Exhibit 10(e)
EXECUTION COPY
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
By and Among
XCEED, INC.,
and
DISTRIBUTED SYSTEMS SOLUTIONS, INC.,
XXXX XXXXXX
and
THE XXXXXX FAMILY TRUST
November 2, 1999
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT (the "Agreement") is entered into as of this 2nd day of
November, 1999, by and among Xceed, Inc., a Delaware corporation ("Xceed"),
Distributed Systems Solutions, Inc., an Arizona corporation (the "Company"),
Xxxx Xxxxxx and the Xxxxxx Family Trust (each individually referred to
hereinafter as a "Stockholder" and collectively referred to hereinafter as the
"Stockholders").
WITNESSETH:
WHEREAS, the authorized capital stock of the Company consists of 1,000,000
shares of common stock, no par value (the "Company Stock"), of which 2,000
shares of Company Stock are issued and outstanding as of the date hereof;
WHEREAS, Xxxx Xxxxxx owns 1,000 shares of Company Stock, representing fifty
percent (50%) of the issued and outstanding shares of capital stock of the
Company;
WHEREAS, the Xxxxxx Family Trust owns 1,000 shares of Company Stock,
representing fifty percent (50%) of the issued and outstanding shares of capital
stock of the Company;
WHEREAS, the Stockholders are the sole stockholders of the Company, and as
such, each Stockholder desires to sell, assign, transfer and convey to Xceed all
of each Stockholder's right, title and interest in and to the issued and
outstanding shares of Company Stock pursuant to the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, it is the desire of Xceed to purchase, obtain and acquire from the
Stockholders all of each of such individual's right, title and interest in and
to all of the issued and outstanding shares Company Stock pursuant to the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, the authorized capital stock of Xceed consists of 30,000,000
shares of common stock, par value $.01 per share (the "Xceed Stock"), and
1,000,000 shares of preferred stock, par value $.05 per share (the "Preferred
Stock"), of which 18,016,076 shares of Xceed Stock were issued and outstanding
as of the date hereof and no shares of Preferred Stock are issued and
outstanding as of the date hereof;
WHEREAS, the respective Boards of Directors of Xceed and the Company deem
it advisable and in the best interests of Xceed and the Company and their
respective stockholders that the Company merge with and into Xceed (the
"Merger") pursuant to the terms of this Agreement and the applicable provisions
of the laws of the State of Delaware and the State of Arizona;
WHEREAS, the Stockholders are currently the only stockholders of the
Company entitled to vote on the Merger and have unanimously voted in favor of
the Merger; and
2
WHEREAS, the Merger is intended to be treated as a reorganization pursuant
to the provisions of Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
ARTICLE I
TERMS OF MERGER
1.1 Merger. Upon the terms and subject to the conditions set forth in
------
this Agreement, on the Closing Date (as hereinafter defined in Section 2.1), the
Company shall be merged with and into Xceed and the Stockholders shall transfer
and convey to Xceed all of the Stockholders' right, title and interest in and to
all of the issued and outstanding shares of Company Stock. The Stockholders
hereby agree, upon the terms and subject to the conditions set forth herein, to
transfer and deliver to Xceed (for cancellation) at the Closing (as hereinafter
defined in Section 2.1) certificates, properly endorsed in blank or accompanied
by a properly executed stock power, representing all of the issued and
outstanding shares of Company Stock.
1.2 Merger Consideration. In consideration of and in exchange for all of
--------------------
the issued and outstanding shares of Company Stock as set forth in Section 1.1
above, Xceed shall pay to the Stockholders and certain employees of the Company
the purchase price as set forth below (the "Purchase Price"). The Purchase
Price shall be payable in cash and shares of Xceed Stock, in accordance
herewith.
(a) Stock Portion of Purchase Price. At the Closing, Xceed shall issue
-------------------------------
to the Stockholders and certain employees of the Company (the "Company
Employees"), in the respective amounts set forth on Schedule 1.2(a) hereto (the
Stockholders and the Company Employees shall be collectively referred to
hereinafter as the "Stock Recipients"), Xceed Stock having an aggregate value of
Five Million Dollars ($5,000,000) (the "Stock Portion"). The number of shares of
Xceed Stock issuable in connection with the Stock Portion shall be determined by
dividing (i) the Stock Portion by (ii) the average of the closing transaction
price of the Xceed Stock for the ten (10) business days immediately preceding
the Closing Date (as hereinafter defined), as quoted by the NASDAQ National
Market System;
(b) Cash Portion of Purchase Price. Xceed shall pay (the "Cash
------------------------------
Portion") to the Stockholders and the Company Employees, in the respective
amounts set forth on Schedule 1.2(a) hereto, an aggregate of Four Million Five
Hundred Thousand Dollars ($4,500,000) in cash, by certified cashier's check or
bank wire transfer of legal currency of the United States in immediately
available funds in: (i) three (3) equal increments of One Million One Hundred
Twenty Five Thousand Dollars ($1,125,000) each on the Closing Date (as
hereinafter defined), and the dates thirty (30) days, and sixty (60) days after
the Closing Date (as hereinafter defined);
3
(ii) one (1) increment of One Million Fifty Thousand Dollars ($1,050,000) on the
date ninety (90) days after the Closing Date (as hereinafter defined); and (iii)
one (1) final increment of up to Seventy Five Thousand Dollars ($75,000) (the
"Holdback"), one hundred eighty (180) days after the Closing Date (as
hereinafter defined). On the Closing Date, Xceed shall deposit the amount of the
Cash Portion less the first cash payment of One Million One Hundred Twenty Five
Thousand Dollars ($1,125,000) in an interest-bearing escrow account (the "Escrow
Account") in accordance with the terms of an escrow agreement (the "Escrow
Agreement") by and among the parties hereto and American Stock Transfer & Trust
Company, Inc., as escrow agent (the "Escrow Agent"), a copy of which Escrow
Agreement is attached hereto as Exhibit 1.2(b) and is incorporated herein by
reference. Xceed shall be entitled to retain from the Holdback, the amount of
any accounts receivable acquired by Xceed in connection with the Merger, which
are, as of the date one hundred eighty (180) days after the Closing Date (as
hereinafter defined), more than one hundred eighty (180) days past due (the
"Delinquent Accounts Receivable"); provided that, during the six (6) month
-------------
period after the Closing Date, Xceed pursues collection of all accounts
receivable acquired by Xceed in connection with the Merger in a manner similar
to and at least as aggressive as the Company generally pursued collection of its
accounts receivable prior to the Closing Date; and the remaining amount of the
Holdback, if any, shall be released from the Escrow Account and disbursed to the
Stockholders in equal amounts. In the event the total amount of the Delinquent
Accounts Receivable exceeds the amount of the Holdback, Xceed shall not be
entitled to any additional payment by the Company or additional setoff of the
Cash Portion beyond the amount of the Holdback.
The parties hereto acknowledge and agree that the execution of this
Agreement by each of such parties constitutes their acceptance of the terms of
the Escrow Agreement, and such Escrow Agreement shall become effective upon
execution of this Agreement by the parties hereto and execution of the Escrow
Agreement by the Escrow Agent.
1.3 Effective Time of Merger. Subject to the terms and conditions of this
-------------------------
Agreement, the certificate of merger, in substantially the form of Exhibit
1.3(a) (the "Certificate of Merger"), required by Section 252 of the Delaware
General Corporation Law (the "DGCL") and the articles of merger, in
substantially the form of Exhibit 1.3(b) (the "Articles of Merger"), required by
Section 10-1105 of Chapter 11 of the Arizona Revised Statutes (the "ARS") shall
be duly executed and acknowledged by the Constituent Corporations (as
hereinafter defined in Section 1.4) and thereafter delivered to the Secretary of
the State of Delaware and the Arizona Corporate Commission for filing pursuant
to the DGCL and the ARS, respectively, on the Closing Date (as hereinafter
defined). The Merger shall become effective (the "Effective Time") upon the
filing of the Certificate of Merger with the Secretary of the State of Delaware
and the filing of the Articles of Merger with the Arizona Corporate Commission.
1.4 Effects of the Merger.
---------------------
(a) At the Effective Time: (i) the separate existence of the Company
shall cease and the Company shall be merged with and into Xceed (the Company and
Xceed are sometimes referred to herein as the "Constituent Corporations" and
Xceed is sometimes referred to herein as the "Surviving Corporation"); (ii) the
Certificate of Incorporation of Xceed as in effect immediately prior to the
Effective Time shall continue to be the Certificate of Incorporation of the
Surviving Corporation; and (iii) the Bylaws of Xceed as in effect
4
immediately prior to the Effective Time shall continue to be the Bylaws of the
Surviving Corporation.
(b) At and after the Effective Time, the Merger shall have the effects
set forth in Section 259 of the DGCL and Section 10-1106 of Chapter 11 of the
ARS. Without limiting the foregoing, at the Effective Time, Xceed as the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations,
and all singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, and all
debts due to either of the Constituent Corporations on whatever account, as well
as for stock subscriptions and all other things in action or belonging to each
of the Constituent Corporations, shall be vested in Xceed as the Surviving
Corporation and all property, rights, privileges, powers and franchises, and all
and every other interest shall be thereafter as effectively the property of the
Surviving Corporation as they were of the Constituent Corporations, and the
title to any real estate vested by deed or otherwise, in either of the
Constituent Corporations, shall not revert or be in any way impaired; but all
rights of creditors and all liens upon any property of either of the Constituent
Corporations shall thenceforth attach to Xceed as the Surviving Corporation, and
may be enforced against it to the same extent as if said debts and liabilities
had been incurred by it.
1.5 Directors and Officers of the Surviving Corporation. The directors
---------------------------------------------------
and officers of Xceed immediately prior to the Effective Time shall continue to
be the directors and officers of Xceed as the Surviving Corporation until their
successors shall have been duly elected, appointed and/or qualified or until
their earlier death, resignation or removal in accordance with the Certificate
of Incorporation and Bylaws of Xceed.
1.6 Conversion of Capital Stock. As of the Effective Time, by virtue of
---------------------------
the Merger and without any action on the part of any holder of shares of Company
Stock or shares of Xceed Stock:
(a) Xceed Stock. Each issued and outstanding share of Xceed Stock
-----------
shall continue to be issued and outstanding and shall not be affected by the
Merger.
(b) Conversion of Company Stock. Each share of Company Stock issued
---------------------------
and outstanding as of the Effective Time shall be converted into shares of Xceed
Stock as set forth on Schedule 1.2(a) hereto. All such shares of Company Stock,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Xceed Stock to be issued or
paid in consideration therefor upon the surrender of such certificate for
exchange to Xceed at the Closing (as hereinafter defined).
1.7 Registration Rights.
-------------------
(a) Piggy-Back Rights. If, during the period commencing six months
-----------------
after the Closing Date and ending on the first anniversary of the Closing Date
(the "Piggy-Back Period"), Xceed shall determine to file a registration
statement relating to the offer and sale of any of its
5
securities (other than a registration statement on Form S-4 or Form S-8 or their
successor forms) which would permit inclusion of any Xceed Stock issued in
connection with the Merger, Xceed will: (i) promptly give to the Stock
Recipients written notice thereof (the "Piggy-Back Notice"); and (ii) subject to
subsection 1.7(b) below, include in such registration and in any underwriting
involved therein, all of the Xceed Stock issued in connection with the Merger
specified in a written request made by a Stock Recipient, within thirty (30)
calendar days after receipt of the Piggy-Back Notice from Xceed.
