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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TELECOM WIRELESS CORPORATION
(BUYER)
TWC/PRENTICE ACQUISITION COMPANY, INC.
(SUB)
PRENTICE TECHNOLOGIES, INC.
(TARGET)
AND
XXXXX X. XXXXXXXX
(SELLER)
DATED AS OF SEPTEMBER 21, 1999
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TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. The Merger, Conversion of Securities. . . . . . . . . . . . . . . . . . . . . .4
(a) Effective Time of the Merger . . . . . . . . . . . . . . . . . . . .4
(b) The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(c) Deliveries at the Closing. . . . . . . . . . . . . . . . . . . . . .4
(d) Effects of the Merger. . . . . . . . . . . . . . . . . . . . . . . .5
(e) Directors and Officers . . . . . . . . . . . . . . . . . . . . . . .5
(f) Conversion of Capital Stock. . . . . . . . . . . . . . . . . . . . .5
(g) Stock Escrow Deposit . . . . . . . . . . . . . . . . . . . . . . . .6
(h) Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . .6
(i) Distributions with Respect to Unexchanged Shares . . . . . . . . . .6
(j) No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . .6
3. Representations and Warranties Concerning the Transaction . . . . . . . . . . .6
(a) Representations and Warranties of Seller. . . . . . . . . . . . . .6
(i) Authorization of Transaction . . . . . . . . . . . . . . . . .6
(ii) Noncontravention . . . . . . . . . . . . . . . . . . . . . . .7
(iii) Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . .7
(iv) Target Common Stock. . . . . . . . . . . . . . . . . . . . . .7
(b) Representations and Warranties of the Buyer. . . . . . . . . . . . .7
(i) Organization of the Buyer. . . . . . . . . . . . . . . . . . .7
(ii) Authorization of Transaction . . . . . . . . . . . . . . . . .7
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . . . . .7
(iv) Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . .8
(v) Investment . . . . . . . . . . . . . . . . . . . . . . . . . .8
(vi) Capitalization . . . . . . . . . . . . . . . . . . . . . . . .8
(vii) Buyer Action . . . . . . . . . . . . . . . . . . . . . . . . .8
(viii)Interim Operations of Sub. . . . . . . . . . . . . . . . . . .8
4. Representations and Warranties Concerning Target. . . . . . . . . . . . . . . .8
(a) Organization, Qualification, and Corporate Power . . . . . . . . . .8
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(c) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . .9
(d) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(e) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .9
(f) Events Subsequent to the Most Recent Fiscal Year End . . . . . . . .9
(g) Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . 11
(h) Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(i) Tangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 11
(j) Owned Real Property. . . . . . . . . . . . . . . . . . . . . . . . 11
(k) Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . 11
(l) Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . 12
(m) Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(n) Notes and Accounts Receivable. . . . . . . . . . . . . . . . . . . 00
-x-
(x) Xxxxxx xx Xxxxxxxx . . . . . . . . . . . . . . . . . . . . . . . . 13
(p) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(q) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(r) Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(s) Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 14
(t) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(u) Environment, Health, and Safety. . . . . . . . . . . . . . . . . . 15
(v) Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 16
(w) Certain Business Relationships with Target . . . . . . . . . . . . 17
(x) Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(y) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(z) Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(aa) Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(bb) Accounting Controls. . . . . . . . . . . . . . . . . . . . . . . . 18
(cc) Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . 18
(dd) Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . . 18
(ee) Personal Guaranty Obligations. . . . . . . . . . . . . . . . . . . 18
5. [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Additional Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Litigation Support . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 19
(e) Termination of Bank Facilities; Release of Guaranties. . . . . . . 19
(f) Monitoring Information . . . . . . . . . . . . . . . . . . . . . . 19
(g) Landlords' Consents. . . . . . . . . . . . . . . . . . . . . . . . 19
(h) Additional Tax Matters . . . . . . . . . . . . . . . . . . . . . . 19
(i) Covenant Not to Solicit. . . . . . . . . . . . . . . . . . . . . . 20
(j) Operation of Business. . . . . . . . . . . . . . . . . . . . . . . 20
(k) Access and Information . . . . . . . . . . . . . . . . . . . . . . 21
