................. 24
2.22. Environmental Matters............................................ 25
2.23. Certain Business Matters......................................... 27
2.24. Certain Contracts................................................ 28
2.25. Customers and Suppliers.......................................... 29
2.26. Business Practices and Commitments............................... 30
2.27. Approvals/Consents............................................... 30
2.28. Information as to Inventory...................................... 30
2.29. Poolability...................................................... 31
2.30. Securities Act Representation.................................... 31
-i-
3. Representations and Warranties as to .................................. 32
3.1. Organization, Standing and Power................................. 32
3.2. Interests in Other Entities...................................... 33
3.3. Capitalization................................................... 33
3.4. Authority........................................................ 34
3.5. Noncontravention................................................. 35
3.6. Absence of Litigation............................................ 36
3.7. ERISA............................................................ 37
Plans ........................................................ 37
(b) Qualification......................................... 37
(c) Plan Documents........................................ 37
(d) No Prohibited Transactions............................ 38
(e) No Accumulated Funding Deficiency..................... 38
(f) Termination, etc...................................... 38
(g) Reportable Events..................................... 38
(h) Multiemployer Plans................................... 38
(i) Contributions; Benefits............................... 39
(j) Claims................................................ 39
3.8. Securities and Exchange Commission Filings;
Financial Statements........................................... 39
3.9. Stock Issuable in Merger......................................... 40
3.10. Properties....................................................... 41
3.11. Absence of Changes............................................... 42
3.12. No Violation of Law.............................................. 42
3.13. Intangibles...................................................... 43
3.14. Tax Matters...................................................... 44
3.15. Approvals/Consents............................................... 45
3.16. Information as to TTIS and Subsidiary............................ 46
4. Indemnification........................................................ 46
4.1. Indemnification by the Shareholders.............................. 46
4.2. Indemnification by TTIS and Subsidiary........................... 47
4.3. Third Party Claims............................................... 47
4.4. Assistance....................................................... 49
4.5. Exclusive Remedy................................................. 49
4.6. Limitation....................................................... 49
5. Covenants.............................................................. 50
5.1. Investigation.................................................... 50
5.2. Noncompete Covenant.............................................. 51
5.3. Certain Activities............................................... 52
5.4. Injunctive Relief, etc........................................... 52
5.5. Scope of Restriction............................................. 53
5.6. Additional Undertakings.......................................... 53
5.7. Consummation of Transaction...................................... 53
5.8. Cooperation/Further Assurances................................... 54
5.9. Accuracy of Representations...................................... 55
5.10. Notification of Certain Matters.................................. 55
5.11. Broker........................................................... 56
5.12. Merger Costs..................................................... 56
5.13. No Solicitation of Transactions.................................. 56
5.14. Employment and Consulting Agreements............................. 57
-ii-
5.15. Registration Rights.............................................. 57
5.16. Prohibited Conduct............................................... 57
5.17. Tax Covenant..................................................... 61
5.18. Pooling.......................................................... 62
6. Conditions of Merger................................................... 62
6.1. Conditions to Obligations of TTIS and Subsidiary
to Effect the Merger........................................... 62
(a) Accuracy of Representations and Warranties............ 62
(b) Performance of Agreements............................. 62
(c) Results of Investigation.............................. 63
(d) Pooling of Interests.................................. 63
(e) Opinion of Counsel for Inventory...................... 63
(f) Litigation............................................ 63
(g) Consents and Approvals................................ 64
(h) Date of Consummation.................................. 64
(i) Validity of Transactions.............................. 64
(j) No Material Adverse Change............................ 64
(k) Employment and Consulting Agreements.................. 65
(l) Satisfaction of Officer/Director Loans from
Inventory........................................... 65
(m) Closing Certificate................................... 65
6.2. Conditions to Obligations of Inventory and the
Shareholders to Effect the Merger.............................. 65
(a) Accuracy of Representations and Warranties............ 65
(b) Performance of Agreements............................. 66
(c) Opinion of Counsel for TTIS and Subsidiary............ 66
(d) Litigation............................................ 66
(e) Consents and Approvals................................ 67
(f) Date of Consummation.................................. 67
(g) Validity of Transactions.............................. 67
(h) No material Adverse Change............................ 67
(i) Employment and Consulting Agreements.................. 68
(j) Closing Certificate................................... 68
7. The Closing............................................................ 68
7.1. Deliveries by TTIS and Subsidiary at the Closing................. 68
7.2. Deliveries by Inventory and/or the Shareholders at
the Closing.................................................... 69
7.3. Other Deliveries................................................. 70
8. Termination, Amendment and Waiver...................................... 70
8.1. Termination...................................................... 70
8.2. Effect of Termination............................................ 72
8.3. Fees and Expenses................................................ 72
8.4. Amendment........................................................ 72
8.5. Waiver........................................................... 72
9. Survival of Representations and Warranties............................. 73
10. General Provisions..................................................... 73
10.1. Notices.......................................................... 73
-iii-
10.2. Severability..................................................... 74
10.3. Entire Agreement................................................. 75
10.4. No Assignment.................................................... 75
10.5. Headings......................................................... 75
10.6. Governing Law.................................................... 75
10.7. Attorneys' Fees.................................................. 76
10.8. Counterparts..................................................... 76
-iv-