(b) Underwriting. If the subject registration relates to an
------------
underwritten offering, Xceed shall so advise the Stock Recipients as a part of
the Piggy-Back Notice. In such event, the right of a Stock Recipient to
registration pursuant hereto shall be conditioned upon such Stock Recipient's
participation in, and agreement with, the terms of such underwriting. Each
Stock Recipient shall (together with Xceed and the other stockholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter (or underwriters)
selected for underwriting by Xceed and shall use their best efforts to arrange
for all documents and opinions required to be delivered thereunder in respect of
their participation as selling stockholders to be delivered. Notwithstanding any
other provision of this Agreement, if the underwriter determines that marketing
factors require a limitation on the number of shares to be underwritten or
otherwise included in the subject registration statement, the Xceed Stock issued
in connection with the Merger proposed to be included in such registration may
be limited in whole or in part by the underwriter and the Stock Recipients may
be prohibited from selling any of their Xceed Stock for a period of time
following the effective date of the registration statement, as required by the
underwriter.
(c) Demand Rights. In the event that: (i) Xceed has not, within
-------------
thirteen (13) months following the Closing Date, filed a registration statement
including all of the shares of Xceed Stock issued in connection with the Merger;
and (ii) any Stock Recipient is unable to effect a sale of his or her Xceed
Stock issued in connection with the Merger under Rule 144 of Securities Act of
1933, as amended (the "Securities Act") for any reason whatsoever within ten
business days after a written request is received by Xceed to effect a trade,
then the Stock Recipients owning at least fifty-one percent (51%) of the shares
of Xceed Stock issued in connection with the Merger then outstanding (the
"Requesting Stockholders") shall be entitled on one (1) occasion, commencing
thirteen (13) months from the Closing Date, to cause Xceed to: (x) include for
resale all of such shares of Xceed Stock in a registration statement filed with
the Securities and Exchange Commission (the "Commission"); (y) use its best
efforts to have such registration statement declared effective by the Commission
under the Securities Act as soon as practicable thereafter but in no event later
than 180 calendar days after receipt of the request, by providing to Xceed
written notice (the "Demand Notice") demanding that Xceed file such a
registration statement; and (z) pay all expenses (including printing costs,
reasonable legal fees and reasonable accounting fees) associated with filing
such registration statement. Xceed shall, upon receipt of the Demand Notice,
notify the remaining Stock Recipients in writing of its receipt of the Demand
Notice (the "Registration Notice") and shall indicate therein that such other
Stock Recipients may include in such registration statement the shares of Xceed
Stock issued to them in connection with the Merger. Those Stock Recipients
seeking to include their shares of Xceed Stock shall, within thirty (30)
calendar days of the date of the Registration Notice (the "Notice Period"),
notify Xceed in writing of their desire to be included in such
6
registration. Xceed shall thereafter, within thirty (30) calendar days of
expiration of the Notice Period, file a registration statement (on a form deemed
appropriate by Xceed's counsel) with the Commission including all of the Xceed
Stock which the Stock Recipients shall request in writing (the "Demand Rights").
Inclusion of all, or that portion requested by the Stock Recipient, of a Stock
Recipient's shares of Xceed Stock in an effective registration statement as
requested in a Demand Notice shall constitute exercise of such Stock Recipient's
Demand Rights in full.] Notwithstanding such registration, the Stock Recipients
will not, while employees of Xceed, sell their shares of Xceed Stock during a
period in which Xceed has imposed restrictions on the ability of all employees
to effect trading in Xceed Stock.
1.8 Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant hereto, the Company shall:
(a) Notify each Stock Recipient as to the filing of the registration
statement and of all amendments or supplements thereto filed prior to the
effective date of said registration statement;
(b) Notify each Stock Recipient, promptly after it shall receive
notice thereof, of the time when said registration statement becomes effective
or when any amendment or supplement to any prospectus forming a part of said
registration statement has been filed;
(c) Notify each Stock Recipient promptly of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
(d) Prepare and promptly file with the Commission and promptly notify
each Stock Recipient of the filing of any amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at any time when a prospectus relating to the Xceed
Stock is required to be delivered under the Securities Act, any event with
respect to the Company shall have occurred as a result of which any such
prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made, in the light of the circumstances under which
they were made, not misleading; and, in addition, prepare and file with the
Commission, promptly upon the written request of a Stock Recipient, any
amendments or supplements to such reasonably necessary or advisable in
connection with the distribution of the Xceed Stock;
(e) Advise each Stock Recipient promptly after the Company shall
receive notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of any such registration statement or
amendment thereto or of the initiation or threatening of any proceeding for that
purpose, and promptly use its best efforts to prevent the issuance of any stop
order or obtain its withdrawal promptly if such stop order should be issued;
(f) Furnish each Stock Recipient, as soon as available, with copies of
any registration statement and each preliminary or final prospectus, or
supplement or amendment
7
required to be prepared pursuant hereto, all in such quantities as any Stock
Recipient may from time to time reasonably request.
At its expense, the Company shall keep such registration effective:
(i) for a period of 120 calendar days; or (ii) until each Stock Recipient has
completed the distribution described in the registration statement relating
thereto, whichever first occurs.
1.9 Indemnification.
---------------
(a) Xceed shall indemnify each Stock Recipient, each of its officers,
directors and general and limited partners, and its affiliates, on whose behalf
registration, qualification or compliance has been effected pursuant to Section
1.7, and each underwriter and each affiliate thereof (individually, each may be
referred to hereinafter as a "Stock Recipient Indemnified Party" and
collectively, the "Stock Recipient Indemnified Parties"), against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
Xceed of the Securities Act or any rule or regulation promulgated thereunder
applicable to Xceed and relating to action or inaction required of Xceed in
connection with any such registration, qualification or compliance, and will
reimburse each Stock Recipient Indemnified Party, for any legal or other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided, however, that Xceed
shall not be liable to any Indemnified Party in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to
Xceed by such Indemnified Party and stated to be specifically for use therein.
(b) Each of the Stock Recipients shall, if Xceed Stock held by them
are included in the securities as to which such registration, qualification or
compliance is being effected, severally and not jointly, indemnify Xceed, each
of its directors and officers who sign such registration statement, each
affiliate of Xceed, each underwriter, if any, of Xceed's securities covered by
such registration statement, each other Stock Recipient and each affiliate
thereof (the " Xceed Indemnified Parties") against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
such registration statement, prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Xceed Indemnified Parties for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to Xceed by such Stock Recipient
and stated to be specifically for use therein.
8
(c) Each Stock Recipient Indemnified Party and each Xceed Indemnified
Party entitled to indemnification under this Section 1.9 (each, an "Indemnified
Party") shall give notice to the individual or entity required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party, and the Indemnified Party
may participate in such defense at such party's expense, and; provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
1.9. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of the Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claim or plaintiff to such Indemnified Party of a
release from all liability in respect of such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
1.10 Information about the Investors. Each Stock Recipient shall promptly
-------------------------------
furnish to Xceed such information regarding itself, its affiliates or
subsidiaries and the distribution proposed by it as Xceed may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this section.
1.11 Restrictions on Resale of Xceed Stock. The shares of Xceed Stock
-------------------------------------
received by the Stock Recipients pursuant to this Agreement shall be issued by
Xceed in reliance upon exemptions from the registration requirements of the
Securities Act and may not be sold, assigned, pledged, hypothecated or
transferred, or any interest therein conveyed to any other person, except in
accordance with the registration provisions of the federal and state securities
laws or applicable exemption therefrom, and the certificates representing such
shares shall contain an appropriate legend to that effect.
1.12 Tax-Free Reorganization. The parties intend that the Merger
-----------------------
qualify as a reorganization under Section 368(a)(1)(A) of the Code. Unless
required by a final determination of the Internal Revenue Service (or other
governing body having jurisdiction over these matters) or a court of competent
jurisdiction, the parties shall not take any position on any subsequently filed
tax return inconsistent with this section. Each party hereto represents to each
other that there exists no indebtedness between Xceed and the Company and that
such party is not an investment company as defined in Subsections
368(a)(2)(F)(iii) and (iv) of the Code. The parties hereby agree to comply with
the reporting requirements of Treasury Regulation Section 1.368-3.
In furtherance of the foregoing, Xceed hereby represents, warrants and
covenants that:
(a) it has no plan or intention to reacquire any Xceed Stock issued to the
Stock Recipients;
9
(b) it has no plan or intention to sell or otherwise dispose of any of the
assets of the Company, except for transfers described in Section
368(a)(2)(C) of the Code;
(c) there is no plan or intention by Xceed to acquire, directly or through
parties related to Xceed (within the meaning of Section 1.368-1(c)(1)
and (2) of the Treasury Regulations) shares of Xceed Stock issued to
the Stock Recipients hereunder such that the continuity of interest
requirement set forth in Section 1.368-1(e) of the Treasury
Regulations (the "Continuity of Interest Requirement") would be
violated;
(d) following the Closing, Xceed will continue the business of the Company
in accordance with Section 1.368-1 of the Treasury Regulations;
(e) prior to the Closing, the liabilities of the Company were incurred by
the Company in the ordinary course of business;
(f) the Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code;
(g) as of the date hereof, the fair market value of the assets of the
Company equal or exceed the sum of the liabilities of the Company; and
(h) there is no plan or intention by the Stock Recipients to sell,
exchange or otherwise dispose of shares of Xceed Stock received by
them hereunder to Xceed or persons or parties related to Xceed such
that the Continuity of Interest Requirement would be violated.
ARTICLE II
CLOSING
2.1 Date and Time of Closing. Subject to satisfaction of the conditions
------------------------
set forth in this Agreement and compliance with the other provisions hereof, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place on November 2, 1999 at 10:00 a.m. (Phoenix, Arizona time) at the law
offices of Xxxxxxx & Burnham, PLC, Xxx Xxxxx Xxxxxxx Xxxxxx, 00xx Xxxxx,
Xxxxxxx, Xxxxxxx 00000, unless such date is extended by both parties (the
"Closing Date").