(l) Appropriate Action; Consents; Filings. . . . . . . . . . . . . . . 21
(m) Event Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(n) Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(o) Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(p) Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . 22
(q) Resignation of Target Directors. . . . . . . . . . . . . . . . . . 22
(r) Post-Closing Operation of Target . . . . . . . . . . . . . . . . . 22
(s) Blue Sky Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(t) Other Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(u) Continuity of Business Enterprise. . . . . . . . . . . . . . . . . 25
7. Conditions to Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Conditions to Obligation of the Buyer. . . . . . . . . . . . . . . 25
(b) Conditions to Obligations of the Seller. . . . . . . . . . . . . . 27
8. Remedies for Breaches of This Agreement . . . . . . . . . . . . . . . . . . . 28
(a) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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(b) Indemnification Provisions for Benefit of the Buyer. . . . . . . . 28
(c) Indemnification Provisions for Benefit of the Seller . . . . . . . 29
(d) Matters Involving Third Parties. . . . . . . . . . . . . . . . . . 29
(e) Determination of Loss. . . . . . . . . . . . . . . . . . . . . . . 30
(f) Other Indemnification Provisions . . . . . . . . . . . . . . . . . 30
(g) Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 30
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . 30
(b) Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . 31
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . . 31
(b) Press Releases and Announcements . . . . . . . . . . . . . . . . . 31
(c) No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . 31
(d) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Succession and Assignment. . . . . . . . . . . . . . . . . . . . . 31
(f) Facsimile/Counterparts . . . . . . . . . . . . . . . . . . . . . . 31
(g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(h) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(i) Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . 33
(j) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 33
(k) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(l) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(m) Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(n) Incorporation of Exhibits, Annexes, and Schedules. . . . . . . . . 34
(o) Specific Performance . . . . . . . . . . . . . . . . . . . . . . . 34
(p) Buyout Option. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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LIST OF EXHIBITS, ANNEXES AND SCHEDULES
EXHIBITS
Exhibit A Financial Statements
Exhibit B Form of Richmond Employment Agreement
Exhibit C Form of Opinion of Seller's Legal Counsel
Exhibit D Form of Stock Escrow Agreement
Exhibit E Form of Promissory Note
ANNEXES
Annex I Exceptions to Representations and Warranties of Buyer
SCHEDULES
Disclosure Schedule of Target and Seller
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("AGREEMENT") is entered into as of
the 21st day of September, 1999, by and among TELECOM WIRELESS CORPORATION, a
Utah corporation (the "BUYER"), TWC/PRENTICE ACQUISITION COMPANY, INC., a
Delaware corporation and wholly-owned subsidiary of Buyer ("SUB"), PRENTICE
TECHNOLOGIES, INC., a Delaware corporation ("TARGET"), and XXXXX X. XXXXXXXX
(the "SELLER"). The Buyer and the Seller are referred to herein individually
as a "PARTY" and collectively as the "PARTIES."
RECITALS
A. The Boards of Directors of Buyer, Sub and Target deem it
advisable and in the best interests of each corporation and their respective
stockholders that Buyer and Target combine in order to advance the long-term
business interests of Buyer and Target.
B. The combination of Buyer and Target shall be effected by the
terms of this Agreement through a transaction in which Sub will merge with
and into Target and Target will become a subsidiary of Buyer (the "MERGER").
C. Seller has been an officer of Buyer since April 1, 1999.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and
court costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"APPLICABLE RATE" means the announced prime rate in effect from time to
time at Texas Commerce Bank, National Association plus two percent (2%) per
annum.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms the basis for any specified
consequence.
"BUSINESS" means the business of the Target as currently conducted in
the Ordinary Course of Business, including, without limitation, lines of
business with respect to internet service providers, application service
providers and competitive local exchange carriers.
"BUYER" has the meaning set forth in the preface above.
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"BUYER COMMON STOCK" means the shares of Buyer's Common Stock, par value
of $0.001 per share.