2.2 Closing Documents. Upon fulfillment of the conditions set forth
-----------------
herein, on the Closing Date, the parties hereto shall cause the Certificate of
Merger and the Articles of Merger to be filed as contemplated in Section 1.3
hereof and each party hereto will execute and deliver to the other parties
hereto such other documents and instruments as are contemplated herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
10
3.1 Representations and Warranties of the Company and the Stockholders.
------------------------------------------------------------------
The Company and the Stockholders, jointly and severally, except as specifically
provided herein, represent and warrant to Xceed as follows:
(a) Authorization. The execution, delivery and performance of this
-------------
Agreement and consummation of the transactions contemplated hereby have been
duly authorized, adopted and approved by the board of directors of the Company
and by each of the Stockholders. The Company has taken all necessary corporate
action and has all of the necessary corporate power to enter into this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by an officer of the Company on its
behalf and assuming that this Agreement is the valid and binding obligation of
Xceed, is the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought. Each Stockholder
severally represents and warrants that he has the ability to consummate the
transactions contemplated hereby, that this Agreement has been duly executed and
validly delivered by him and, assuming that this Agreement is a valid and
binding obligation of Xceed, this Agreement is the valid and binding obligation
of such Stockholder, enforceable against each such Stockholder in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) Organization; Subsidiaries. The Company is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Arizona. The Company is classified as an association and treated as an S
corporation for federal income tax purposes by the Internal Revenue Service
("IRS"). The Company has the corporate power and authority to own and lease its
properties and assets and to carry on its business as it is now being conducted
and is duly qualified to do business only in the State of Arizona, and has not
otherwise qualified to do business as a foreign corporation in any jurisdiction,
except where the failure to be so qualified would not have a material adverse
effect on the business, operations, earnings, prospects, assets or condition
(financial or otherwise) of the Company. The Company does not own any shares of
capital stock or other interest in any corporation, partnership, association or
other entity.
(c) Capitalization. The number of authorized, issued and outstanding
--------------
shares of capital stock of the Company as of the date hereof is as set forth
above in the recitals to this Agreement. The outstanding shares of Company Stock
have been duly authorized, validly issued and are fully paid and non-assessable.
Each Stockholder hereby severally represents and warrants that he is the sole
legal and beneficial owner of the number of shares of Company Stock as set forth
in the recitals, which shares, in the aggregate, represent one hundred percent
(100%) of the
11
issued and outstanding shares of capital stock of the Company. Each Stockholder
hereby severally represents and warrants that the issued and outstanding shares
of Company Stock owned by such Stockholder are owned free of preemptive rights
and free and clear of any and all adverse claims, liens, mortgages, charges,
security interests, encumbrances and other restrictions or limitations of any
kind whatsoever. The Company has not issued any shares of capital stock which
could give rise to claims for violation of any federal or state securities laws
(including any rules or regulations promulgated thereunder) or the securities
laws of any other jurisdiction (including any rules or regulations promulgated
thereunder). As of the date hereof, there are no options, warrants, calls,
convertible securities or commitments of any kind whatsoever relating to the
shares of the Company Stock subject hereto or any of the unissued shares of
capital stock of the Company, and there are no voting trusts, voting agreements,
stockholder agreements or other agreements or understandings of any kind
whatsoever which relate to the voting of the capital stock of the Company,
except for that certain Shareholders Agreement dated August 13, 1999, by and
among the Company, Xxxx Xxxxxx, Xxxxxx Xxxxxx and Xxxxxx Xxxxxx and Xxxxx Xxxxxx
as Trustees of the Xxxxxx Family Trust (the "Shareholders Agreement"), which
Shareholders Agreement shall be terminated as of the Closing Date.
(d) Financial Statements. The Company has heretofore delivered to
--------------------
Xceed: (i) audited financial statements of the Company as at December 31, 1998
(the "Audited Statements"); (ii) interim unaudited financial statements of the
Company for the six months ended June 30, 1999, and (iii) monthly financial
statements of the Company for each month after June 30, 1999 until the Closing
(the "Interim Statements") (all of the foregoing, including the notes thereto,
may collectively be referred to hereinafter as the "Financial Statements")
accompanied by the corresponding relevant opinions and reports of the Company's
independent auditors as of the same dates and for the same periods. The
Financial Statements present fairly, in all material respects, the financial
position of the Company as of the respective dates indicated and the results of
operations and cash flows of the Company for the respective periods indicated.
(e) Owned Real Property. The Company does not own (of record or
-------------------
beneficially), nor does it have any interest in, any real property other than
the leased real property set forth below.
(f) Leased Real Property; Tenancies. Set forth on Schedule 3.1(f)
-------------------------------
hereto is a true, correct and complete list of all of the leases and subleases
(the "Real Property Leases") with respect to real property leased by the Company
as lessee and used in the conduct of its business or otherwise (the "Leased Real
Property"), including the Company's primary office lease that expires on January
8, 2000. Also set forth on Schedule 3.1(f) is a true, correct and complete list
of the monthly or annual rental payments due thereunder as of the date hereof
and the expiration dates thereof. The Company has delivered to Xceed true,
correct and complete copies of each of the Real Property Leases. Except as set
forth on Schedule 3.1(f), the Company is not required pursuant to the provisions
of any of the Real Property Leases (or otherwise) to obtain the consent of any
lessor with respect to the Leased Real Property prior to or in connection with
consummation of the transactions contemplated hereby. Neither the Company nor,
to the Company's or the Stockholders' knowledge, any third party is in default
under any of the Real Property Leases. There are no subleases or subtenancies
for any part of the Leased Real Property
12
that shall remain in effect after the Closing Date and there is no third party
which has any right to purchase, use or otherwise possess all or any part of the
Leased Real Property.
(g) Title. The Company: (i) holds a valid and enforceable leasehold
-----
interest in the Leased Real Property; and (ii) owns good and marketable title to
all of the assets and properties reflected on the balance sheet of the Audited
Statements and the balance sheet of the Interim Statements or purchased by the
Company after the date thereof, except supplies consumed or assets or properties
sold in the ordinary course of business subsequent to the date thereof. To the
Company's or the Stockholders' knowledge, the Leased Real Property is leased
free of all adverse claims, liens, mortgages, charges, security interests,
encumbrances and other restrictions or limitations of any kind whatsoever,
except: (A) as stated in the Financial Statements (including the notes thereto);
(B) for liens for taxes or assessments not yet due and payable or which are
being contested by the Company in good faith; (C) for minor liens imposed by law
for sums not yet due or which are being contested by the Company in good faith;
and (D) for imperfections of title, adverse claims, charges, restrictions,
limitations, encumbrances, liens or security interests that are minor and which
do not detract from the value of the Leased Real Property subject thereto or
which do not impair the operations of the Company or affect the present use of
the Leased Real Property. There is no condemnation or eminent domain proceeding
pending or, to the Company's or the Stockholders' knowledge, threatened against
the Leased Real Property (or any part thereof). The Company has not made any
commitments or received any notice, oral or written, from any public authority
or other entity with respect to the taking or use of the Leased Real Property
(or any part thereof), whether temporarily or permanently, for easements,
rights-of-way or other public or quasi-public purposes or for any other purpose
whatsoever nor is there any proceeding pending or, to the Company's or the
Stockholders' knowledge, threatened which could adversely affect the zoning
classification relating to such property or its use by the Company as of the
date hereof. The assets reflected on the balance sheet of the Audited Statements
and the balance sheet of the Interim Statements and those purchased by the
Company after the date thereof, are owned free and clear of all adverse claims,
liens, mortgages, charges, security interests, encumbrances and other
restrictions or limitations of any kind whatsoever, except: (A) as stated in the
Financial Statements (including the notes thereto); (B) for liens for taxes or
assessments not yet due and payable or which are being contested by the Company
in good faith; (C) for minor liens imposed by law for sums not yet due or which
are being contested by the Company in good faith; and (D) for imperfections of
title, adverse claims, charges, restrictions, limitations, encumbrances, liens
or security interests that are minor and which do not detract in any material
respect from the value of any of the assets subject thereto or which do not
impair the operations of the Company in any material respect or affect the
present use of the assets in any material respect. The Company has not made any
commitments or received any notice, oral or written, from any public authority
or other entity with respect to the taking or use of any of the Company's
assets, whether temporarily or permanently, for any purpose whatsoever, nor is
there any proceeding pending or, to the Company's or the Stockholders'
knowledge, threatened which could adversely affect any asset owned or used by
the Company as of the date hereof.
(h) Condition of Assets. The Real Property Leases and all other
-------------------
documents and agreements pursuant to which the Company has obtained the right to
use or occupy any real property, personal property or assets, are valid and
enforceable in all respects in accordance with
13
their respective terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. All licenses, permits and authorizations
related to the location or operation of the business of the Company are in good
standing and are valid and enforceable in all respects in accordance with their
respective terms. To the knowledge of the Company and the Stockholders, there is
not, under any of the foregoing instruments, documents or agreements, any
existing default, nor is there any event which, with notice or lapse of time or
both, would constitute a default arising through the Company or any third party
which could: (i) have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of the
Company; or (ii) materially adversely affect its use of the Leased Real Property
or the title to its assets. To the Company's or the Stockholders' knowledge, the
Company is not in violation of and has complied with all applicable zoning,
building or other codes, statutes, regulations, ordinances, notices and orders
of any governmental authority with respect to the occupancy, use, maintenance,
condition, operation and improvement of the Leased Real Property or assets,
except where the failure to comply would not have a material adverse effect on
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of the Company. To the Company's or the Stockholders' knowledge, the
Company's use of any improvements for the purposes for which any of the Leased
Real Property or assets are being used as of the date hereof does not violate
any such code, statute, regulation, ordinance, notice or order. To the Company's
or the Stockholders' knowledge, the Company possesses all licenses, certificates
of occupancy, permits and authorizations required to be obtained by the Company
with respect to the Company's operation and maintenance of the Leased Real
Property or assets for all uses for which such property is or assets are
operated or used by the Company as of the date hereof, except where the failure
to do so would not have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of the
Company. All of the Leased Real Property or assets (whether owned or leased by
the Company) are in good operating condition and repair, subject to normal wear
and use and each such item is usable in a manner consistent with current use by
the Company.
(i) Intellectual Property.
----------------------
(i) Schedule 3.1(i) hereto sets forth a true, correct and
complete list (including where applicable, the date of registration and the
serial or registration number) of all registered and unregistered trademarks,
service marks and trade names (including any applications for the same), trade
secrets, registered and unregistered copyrights, and computer programs and
software (whether or not protected by patent, copyright or otherwise) which are
owned by, licensed by, used in or are material to the business of the Company
(the "Intellectual Property"). With respect to each of the foregoing items,
there is listed on Schedule 3.1 (i) hereto the following: (A) the extent of the
Company's interest therein; (B) each agreement and all other documents
evidencing the Company's interest therein; (C) the extent of the interest of any
third party therein known to the Company or the Stockholders; and (D) each
agreement and all other documents evidencing the interest of any third party
therein known to the Company or the Stockholders.
14
(ii) Except as set forth on Schedule 3.1(i) hereto, the Company's
right, title or interest in the Intellectual Property is free and clear of
adverse claims (of which the Company or the Stockholders have received notice),
liens, mortgages, charges, security interests, encumbrances or other
restrictions of any kind whatsoever (of which the Company or the Stockholders
have received notice) or limitations of any kind whatsoever (of which the
Company or the Stockholders have received notice).
(iii) To the Company's and the Stockholder's knowledge, the Company
has not committed any acts of unfair competition or directly, indirectly,
contributorily or by inducement, infringed upon any patent, trademark, service
xxxx, trade name, copyright, computer program or software, or any other
intellectual property, nor has the Company misappropriated any of the foregoing
from any other person or entity or received from any other person or entity any
notice, charge, claim or other assertion with respect thereto.
(iv) The Company has not sent or otherwise communicated to any other
person or entity any notice, charge, claim or other assertion of, nor has the
Company any knowledge of, any present, impending or threatened infringement upon
any of the Intellectual Property by any other person or entity, or
misappropriation of any of the foregoing by any other person or entity, or any
commission of acts of unfair competition by any other person or entity.
(j) Accounts Receivable. Schedule 3.1(j) hereto sets forth a true,
-------------------
correct and complete list of the Company's accounts receivable (the "Accounts
Receivable") as of October 31, 1999. Such schedule accurately, correctly and
completely reflects the Accounts Receivable as of such date. The Accounts
Receivable are valid, arose out of bona fide transactions in the ordinary course
of business, and are the valid and binding obligations of and are enforceable
against the respective account debtors thereunder, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect. Except as set forth on
Schedule 3.1(j), there is no contest, claim or right of set-off contained in any
written agreement between the Company and any account debtor relating to the
amount or validity of any Account Receivable.
(k) Accounts Payable. Schedule 3.1(k) hereto sets forth a true,
----------------
correct and complete list of the Company's accounts payable (the "Accounts
Payable") as of October 31, 1999. Such schedule accurately, correctly and
completely reflects the aggregate amount of Accounts Payable as of such date.
Prior to the Closing Date, certain Accounts Payable will have been paid by the
Company as identified on Schedule 3.1(k)-2 and debts and obligations of the
Company (i) for which the Company has not yet been billed or invoiced or (ii)
which are described on Schedule 3.1(k)-1; shall become obligations of Xceed upon
the Closing and shall be paid by Xceed, in the case of items described by clause
(i), pursuant to the respective invoices and, in connection with the items set
forth on Schedule 3.1(k)-1, as contemplated thereon.
(l) Absence of Undisclosed Liabilities. To the Company's or the
----------------------------------
Stockholders' knowledge, other than as set forth on the Financial Statements and
in this Agreement, the Company has not had nor does it have any indebtedness,
loss or liability of any nature whatsoever (other than as incurred in the
ordinary course of business), whether accrued,
15
absolute, contingent or otherwise and whether due or become due, which is
material to the Company's business or the assets, or the operations, prospects,
earnings or condition (financial or otherwise) of the Company.
(m) Absence of Certain Changes or Events. Except as set forth on
------------------------------------
Schedule 3.1(m) and except as expressly set forth in this Agreement, the Company
has not, since August 31, 1999:
(i) issued, sold, granted or contracted to issue, sell or grant
any of its stock, notes, bonds, other securities or any option to purchase
any of the same;
(ii) amended its articles of organization or bylaws;
(iii) made any capital expenditures or commitments for the
acquisition or construction of any property, plant or equipment other than
in the ordinary course of business of the Company;
(iv) entered into any material transaction in any way
inconsistent with the past practices of its business or conducted its
business in any manner inconsistent with its past practices;
(v) incurred any damage, destruction or any other loss to any of
its property or assets in an aggregate amount exceeding Fifty Thousand
Dollars ($50,000) whether or not covered by insurance;
(vi) suffered any loss in an aggregate amount exceeding Fifty
Thousand Dollars ($50,000) and, neither the Company nor the Stockholders
has become aware of any intention on the part of any client, dealer or
supplier to discontinue its current relationship with the Company, the loss
or discontinuance of which, alone or in the aggregate, could have a
material adverse effect on the Company's business or the assets, or the
operations, earnings, prospects or condition (financial or otherwise) of
the Company;
(vii) modified, amended or altered any contractual arrangement
with any client, dealer or supplier, the modification, amendment or
alteration of which, alone or in the aggregate, could have a material
adverse effect on the Company's business or the assets, or the operations,
earnings, prospects or condition (financial or otherwise) of the Company;
(viii) incurred any material liability or obligation (absolute or
contingent) or made any material expenditure other than in the ordinary
course of business of the Company;
(ix) experienced any material adverse change in the Company's
business or the assets, or the operations, earnings, prospects or condition
(financial or otherwise) of the Company or experienced or have knowledge of
any event which could have a
16
material adverse effect on the Company's business or the assets, or the
operations, earnings, prospects or condition (financial or otherwise) of
the Company;
(x) declared, set aside or paid any dividend or other distribution in
respect of the capital stock of the Company;
(xi) redeemed, repurchased, or otherwise acquired any of its capital
stock or securities convertible into or exchangeable for its capital stock
or entered into any agreement with respect to any of the foregoing;
(xii) granted, conveyed, transferred, assigned or made any sale
of Accounts Receivable or any accrual of liabilities outside of the
ordinary course of its business;
(xiii) granted, conveyed, transferred, assigned or made any sale
of any material interest in the Intellectual Property;
(xiv) purchased, disposed of or contracted to purchase or dispose
of, or granted or received an option or any other right to purchase or
sell, any of its property or assets, except in the ordinary course of
business;
(xv) increased the rate of compensation payable or to become
payable to the officers or employees of the Company, or increased the
amounts paid or payable to such officers or employees under any bonus,
insurance, pension or other benefit plan, or made any arrangements therefor
with or for any of said officers or employees except for increases
consistent with the Company's ordinary course of business or increases
resulting from the application of existing formulas under existing plans,
agreements or policies relating to employee compensation:
(xvi) adopted or amended any collective bargaining, bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation or other plan, agreement, trust, fund or arrangement for the
benefit of its employees, except as otherwise required or permitted herein;
or
(xvii) changed any material accounting principle, procedure or
practice followed by the Company or changed the method of applying such
principle, procedure or practice.
(n) Agreements. Set forth on Schedule 3.1(n) hereto is a true, correct
----------
and complete list of all contracts, agreements and other instruments (except for
the Real Property Leases) material to the business or operation of the Company,
including without limitation, those to which the Company is a party and those by
which any of its property or the assets are bound. Copies of all such contracts,
agreements and other instruments have heretofore been delivered or made
available by the Company to Xceed. Other than as set forth on Schedules 3.1(n)
and 3.1(f), there is no contract, agreement or other instrument to which the
Company or any Stockholder is a party or, to the Company's or the Stockholders'
knowledge, which affects the assets, liabilities or
17
outstanding securities of the Company, which is material to the business, assets
or operations of the Company. Except as set forth on Schedules 3.1(n) and
3.1(f), none of the foregoing agreements limits the freedom of the Company to
compete in any line of business or with any person or other entity in any
geographic region within or outside of the United States of America.
To the knowledge of the Company or the Stockholders, neither the
Company, the Stockholders (each severally and not jointly), nor any third party
is in material default and no event has occurred which, with notice, could cause
or become a material default by the Company, the Stockholders or any third
party, under any contract, agreement, document or instrument to which the
Company or any Stockholder is a party which is material to the business, assets
or operations of the Company. To the knowledge of the Company or the
Stockholders, each contract, agreement, document or instrument to which the
Company or any Stockholder (each severally and not jointly) is a party which is
material to the business or operations of the Company is enforceable, in
accordance with its terms, against all other parties thereto, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect, or by legal or
equitable principles, relating to or limiting creditors' rights generally and
except that the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(o) Non-Contravention; Consents. Except as set forth on Schedule
---------------------------
3.1(o) hereto, neither the execution and delivery of this Agreement by the
Company and each of the Stockholders, nor consummation of the transactions
contemplated hereby, does or will: (i) violate or conflict with any provision of
the articles of incorporation or bylaws of the Company; (ii) violate or, with
the passage of time, result in the violation of any provision of, or result in
the acceleration of or entitle any party to accelerate any obligation under, or
result in the creation an imposition of any lien, charge, pledge, security
interest or other encumbrance upon any of the property or assets, which are
material to the business or operation of the Company, pursuant to any provision
of any mortgage, lien, lease, agreement, permit, indenture, license, instrument,
law, order, arbitration award, judgment or decree to which the Company is a
party or by which it or any of such property or assets are bound, the effect of
which violation, acceleration, creation or imposition could have a material
adverse effect on the business, assets, operations, earnings, prospects or
(financial or otherwise) of the Company; (iii) violate or conflict with any
other restriction of any kind whatsoever to which the Company or any Stockholder
is subject or by which any of their properties or assets may be bound, the
effect of any of which violation or conflict could have a material adverse
effect on the business, assets, operations, earnings, prospects or (financial or
otherwise) of the Company; or (iv) constitute an event permitting termination by
a third party of any agreement to which the Company or any Stockholder is a
party or is subject, which termination could have a material adverse effect on
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of the Company. Except as set forth on Schedule 3.1(o) hereto, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body is required in
connection with the execution, delivery and performance of the terms of this
Agreement and consummation of the transactions contemplated hereby.
18
(p) Employee Benefit Plans. Schedule 3.1(p) hereto sets forth a true,
----------------------
correct and complete list of all "employee benefit plans" as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (the "Benefit Plans") covering the employees of the Company
(the "Employees"). Each Benefit Plan is in compliance in all material respects
with all applicable provisions of law, including ERISA and the Code. There are
no pending or, to the Company's or the Stockholders' knowledge, threatened
claims against any Benefit Plan (except for claims for benefits payable in the
normal operation of the Benefit Plans) that could give rise to any material
liability to the Company. All material reports, notices and returns required to
be filed with any governmental agency or provided to any person or entity with
respect to the Benefit Plans have been timely filed. The Company has never had
and does not now have any Benefit Plan that is an employee pension plan (as
defined in Section 3(2) of ERISA) nor does the Company contribute to any
multiemployer pension or multiemployer welfare benefit plan (within the meaning
of Section 3(37) of ERISA).
(q) Labor Relations. There are no agreements with or pending petitions
---------------
for recognition of any labor union or association as the exclusive bargaining
agent for any or all of the employees of the Company and no such petition has
been pending at any time during the two (2) years prior to the date hereof. To
the Company's or the Stockholders' knowledge, there has not been any organizing
effort by any union or other group seeking to represent any employees of the
Company as its exclusive bargaining agent at any time during the two (2) years
prior to the date hereof. There are no labor strikes, work stoppages or other
labor disputes now pending or threatened against the Company, nor has there been
any such labor strike, work stoppage or other labor dispute or grievance at any
time during the two (2) years prior to the date hereof. Neither the Company nor
the Stockholders has any knowledge that any executive, key employee or any group
of employees of the Company has any plans to terminate his/her employment with
the Company.
(r) Insurance. Schedule 3.1(r) hereto sets forth a true, correct and
---------
complete list of all insurance policies or binders of insurance or programs of
self-insurance which relate to the business of the Company as of the date
hereof. The coverage under each such policy and binder is in full force and
effect. Neither the Company nor the Stockholders have knowledge of nor has the
Company or the Stockholders received any notice of cancellation, termination,
nonrenewal or disallowance of any claim thereunder or with respect thereto.
Neither the Company nor the Stockholders have knowledge of any claim against the
Company relating to its business, assets, properties or operations which could
increase the insurance premiums payable by the Company under such policy or
binder in excess of normal increases consistent with industry practices.