"CLOSING" has the meaning set forth in SECTION 2(b) below.
"CLOSING DATE" has the meaning set forth in SECTION 2(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and trade
secrets of Target and Surviving Company including, without limitation, the
identity, lists or descriptions of any customers, referral sources or
organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee
structure; and management systems, policies or procedures, including related
forms and manuals.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"CUSTOMER CONTRACT OR AGREEMENT" means any agreement whereby Target
provides contract computer support and/or consulting services to a third
party.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Treas.
Reg. Sec. 1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in SECTION 4 below.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Sec.
3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in SECTION
3(a)(i) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4(e) below.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"XXXX-XXXXX-XXXXXX ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 8(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 8(d) below.
"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing, and business data, pricing
and cost information, business and marketing plans, and customer and supplier
lists
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and information), (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means, the person having such knowledge, actual knowledge
after reasonable investigation and inquiry, which inquiry shall include an
inquiry of the inquirer's or, in the case of the Target the Target's,
employees with responsibility for the matters in question.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated
or unliquidated, and whether due or to become due) including any liability
for Taxes.
"MERGER" has the meaning given it in the recitals.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in SECTION
4(e) below as the same may be adjusted prior to the Closing with the mutual
consent of Parties.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in SECTION 4(e)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"NET WORKING CAPITAL OF TARGET" means total current assets of Target
less the sum of the following: (i) total current liabilities (including, but
not limited to, all deferred Taxes), and (ii) any long-term debt of Target,
determined in accordance with GAAP, consistently applied.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PERSONAL GUARANTY OBLIGATIONS" means the personal guarantees made by
Xxxxx X. Xxxxxxxx pursuant to the agreements identified in SECTION 4(ee) of
the Disclosure Schedule.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's
and similar liens, (b) liens for Taxes not yet due and payable (or for Taxes
that the taxpayer is contesting in good faith through appropriate
proceedings), (c) liens arising under workers' compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sales of foreign receivables, (e) liens on goods
in transit incurred pursuant to documentary letters of credit, (f) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (g) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
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"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"TARGET" has the meaning set forth in the preface above.
"TARGET COMMON STOCK" means the outstanding shares (on a fully diluted
basis) of the Common Stock, $0.0001 par value per share, of Target.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. THE MERGER, CONVERSION OF SECURITIES.
(a) EFFECTIVE TIME OF THE MERGER.
(i) Subject to the provisions of this Agreement,
articles of merger (the "ARTICLES OF MERGER") in such mutually acceptable
form as is required by the relevant provisions of the Delaware General
Corporation Law ("DELAWARE LAW") shall be duly executed and delivered by the
Parties hereto and thereafter delivered to the Secretary of State of the
State of Delaware for filing on the Closing Date (as defined below).
(ii) Subject to the provisions of this Agreement, a
certificate of merger (the "CERTIFICATE OF MERGER") in such mutually
acceptable form as is required by the relevant provisions of the Delaware
General Corporation Law ("DELAWARE LAW") shall be duly executed and delivered
by the Parties hereto and thereafter delivered to the Secretary of State of
the State of Delaware for filing on the Closing Date (as defined below).
(iii) The Merger shall become effective upon the due and
valid filing of the Articles of Merger with the Secretary of State of the
State of Delaware and the due and valid filing of the Certificate of Merger
with the Secretary of State of the State of Delaware or at such time
thereafter as is provided in the Agreement or the Articles of Merger (the
"EFFECTIVE TIME").
(b) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Buyer in
0000 XXX Xxxxxxxxx, 00xx Xxxxx, Xxxxxxxxx, Xxxxxxxx 00000 commencing at 9:00
a.m. local time on the first business day following the satisfaction or
waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby, or such other date as the Buyer and the
Seller may mutually determine (the "CLOSING DATE"); PROVIDED, HOWEVER, that
the Closing Date shall be no later than September 24, 1999.