(s) Tax Matters. The Company has timely filed with the appropriate
-----------
taxing authorities all returns (including, without limitation, information
returns and other material information) in respect of Taxes required to be filed
through the date hereof. The information contained in such returns is complete
and accurate in all material respects. The Company has not requested any
extension of time within which to file returns (including, without limitation,
information returns) in respect of any Taxes. The Company has accurately
computed and timely paid all Taxes for periods beginning before the date hereof,
or an adequate reserve has been established therefor, as set forth in Schedule
3.1(s). No liens for Taxes exist against any assets to
19
be acquired by Xceed in the Merger. Xceed shall have no obligation or liability
for or with respect to (a) any Taxes or other assessments levied on the Company
or the Stockholders as a consequence of the transactions contemplated by this
Agreement all of which Taxes shall be paid by the Company, or each Stockholder,
as the case may be, or (b) any other Taxes or assessments of the Company, or
each Stockholder of any kind whatsoever or any penalties or interest with
respect to such Tax liabilities. The Company has withheld or collected from each
payment made to each of its employees, consultants, contractors and other payees
the amount of Taxes required to be withheld and collected therefrom for all
periods through the date hereof. Any liability for Taxes due and payable through
the date of this Agreement for which no returns are due or have been filed
(including, without limitation, property, payroll and withholding taxes) have
been properly accrued or provided for on the books of the Company and will be
paid by the Company. No material deficiencies for Taxes have been claimed,
proposed, or assessed by any taxing or other governmental authority against the
Company. There are no pending or, to the best knowledge of the Company,
threatened audits, investigations or claims for or relating to any material
liability in respect of Taxes, and there are no matters under discussion with
any governmental authorities with respect to Taxes that, in the reasonable
judgment of the Company, or its counsel is likely to result in a material amount
of Taxes. The federal, state and local returns of the Company have never been
audited, and the Company has not been notified that any taxing authority intends
to audit a return for any other period. No extension of a statute of limitations
relating to Taxes is in effect with respect to the Company. The Company: (i) has
not been an includible corporation in an affiliated group that files
consolidated income tax returns; (ii) is not a party to any tax-sharing
agreements or similar arrangements; (iii) is not a "foreign person" as defined
in section 1445(f)(3) of the Code; or (iv) has not made or become obligated to
make, and will not, as a result of the Merger, make or become obligated to make,
an "excess parachute payment" as defined in section 280G of the Code. The
Company is an Arizona corporation that is classified as an association and
treated as an S corporation for federal income tax purposes by the IRS. The
Company and the Stockholders will file a final return as an S corporation for
the period ending with the date the Closing occurs.
The term "taxes" or "tax" as used in this section or referred to
elsewhere in this Agreement shall mean all taxes, charges, fees, levies,
penalties, or other assessments, including without limitation, income, capital
gain, profit, gross receipts, ad valorem, excise, property, payroll,
withholding, employment, severance, social security, workers' compensation,
occupation, premium, customs duties, windfall profits, sales, use, and franchise
taxes, imposed by the United States, or any state, county, local or foreign
government or any subdivision or agency thereof, and including any interest,
penalties. or additions attributable thereto.
(t) Compliance with Applicable Law. To the knowledge of the Company
------------------------------
and the Stockholders, the Company has been and is in compliance with all
foreign, federal, state and local laws, statutes, ordinances, rules and
regulations applicable to the business, except where the failure to comply with
which would not materially adversely affect the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of the Company or
which would not subject any officer or director of the Company to civil or
criminal penalties or imprisonment. To the knowledge of the Company and the
Stockholders, the Company has complied with the rules and regulations of all
governmental agencies having authority over its business or its operations,
including without limitation, agencies concerned with intra-state and
20
interstate commerce, occupational safety and employment practices, except where
the failure to comply would not have a material adverse effect on the business,
operations, earnings, prospects, assets or condition (financial or otherwise) of
the Company. Neither the Company nor the Stockholders has any knowledge of or
received any notice of violation of any such rule or regulation during the two
(2) years prior to the date hereof which could result in any liability of the
Company for penalties or damages or which could subject the Company to any
injunction or government writ, order or decree. To the Company's or the
Stockholders' knowledge, there are no facts, events or conditions that could
interfere with, prevent continued compliance with or give rise to any liability
under any foreign, federal, state or local governmental laws, statutes,
ordinances or regulations applicable to the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of the Company, except
where the failure to do so would not have a material adverse effect on the
business, operations, earnings, prospects, assets or condition (financial or
otherwise) of the Company.
(u) Litigation. Except as set forth on Schedule 3.1(u) hereto, to the
----------
knowledge of the Company and the Stockholders, there is no action, suit,
proceeding or investigation pending or, threatened, which could: (i) restrict
the Company or the Stockholders' ability to perform his respective obligations
hereunder or could have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of the
Company; or (ii) result in material damages to the Company during the thirty-six
(36) months following the date hereof. To the knowledge of the Company and the
Stockholders, neither the Company nor any of the Stockholders is in default in
respect of any judgment, order, writ, injunction or decree of any court or any
federal, state, local or other governmental agency, authority, body, board,
bureau, commission, department or instrumentality which could have a material
adverse effect on the business, assets, operations, earnings, prospects or
condition (financial or otherwise) of the Company.
(v) Intentionally left blank.
(w) Unlawful Payments. To the Company's or the Stockholders'
-----------------
knowledge, neither the Company, the Stockholders, nor any officer, director,
employee, agent or representative of the Company (other than the Stockholders
acting in their respective capacities as any of the foregoing) has made,
directly or indirectly, any bribe or kickback, illegal political contribution,
payment from corporate funds which was deliberately incorrectly recorded on the
books and records of the Company or which was not corrected after discovery,
unlawful payment from corporate funds to governmental or municipal officials in
their individual capacities for the purpose of affecting their action or the
actions of the jurisdiction which they represent to obtain favorable treatment
in securing business or licenses or to obtain special concessions of any kind
whatsoever, or illegal payment from corporate funds to obtain or retain any
business.
(x) Warranties. Except as required or implied by federal or state law
----------
or as otherwise disclosed on Schedule 3.1(x) hereto, the Company has not made,
extended or otherwise represented that it would provide any express warranty
with respect to the products or services sold, distributed or leased to its
clients or customers.
21
(y) Officers, Directors and Employees. Schedule 3.1(y) hereto sets
---------------------------------
forth a true, correct and complete list of all of the officers, directors and
employees of the Company as of the date hereof, including certain information
relating to their respective terms of employment and their respective names and
titles. The Company has also provided true, correct and complete copies of any
employment agreements between the Company and any of the foregoing officers,
directors and employees of the Company in effect as of the date hereof.
(z) Loans to or from Affiliates. Except as set forth on Schedule
---------------------------
3.1(z) hereto, there exist no outstanding loans by the Company to any current or
former officer, director, employee, consultant or stockholders of the Company or
any affiliate of any of the foregoing. There are no outstanding loans to the
Company by any current or former officer, director, employee, consultant or
stockholders of the Company.
(aa) Clients, Vendors, Suppliers and Service Providers. The Company
-------------------------------------------------
has provided to Xceed a true, correct and complete list of the clients, vendors,
suppliers and service providers of the Company. Except as set forth on Schedule
3.1(aa), since March 31, 1999, there has not been any material adverse change in
the business relationship of the Company with any of the persons or entities
listed on Schedule 3.1(aa). The Company warrants that the Company generally
provides products and services on a project basis and that the Company cannot
accurately predict the extent to which one of its clients will engage the
Company to provide products and services in the future.
(bb) Books and Records.
-----------------
(i) The books of account and other financial records of the
Company are complete and correct without material error and have been maintained
in accordance with good business practices.
(ii) All material corporate action of the Company's board of
directors (including any committees) and stockholders of the Company since the
date of the Company's incorporation has been authorized, approved and/or
ratified in the minute books of the Company.
(cc) Bank Accounts. Set forth on Schedule 3.1(cc) is a true, correct
-------------
and complete list of the names of each bank, savings and loan, or other
financial institution, at which the Company maintains any account (including any
cash contribution or similar accounts) and the names of all persons authorized
to draw thereon or who have access thereto. Schedule 3.1 (cc) includes a true,
correct and complete list of each credit or loan facility or guaranty
established and/or maintained by or on behalf of the Company, including the
amounts available to the Company under each such facility, the outstanding
principal balance thereunder as of the date hereof, the interest rate applicable
thereto and the maturity date thereof. Any currently outstanding credit or loan
facility guaranteed by any Stockholder shall be satisfied or canceled prior to
the Closing Date.
(dd) Solvency of the Company. Since its formation and through the
-----------------------
Closing Date, the Company has been and will be solvent. "Solvent" shall mean,
for purposes of application of this provision, that: (i) the fair saleable value
of the Company's property is in
22
excess of the total amount of its debts; and (ii) the Company is generally able
to pay its debts as they mature.
(ee) Investment Purpose. Each Stockholder represents that each such
------------------
Stockholder is acquiring and will acquire, as the case may be, the shares of
Xceed Stock issuable to him pursuant hereto solely for his own account for
investment purposes only and not with a view toward resale or distribution
thereof other than pursuant to an effective registration statement or applicable
exemption from the registration requirements of the Securities Act. Each
Stockholder understands that such shares of Xceed Stock will be issued in
reliance upon an exemption from the registration requirements of the Securities
Act and that subsequent sale or transfer of such securities is prohibited absent
registration or exemption from the provisions of the Securities Act. Each
Stockholder hereby agrees, severally and not jointly, that he will not sell,
assign, transfer, pledge or otherwise convey any of the shares of the Xceed
Stock issuable to him pursuant hereto, except in compliance with the provisions
of the Securities Act and in accordance with any transfer restrictions or
similar terms set forth on the certificates representing such securities or
otherwise set forth herein.
(ff) Agreements with Affiliates. Except as set forth on Schedule
--------------------------
3.1(ff) hereto, the Company is not a party to any instrument, license, lease or
other agreement, written or oral, with any officer, director or stockholders of
the Company.
(gg) Accuracy of Information Furnished. The Company and the
---------------------------------
Stockholders (severally and not jointly with respect to those statements,
representations and warranties made severally and not jointly by such
Stockholders) represent that no statement by the Company or the Stockholders set
forth herein or in the exhibits or the schedules hereto, and no statement set
forth in any certificate or other instrument or document required to be
delivered by or on behalf of the Company or the Stockholders pursuant hereto or
in connection with the consummation of the transactions contemplated hereby,
contained, contains or will contain any untrue statement of a material fact, or
omits, omitted or will omit to state any material fact which is necessary to
make the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
3.2 Representations and Warranties of Xceed. Xceed represents and warrants
---------------------------------------
to the Company and the Stockholders as follows:
(a) Authorization. The execution, delivery and performance of this
-------------
Agreement and consummation of the transactions contemplated hereby have been
duly authorized, adopted and approved by the board of directors of Xceed. Xceed
has taken all necessary corporate action and has all of the necessary corporate
power to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the officers of Xceed on behalf of Xceed and, assuming that this
Agreement is the valid and binding obligation of the Company and the
Stockholders, is the valid and binding obligation of Xceed, enforceable against
it in accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and
23
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(b) Organization. Xceed is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware. Xceed has
the corporate power and authority to own and lease its properties and assets,
and to carry on its business as it is now being conducted. Xceed is duly
qualified to do business as a foreign corporation in each jurisdiction where it
owns or leases real property or conducts business, except where the failure to
be so qualified would not have a material adverse effect on the business,
operations, earnings, prospects, assets or condition (financial or otherwise) of
Xceed.
(c) Capitalization. The number of authorized, issued and outstanding
--------------
shares of capital stock of Xceed as of the date hereof is as set forth above in
the recitals to this Agreement. The outstanding shares of Xceed Stock have been
duly authorized and validly issued and are fully paid and nonassessable. As of
the date hereof, the number of shares of capital stock that Xceed is currently
authorized to issue is adequate to permit Xceed to fulfill its obligations
hereunder with respect to issuance of the shares of Xceed Stock to the Stock
Recipients pursuant hereto. On the Closing Date, the shares of Xceed Stock
issuable to the Stock Recipients pursuant to Section 1.2 will be duly
authorized, validly issued, fully paid and nonassessable. Xceed has not issued
any shares of capital stock which would give rise to claims for violation of any
federal or state securities laws (including any rules or regulations promulgated
thereunder) or the securities laws of any other jurisdiction (including any
rules or regulations promulgated thereunder). As of the date hereof, there are
no options, warrants, calls, convertible securities or commitments of any kind
whatsoever relating to the shares of Xceed Stock issued in connection with the
Merger.
(d) Non-Contravention; Consents. Neither the execution and delivery of
---------------------------
this Agreement, nor consummation of the transactions contemplated hereby, does
or will: (i) violate or conflict with any provision of the certificate of
incorporation or bylaws of Xceed; (ii) violate or conflict with any material
provision of any mortgage, lien, lease, agreement, permit, indenture, license,
instrument, law, order, arbitration award, judgment or decree to which Xceed is
a party or by which it or the property or assets which are material to its
business or operation are bound, the effect of any of which violation would have
a material adverse effect on the business, assets, operations, earnings,
prospects (financial or otherwise) of the Company; (iii) violate or conflict
with any other restriction to which Xceed is subject or by which any of the
property or assets which are material to the business or operation of Xceed may
be bound, the effect of any of which violation or conflict would have a material
adverse effect on the business, assets, operations, earnings, prospects
(financial or otherwise) of the Company; or (iv) constitute an event permitting
termination of any agreement to which Xceed is subject by any other party
thereto, if in any such circumstance such termination would have a materially
adverse on the ability of Xceed to fulfill its respective obligations hereunder.
Other than as provided herein, no consent, authorization, order or approval of,
or filing or registration with, any governmental commission, board or other
regulatory body is required in connection with the execution, delivery and
performance of the terms of this Agreement by Xceed and consummation by Xceed of
any of the transactions contemplated hereby.
24
(e) Litigation. There is no action, suit, proceeding or investigation
----------
pending against or related to Xceed, nor, to the best knowledge of Xceed, has
Xceed been threatened with any such action, suit, proceeding or investigation,
which would restrict its ability to perform its obligations hereunder or which
would have a material adverse effect on the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of Xceed. Xceed is
not in default in respect of any judgment, order, writ, injunction or decree of
any court or any federal, state, local or other governmental agency, authority,
body, board, bureau, commission, department or instrumentality which could have
a material adverse effect on the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of Xceed.
(f) Accuracy of Information Furnished. No statement by Xceed set forth
---------------------------------
herein or in the exhibits or the schedules hereto, and no statement set forth in
any certificate or other instrument or document required to be delivered by or
on behalf of Xceed pursuant hereto or in connection with consummation of the
transactions contemplated hereby, contained, contains or will contain any untrue
statement of a material fact, or omitted, omits or will omit to state any
material fact which is necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
(g) Compliance with Applicable Law. Xceed has been and is in
------------------------------
compliance with all foreign, federal, state and local laws, statutes,
ordinances, rules and regulations (including without limitation the Securities
Act and the Securities Exchange Act of 1934, as amended) as of the date hereof,
the failure to comply with which could materially adversely affect the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
Xceed or which would subject any officer or director of Xceed to civil or
criminal penalties or imprisonment. Xceed has complied with the rules and
regulations of all governmental agencies having authority over its business or
its operations, including without limitation, agencies concerned with intra-
state and interstate commerce, occupational safety, environmental protection and
employment practices, except where the failure to comply would not have a
material adverse effect on the business, operations, earnings, prospects, assets
or condition (financial or otherwise) of Xceed. Xceed has no knowledge of and
has not received any notice of violation of any such rule or regulation during
the two (2) years prior to the date hereof which could result in any liability
of Xceed for penalties or damages or which could subject it to any injunction or
government writ, order or decree. To the best knowledge of Xceed, there are no
facts, events or conditions that could interfere with, prevent continued
compliance with or give rise to any liability under any foreign, federal, state
or local governmental laws, statutes, ordinances or regulations applicable to
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Xceed, except where the failure to do so would not have a material
adverse effect on the business, operations, earnings, prospects, assets or
condition (financial or otherwise) of Xceed.
(h) No Material Adverse Change. No material adverse change in the
--------------------------
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits or condition (financial or
otherwise) of Xceed has occurred since May 31, 1999.
(i) Employee Benefit Plans. Schedule 3.2(i) hereto sets forth a true,
----------------------
correct and complete list of all "employee benefit plans" as such term is
defined in Section 3(3) of the
25
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (the
"Xceed Benefit Plans") covering the employees of the Xceed (the "Xceed
Employees"). Each Xceed Benefit Plan is in compliance in all material respects
with all applicable provisions of law, including ERISA and the Code. There are
no pending or, to Xceed's knowledge, threatened claims against any Xceed Benefit
Plan (except for claims for benefits payable in the normal operation of the
Xceed Benefit Plans) that could give rise to any material liability to the
Xceed. All material reports, notices and returns required to be filed with any
governmental agency or provided to any person or entity with respect to the
Xceed Benefit Plans have been timely filed. Xceed has never had and does not now
have any Xceed Benefit Plan that is an employee pension plan (as defined in
Section 3(2) of ERISA) nor does Xceed contribute to any multiemployer pension or
multiemployer welfare benefit plan (within the meaning of Section 3(37) of
ERISA).
3.3 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties set forth in Sections 3.1 and 3.2 hereof shall survive until the
close of business on the sixtieth (60th) day following the first anniversary of
the Closing Date, provided that, notice or demand with respect to any alleged
breach thereof is given as required pursuant to Article V hereof; and further
provided that, with respect to claims for damages arising out of any
misrepresentation or breach of warranty made by the Company and the Stockholders
relating to taxes, notice shall have been given on or before the close of
business on the sixtieth (60) day following the later to occur of: (i) the
expiration date of the statute of limitations applicable to any indemnified
federal, state or local tax liability; and (ii) the final determination of any
such tax liability, including the final administrative and/or judicial
determination thereof.
ARTICLE IV
CONDITIONS
4.1 Conditions to Obligations of Xceed. The obligation of Xceed to
----------------------------------
consummate the transactions contemplated by this Agreement is subject to the
fulfillment of each of the following conditions, which may be waived in whole or
in part by Xceed to the extent permitted by applicable law:
(a) No Material Adverse Change. Since December 31, 1998, no material
--------------------------
adverse change in the business, assets, operations, earnings, prospects or
condition (financial or otherwise) of the Company, and no event which would
materially and adversely affect the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of the Company shall have
occurred.
(b) Copies of Resolutions. At the Closing, the Company shall have
---------------------
furnished Xceed with certified copies of resolutions duly adopted by the board
of directors of the Company and the Stockholders authorizing the execution,
delivery and performance of the terms of this Agreement and all other necessary
or proper corporate action to enable the Company to comply with the terms of
this Agreement.
26
(c) Certificates of Good Standing. At the Closing, the Company shall
-----------------------------
have furnished Xceed with certified copies of certificates of good standing of
the Company dated not more than five (5) business days prior to the Closing
Date.
(d) Opinion of the Company's and Stockholders' Counsel. The Company
--------------------------------------------------
shall have furnished Xceed, at the Closing, with an opinion of Xxxxxxx &
Xxxxxxx, PLC, counsel to the Company, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit 4.1(d).
(e) Accuracy of Representations and Warranties; Performance of
----------------------------------------------------------
Covenants. Each of the representations and warranties of the Company and each of
---------
the Stockholders set forth in this Agreement was true, correct and complete in
all material respects when made (or with respect to representations and
warranties made as to specific dates, the same were true, correct and complete
as of such date) and shall also be true, correct and complete in all material
respects at and as of the Closing Date, with the same force and effect as if
made at and as of the Closing Date. The Company and the Stockholders shall have
performed and complied in all material respects with all agreements and
covenants required by this Agreement to be performed by the Company and each of
the Stockholders at or prior to the Closing Date.
(f) Delivery of Officers' Certificates. The Company and each of the
----------------------------------
Stockholders shall have delivered to Xceed certificates, dated the Closing Date,
and signed by an executive officer of the Company (with respect to the Company),
and by each of the Stockholders individually, representing and affirming that:
(i) the representations and warranties made by each of the Company and the
Stockholders jointly and/or severally as set forth in Section 3.1 of this
Agreement and referred to in Subsection 4.1(e) above were and are true, correct
and complete as required by Subsection 4.1(e) above and the conditions set forth
in this Section 4.1 have been satisfied. The Company shall also have delivered a
certificate signed by the Secretary of the Company with respect to the authority
and incumbency of the officers of the Company executing this Agreement and any
documents required to be executed or delivered in connection therewith.
(g) Delivery of Stock Certificates. At the Closing, the Stockholders
------------------------------
shall have delivered to Xceed certificates representing all of the issued and
outstanding capital stock of the Company, which certificates shall be properly
endorsed in blank or shall be accompanied by a properly executed stock power.
(h) Consents and Waivers. On or prior to the Closing Date, any and all
--------------------
necessary consents, authorizations, orders or approvals described in Subsection
3.1(o) above shall have been obtained, except as the same shall have been waived
by Xceed.
(i) Litigation. On the Closing Date, there shall be no effective
----------
injunction, writ or preliminary restraining order or any order of any kind
whatsoever with respect to the Company or the Stockholders issued by a court or
governmental agency (or other governmental or regulatory authority) of competent
jurisdiction restraining or prohibiting the consummation of the transactions
contemplated hereby or making consummation thereof unduly burdensome to the
Company or the Stockholders. On the Closing Date and immediately prior to
consummation
27
of the transactions contemplated by this Agreement, no proceeding or lawsuit
shall have been commenced, be pending or have been threatened by any
governmental or regulatory agency or authority or any other person with respect
to the transactions contemplated by this Agreement.
(j) Employment Agreements with Stockholders and Key Employees. Each of
---------------------------------------------------------
Xxxxx Xxxxxxx and Xxxx Xxxxx (the "Key Employees") and the Stockholders shall
have entered into an employment agreement (collectively referred to hereinafter
as the "Employment Agreements"), dated as of the Closing Date, which shall be in
the form attached hereto on Schedule 4.1(j).
(k) Delivery of Documents and Other Information. Prior to the Closing
-------------------------------------------
Date, the Company shall have delivered to Xceed all of the agreements,
contracts, documents and other instruments required to be delivered pursuant to
the provisions of this Agreement.
4.2 Conditions to Obligations of the Company and the Stockholders. The
-------------------------------------------------------------
obligations of the Company and the Stockholders to consummate the transactions
contemplated by this Agreement are subject to the fulfillment of each of the
following conditions, which may be waived in whole or in part by the Company
and/or the Stockholders to the extent permitted by law:
(a) Copies of Resolutions. At the Closing, Xceed shall have furnished
---------------------
the Company with certified copies of resolutions duly adopted by the board of
directors of Xceed authorizing the execution, delivery and performance of the
terms of this Agreement (including the execution, delivery and performance of
the Employment Agreements referred to in Section 4.1(j) above and the Xceed
Stock referred to in Section 4.2(f) below) and all other necessary or proper
corporate action to enable Xceed to comply with the terms of this Agreement.
(b) Certificates of Good Standing. At the Closing, Xceed shall have
-----------------------------
furnished the Company with certified copies of certificates of good standing of
Xceed dated not more than five (5) business days prior to the Closing Date.
(c) Opinion of Xceed's Counsel. Xceed shall have furnished to the
--------------------------
Company, at the Closing, with an opinion of Akin, Gump, Strauss, Xxxxx & Xxxx,
L.L.P., counsel to Xceed, dated as of the Closing Date, substantially in the
form attached hereto as Exhibit 4.2(c).
(d) Accuracy of Representations and Warranties; Performance of
----------------------------------------------------------
Covenants. Each of the representations and warranties of Xceed was true, correct
---------
and complete in all material respects when made and shall also be true, correct
and complete in all material respects at and as of the Closing Date, with the
same force and effect as if made at and as of the Closing Date. Xceed shall have
performed and complied with in all material respects all agreements and
covenants required by this Agreement to be performed by Xceed at or prior to the
Closing Date.
(e) Delivery of Officers' Certificates. Xceed shall have delivered to
----------------------------------
the Company certificates, dated the Closing Date and signed by an executive
officer of Xceed, affirming that: (i) the representations and warranties of
Xceed as set forth in Section 3.2 of this Agreement and referred to in
Subsection 4.2(d) above were and are true, correct and complete as
28
required by Subsection 4.2(d) above; and (ii) the conditions set forth in this
Section 4.2 have been satisfied. Xceed shall also have delivered a certificate
signed by the Secretary of Xceed with respect to the authority and incumbency of
the officers of Xceed executing this Agreement and any documents required to be
executed or delivered in connection therewith.
(f) Stock Certificates. At the Closing, Xceed shall have issued and
------------------
delivered to: (i) the Stockholders certificates representing the shares of Xceed
Stock issuable to the Stockholders pursuant hereto, which certificates shall be
in the respective names of the Stockholders; and (ii) the Escrow Agent,
certificates representing the shares of Xceed Stock issuable to the Company
Employees on the first anniversary of the date hereof.
(g) Consents and Waivers. On or prior to the Closing Date, any and all
--------------------
necessary consents, authorizations, orders or approvals described in Subsection
3.2(d) above shall have been obtained, except as the same shall have been waived
by the Company and the Stockholders.
(h) Litigation. On the Closing Date, there shall be no effective
----------
injunction, writ or preliminary restraining order or any order of any kind
whatsoever with respect to Xceed issued by a court or governmental agency (or
other governmental or regulatory authority) of competent jurisdiction
restraining or prohibiting the consummation of the transactions contemplated
herein or making the consummation thereof unduly burdensome to Xceed. On the
Closing Date and immediately prior to consummation of the transactions
contemplated by this Agreement, no proceeding or lawsuit shall have been
commenced, be pending or have been threatened or by any governmental or
regulatory agency or authority or any other person with respect to the
transactions contemplated by this Agreement.
(i) Employment Agreements with Stockholders and Key Employees. Xceed
---------------------------------------------------------
shall have entered into an Employment Agreement with each of the Stockholders
and Key Employees, as provided for in Section 4.1(j) herein, dated as of the
Closing Date, having the initial term set forth herein and providing for each
such Stockholder's and Key Employee's employment with Xceed.
(j) Options Issued to Stockholders and Certain Key Employees. Xceed
--------------------------------------------------------
shall grant to the Stockholders, in the amounts set forth on Schedule 1.2(a)
hereto, options exercisable to purchase shares of Xceed Stock having an
aggregate value of up to $2,063,000 (the "Stockholder Options") pursuant to
Xceed's 1999 Long-Term Stock Option Plan (the "Plan") and in accordance with the
terms in the Employment Agreements and Stockholder Option Certificate. Xceed
shall also grant to the Company Employees as set forth on Schedule 1.2(a)
hereto, options exercisable to purchase shares of Xceed Stock having an
aggregate value of up to $937,000 pursuant to the Plan (the "Employee Options").
The Stockholder Options shall be granted pursuant to the Plan and the Employment
Agreements and Option Certificates in the form of Stockholder Option Certificate
set forth on Schedule 4.2(j) hereto and the Employee Options shall be granted
pursuant to the Plan and Option Certificates in the form of Employee Option
Certificate set forth on Schedule 4.2(j) hereto.
29
(k) Delivery of Documents and Other Information. Prior to the Closing
-------------------------------------------
Date, Xceed shall have delivered to the Stockholders and the Company all of the
agreements, contracts, documents and other instruments required to be delivered
pursuant to the provisions of this Agreement.
ARTICLE V
INDEMNIFICATION AND CLAIMS
5.1 Indemnification by the Stockholders.
-----------------------------------
(a) Subject to Sections 5.1(b) and 5.1(c) hereof, the Stockholders
hereby agree, jointly and severally, except as otherwise specifically provided
throughout this Agreement with respect to representations and warranties made
severally and not jointly by each Stockholder as to which each such Stockholder
hereby severally and not jointly agrees, to indemnify and hold harmless Xceed
against and in respect of all damages, claims, losses and expenses (including,
without limitation, reasonable attorneys' fees and disbursements) reasonably
incurred by Xceed (all such amounts may hereinafter be referred to as the
"Damages") arising out of: (i) any misrepresentation or breach of any
representation or warranty made by the Company or the Stockholders pursuant to
the provisions of this Agreement or in any statement, certificate or other
document furnished by the Company or the Stockholders pursuant to this
Agreement; and (ii) the nonperformance or breach of any covenant, agreement or
obligation of the Company or the Stockholders contained in this Agreement which
has not been waived by Xceed in writing. The Stockholders shall have no right to
seek contribution from the Company in the event that they are required to make
any payments hereunder.
(b) Subject to Section 3.3 hereof, the Stockholders shall be obligated
to indemnify Xceed pursuant to this Section 5.1 with respect to claims for
Damages as to which Xceed shall have given written notice to the Company and the
Stockholders on or before the close of business on the sixtieth (60) day
following the first anniversary of the Closing Date. The Stockholders shall be
obligated to indemnify Xceed with respect to claims for Damages arising out of
any misrepresentation or breach of warranty made by the Company or the
Stockholders relating to Subsection 3.1(s) as to which Xceed shall have given
notice on or before the close of business on the sixtieth (60) day following the
later of: (i) the expiration date of the statute of limitations applicable to
any indemnified federal, state, foreign or local tax liability; or (ii) the
final determination of any such tax liability, including the final
administrative and/or judicial determination thereof.
(c) Notwithstanding the indemnification provided pursuant to
Subsection 5.1 (a) and 5.1(b) above, no amount shall be payable by the
Stockholders in indemnification hereunder or under any other provision of this
Agreement unless the aggregate amount of such Damages in respect of which the
Company or the Stockholders would be liable, but for operation and application
of the provisions of this Section 5.1(c), exceeds on a cumulative basis Fifty
Thousand Dollars ($50,000) and then only to the extent of such excess; provided,
--------
however, that the amount of all claims subject to indemnification hereunder
-------
shall not exceed Two Million
30
Dollars ($2,000,000); provided further, that the amount of all claims against
-------- -------
each Stockholder, individually, shall not exceed One Million Dollars
($1,000,000).
(d) In any case where the Stockholders have indemnified Xceed for any
Damages and Xceed recovers from a third party all or any part of the amount so
indemnified by the Stockholders, Xceed shall promptly reimburse to the
Stockholders the amount so recovered.
(e) The Stockholders shall not be liable to Xceed under this Section
5.1 for any Damages resulting from any event relating to a breach of any
representation or warranty by the Stockholders if the Stockholders can establish
that Xceed had knowledge of such breach on or prior to the Closing Date.
5.2 Claims Against Xceed. With respect to claims or demands by third
--------------------
parties, whenever Xceed shall have received notice that such a claim or demand
has been asserted or threatened which, if valid, would be subject to
indemnification under Section 5.1 hereof, Xceed shall as soon as reasonably
possible and in any event within thirty (30) days of receipt of such notice,
notify the Stockholders of such claim or demand and of all relevant facts within
its knowledge which relate thereto. The Stockholders shall then have the right
at their own expense to undertake the defense of any such claims or demands
utilizing counsel selected by the Stockholders and approved by Xceed, which
approval shall not be unreasonably withheld. In the event that the Stockholders
should fail to give notice of the intention to undertake the defense of any such
claim or demand within sixty (60) days after receiving notice that it has been
asserted or threatened, Xceed shall have the right to defend, satisfy and
discharge the same by payment, compromise or otherwise and shall give written
notice of any such payment, compromise or settlement to the Stockholders.
5.3 Indemnification by Xceed.
------------------------
(a) Subject to Section 5.3(b) hereof, Xceed hereby agrees to indemnify
and hold harmless the Company and the Stockholders against and in respect of all
damages, claims, losses and expenses (including without limitation, reasonable
attorneys' fees and disbursements) reasonably incurred by the Stockholders with
respect thereto (all such amounts may hereinafter be referred to as "Stockholder
Damages") arising out of: (i) any misrepresentation or breach of any
representation or warranty made by Xceed pursuant to the provisions of this
Agreement or in any statement, certificate or other document furnished by Xceed
pursuant to this Agreement; and (ii) the nonperformance or breach of any
covenant, agreement or obligation of Xceed which has not been waived by the
Stockholders collectively in writing.
(b) Subject to Section 3.3 hereof, Xceed shall be obligated to
indemnify the Stockholders pursuant to Section 5.3(a)(1) only with respect to
claims for Stockholder Damages as to which the Stockholders shall have given
written notice to Xceed on or before the close of business on the sixtieth (60)
day following the first anniversary of the Closing Date. This limitation shall
not apply to defaults by Xceed under any of Sections 1.2 or 1.7 through 1.9 or
any claim that any Stock Recipient has as a holder of Xceed Stock. Claims with
regard to Sections 1.2 and 1.7 through 1.9 of this Agreement must be made by
written notice to Xceed within one (1) year and sixty (60) days of when the
claim arose.
31
(c) Notwithstanding the indemnification provided pursuant to
Subsection 5.3(a) above, no amount shall be payable by Xceed in indemnification
hereunder or under any other provision of this Agreement unless the aggregate
amount of Stockholder Damages in respect of which Xceed would be liable, but for
operation and application of the provisions of this subsection, exceeds on a
cumulative basis Fifty Thousand Dollars ($50,000) and then only to the extent of
such excess, provided, however, that the aggregate amount of all claims subject
to indemnification hereunder shall not exceed Two Million Dollars ($2,000,000)
provided that this provision shall not apply to defaults by Xceed under any of
Sections 1.2, 1.7 through 1.9 or any claim that any Stock Recipient has as a
holder of Xceed stock.
(d) In any case where Xceed has indemnified the Stockholders for any
Stockholder Damages and the Stockholders recover from a third party all or any
part of the amount so indemnified by Xceed, the Stockholders shall promptly
reimburse to Xceed the amount so recovered.
(e) Xceed shall not be liable to either Stockholder under this Section
5.3 for any Damages resulting from any event relating to a breach of any
representation or warranty by Xceed, if Xceed can establish that either
Stockholder had knowledge of such breach on or prior to the Closing Date.
(f) Employment Agreement and Option Certificate claims shall not be
subject to this Section 5.3 and the parties shall have such rights with regard
thereto as are provided in such agreements or by law.
5.4 Claims Against the Stockholders. With respect to claims or demands by
-------------------------------
third parties, whenever the Stockholders shall have received notice that such a
claim or demand has been asserted or threatened, which, if valid, would be
subject to indemnification under Section 5.4 hereof, the Stockholders shall as
soon as reasonably possible and in any event within thirty (30) days of receipt
of such notice, notify Xceed of such claim or demand and of all relevant facts
within its knowledge which relate thereto. Xceed shall have the right at their
own expense to undertake the defense of any such claim or demand utilizing
counsel selected by Xceed and approved by the Stockholders. In the event that
Xceed should fail to give notice of its intention to undertake the defense of
any such claim or demand within sixty (60) days after receiving notice that it
has been asserted or threatened, the Stockholders shall have the right to
defend, satisfy and discharge the same by payment, compromise or otherwise and
shall give written notice of any such payment, compromise or settlement to
Xceed.
ARTICLE VI
TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
6.1 Termination by Mutual Agreement. This Agreement may be terminated at
-------------------------------
any time prior to the Closing by unanimous consent of the parties hereto,
provided that such consent to terminate is manifested in writing and is signed
by each of the parties hereto.
32
6.2 Termination for Failure to Close. This Agreement may be terminated by
--------------------------------
any of the parties hereto if the Closing shall not have occurred by November 3,
1999, provided that, the right to terminate this Agreement pursuant to this
section shall not be available to any party whose failure to fulfill any of its
obligations hereunder has been the cause of or resulted in the failure to
consummate the transactions contemplated hereby by the foregoing date.
6.3 Termination by Operation of Law. This Agreement may be terminated by
-------------------------------
any of the parties hereto if, in the reasonable opinion of counsel to the
respective parties hereto, there shall be any statute, rule or regulation that
renders consummation of the transactions contemplated hereby illegal or
otherwise prohibited, or a court of competent jurisdiction or any government (or
governmental authority) shall have issued an order, decree or ruling, or has
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of such transactions and such order, decree, ruling or other action
shall have become final and nonappealable.
6.4. Termination for Failure to Perform Covenants or Conditions. This
----------------------------------------------------------
Agreement may be terminated prior to the Closing occurring (meaning filing of
Articles of Merger with State of Arizona and State of Delaware and execution and
delivery by both parties of this Agreement and the related instruments and
agreements required at Closing):
(a) by Xceed if: (i) any of the representations and warranties made in
this Agreement by the Company or the Stockholders shall not be true and correct,
when made or at any time prior to consummation of the transactions contemplated
hereby as if made at and as of such time; (ii) any of the conditions set forth
in Section 4.1 hereof have not been fulfilled or waived by the Closing Date;
(iii) the Company or the Stockholders shall have failed to observe or perform
any of their respective obligations under this Agreement; or (iv) as otherwise
set forth herein; or for any reason or no reason;
(b) by the Company or the Stockholders if: (i) any of the
representations and warranties of Xceed shall not be true and correct when made
or at any time prior to consummation of the transactions contemplated hereby as
if made at and as of such time; (ii) any of the conditions set forth in Section
4.2 hereof have not been fulfilled by the Closing Date; (iii) Xceed shall have
failed to observe or perform any of its respective material obligations under
this Agreement; or (iv) as otherwise set forth herein or for any reason or no
reason.
6.5 Effect of Termination or Default; Remedies. In the event of
------------------------------------------
termination of this Agreement as set forth above, or for any other reason prior
to a Closing occurring, this Agreement shall forthwith become void and there
shall be no liability on the part of any party and each party shall have
returned to if any documents, instruments, securities or cash to have been
delivered by such party.
6.6 Specific Performance. If the Closing occurs, and if a party
--------------------
thereafter fails to perform as required hereunder, the non-defaulting party
shall be entitled to receive specific performance and/or injunctive relief, as
well as monetary damages, court costs and attorney fees. A defaulting party
shall not be liable for punitive, consequential, special or incidental damages
for a default under this Agreement, but this shall not limit a Stockholder's or
Company
33
Employee's rights to recover amounts it could have received on a sale of Xceed
Stock but for a default by Company under any of Sections 1.7 to 1.9 or under an
Employment Agreement or Option Certificate, and shall not limit a Stockholder's
or Company Employee's rights or claims, as Xceed shareholders.
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses. Except as set forth in Section 1.7 and as
-----------------
contemplated pursuant to Section 3.1(k), the Stockholders and the Company shall
respectively pay the Company's and their own expenses and Xceed shall pay its
own expenses incident to negotiation, execution, delivery and performance of the
terms of this Agreement and the consummation of the transactions contemplated
hereby.
7.2 Modification, Amendments and Waiver. The parties hereto may amend,
-----------------------------------
modify or otherwise waive any provision of this Agreement by unanimous consent,
provided that such consent and any amendment, modification or waiver is in
writing and is signed by each of the parties hereto.
7.3 Assignment. None of the parties hereto shall have the authority to
----------
assign its respective rights or obligations under this Agreement without the
prior written consent of the other parties hereto, except that Xceed may assign
all or any portion of its respective rights hereunder without the prior written
consent of the Company or the Stockholders in the event of a change in control
as defined herein, and the Company and the Stockholders shall execute such
documents as are necessary in order to effectuate such assignments.
The term "change in control" as used in this section or referred to
elsewhere in this Agreement shall mean: (i) the sale of all or substantially all
of the assets of Xceed; (ii) the acquisition of Xceed capital stock by any
person or group of persons resulting in ownership of more than forty percent
(40%) of the issued and outstanding shares of capital stock of Xceed; (iii) any
plan for the liquidation or dissolution of Xceed; or (iv) any merger or
consolidation of Xceed in which Xceed is not the surviving company.
7.4 Burden and Benefit. This Agreement shall be binding upon and, to the
------------------
extent permitted in this Agreement, shall inure to the benefit of the parties
and their respective successors and assigns. In the event of a default by the
Company or the Stockholders of any of their respective obligations hereunder,
the sole and exclusive recourse and remedy of Xceed shall be against the Company
and the Stockholders, as the case may be, and any of the Company's or the
Stockholder's assets; under no circumstances shall any officer or director of
the Company be liable in law or equity for any obligations of the Company or the
Stockholders hereunder. In the event of a default by Xceed of any of its
obligations hereunder, the sole and exclusive recourse and remedy of the
Stockholders and the Company shall be against Xceed and its assets; under no
34
circumstances shall any officer, director, stockholder or affiliate of Xceed be
liable in law or equity for any obligations of Xceed hereunder.
7.5 Brokers. The Company and the Stockholders represent and warrant to
-------
Xceed that there are no brokers or finders entitled to any brokerage or finder's
fee or other commission or fee based upon arrangements made by or on behalf of
the Company or the Stockholders or any other person in connection with this
Agreement or any of the transactions contemplated hereby. Xceed represents and
warrants to the Company and the Stockholders that no broker or finder is
entitled to any brokerage or finder's fee or other commission or fee based upon
arrangements made by or on behalf of Xceed in connection with this Agreement or
any of the transactions contemplated hereby, other than fees or commissions for
which Xceed shall be solely responsible.
7.6 Entire Agreement. This Agreement and the schedules, exhibits, lists
----------------
and other documents referred to herein contain the entire agreement among the
parties hereto with respect to the transactions contemplated hereby and
supersede all prior agreements and communications with respect thereto, whether
written or oral.
7.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
7.8 Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party hereto shall be in writing and delivered
personally, by facsimile transmission or telex, or sent by commercial expedited
delivery service or registered or certified mail (return receipt requested),
postage prepaid, addressed as follows:
If to the Company
or the Stockholders: Distributed Systems Solutions, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000
Attn: Xxxxxx Xxxxxx, President
Facsimile: (000) 000-0000
E-Mail: xxxxxx.xxxxxx@xxxxxxxxxxx.xxx
with a copy to: Xxxxxxx & Xxxxxxx, PLC
Xxx Xxxxx Xxxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxx X. XxXxxxxx, Esq.
Facsimile: (000) 000-0000
E-Mail: xxxxxxxxx@xxxxx.xxx
If to Xceed: Xceed, Inc.
000 Xxxxxxx Xxxxxx
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxx
35
Facsimile: (000) 000-0000
E-Mail: xxxxxx@xxxxx.xxx
with a copy to: Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
0000 Xxx Xxxxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
E-Mail: xxxxxxx@xxxxxxxx.xxx
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. If sent as aforesaid, any such notice shall be
deemed to have been delivered on the date of transmission of a facsimile or
telex, the day after delivery to a commercial overnight delivery service, or
five days after delivery into a United States Postal facility.
7.9 Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
7.10 Rights Cumulative. All rights, powers and privileges conferred
-----------------
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any power
given any party hereunder or to insist upon strict compliance by any other party
shall not constitute a waiver of any party's right to demand exact compliance
with any of the terms or provisions hereof.
7.11 Severability of Provisions. The provisions of this Agreement shall be
--------------------------
considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
7.12 Headings. The headings set forth in the articles and sections of this
--------
Agreement and in the exhibits and the schedules to this Agreement are inserted
for convenience of reference only and shall not be deemed to constitute a part
hereof.
7.13 Knowledge Standard. When used in this Agreement, the phrase "to the
------------------
best knowledge of, " "knowledge of, " "known to" or similar phrases shall mean
the actual knowledge of: (i) with respect to Xceed, the officers and directors
of Xceed; (ii) with respect to the Company, the officers and directors of the
Company; and (iii) each Stockholder.
7.14 Joint Preparation. This Agreement was jointly prepared by Xceed, the
-----------------
Company and the Stockholders and is not to be construed against any party
hereto. Should any provision of this Agreement be found to be illegal or
unenforceable by any court of competent jurisdiction
36
and cannot be modified to be enforceable, such provision shall immediately
become null and void leaving the remainder of this Agreement in effect.
* * * * *
37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date and year first above written.
ATTEST: XCEED, INC.
------------------------------ By: /s/Xxxxxx Xxxxx
-----------------------------
Xxxxxx Xxxxx, Chief Executive
Officer
ATTEST: DISTRIBUTED SYSTEMS SOLUTIONS, INC.
------------------------------ By: /s/Xxxxxx Xxxxxx
-----------------------------
Xxxxxx Xxxxxx, President
WITNESS: THE STOCKHOLDERS
------------------------------ By: /s/Xxxxxx Xxxxxx
-----------------------------
Xxxxxx Xxxxxx as Trustee of the
Xxxxxx Family Trust
WITNESS:
------------------------------ By: /s/Xxxx Xxxxxx
-----------------------------
Xxxx Xxxxxx
38