(c) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller
will deliver to the Buyer the various certificates, instruments, and
documents referred to in SECTION 7(a) below, (ii) the Buyer will deliver to
the Seller the various certificates, instruments, and documents referred to
in SECTION 7(b) below, (iii) the Seller will deliver to the Buyer stock
certificates representing all of its Target Common Stock, endorsed in blank
or accompanied by duly executed assignment documents, (iv) the Buyer will
deliver to the Seller the consideration specified in SECTION 2(f) below, and
(v) the Buyer will deliver to Seller evidence satisfactory to Seller that the
board of directors of Buyer have approved and authorized the issuance of the
shares described in SECTION 2(f) of this Agreement, and the Employment
Agreement of the Seller, in the form attached hereto as EXHIBIT B, and the
grant of the stock options described therein.
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(d) EFFECTS OF THE MERGER.
(i) At the Effective Time (i) the separate existence
of Sub shall cease and Sub shall be merged with and into Target (Sub and
Target are sometimes referred to herein as the "CONSTITUENT CORPORATIONS" and
Target following consummation of the Merger is sometimes referred to herein
as the "SURVIVING CORPORATION"), (ii) the Articles of Incorporation of Target
shall be the Articles of Incorporation of the Surviving Corporation, and
(iii) the Bylaws of Target as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation.
(ii) At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, at and after the Effective Time,
the Surviving Corporation shall possess all the rights, privileges, powers
and franchises, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations.
(e) DIRECTORS AND OFFICERS. The directors of Sub immediately
prior to the Effective Time shall become the directors of the Surviving
Corporation; provided that Seller shall have the right to appoint one
director of Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation, and the
officers of Sub immediately prior to the Effective Time shall become the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
(f) CONVERSION OF CAPITAL STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Target Common Stock or capital stock of Sub:
(i) CAPITAL STOCK OF SUB. Each of the 900 issued and
outstanding shares of the capital stock of Sub shall be converted into and
become one fully paid and nonassessable share of Common Stock, $0.0001 par
value, of the Surviving Corporation.
(ii) CANCELLATION OF BUYER-OWNED AND TARGET-OWNED
STOCK. Any shares of Target Common Stock that are owned by Buyer, Sub,
Target or any other direct or indirect wholly-owned Subsidiary of Buyer or
Target shall be canceled and retired and shall cease to exist and no stock of
Buyer or other consideration shall be delivered in exchange.
(iii) EXCHANGE OF TARGET COMMON STOCK.
(A) Shares owned by Seller. Seller shall
receive, (i) in exchange for shares of Target Common Stock representing
10% of the outstanding stock in Target, 100 shares of common stock in
Surviving Corporation (which equals 10% of the fully outstanding common
stock in the Surviving Corporation), and (ii) in exchange for each
remaining share of Target Common Stock (consisting of 3,888,889 shares,
in the aggregate): (y) 0.089143 (the "EXCHANGE RATIO") shares of Buyer
Common Stock and (z) $0.06525077, which will be paid pursuant to a
promissory note as specified in greater detail in SECTION 7(b)(xiii)
below.
(B) All shares of Target Common Stock, when
converted pursuant to this SECTION 2(f)(iii), 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 Buyer Common Stock and/or stock in Surviving
Corporation (as specified in Subsection 2(f)(iii)(A)) upon the surrender of
such certificate in accordance with SECTION 2(h), without interest.
(C) If, on or after the date of this Agreement
and prior to the Effective Time, the outstanding shares of Buyer capital
stock or Target Common Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
split-up, stock dividend or stock combination, then the Exchange Ratio
shall be correspondingly adjusted.
-5-
(g) STOCK ESCROW DEPOSIT. On the Closing Date, 200,000 shares
of Buyer Common Stock, in addition to the shares issued pursuant to SECTION
2(f), shall be delivered by the Buyer to an escrow agent pursuant to an
escrow agreement to be entered into as of the date hereof in substantially
the form attached hereto as EXHIBIT D (the "STOCK ESCROW AGREEMENT"). Buyer
agrees to prepare and file, at its expense, a registration statement with the
Securities and Exchange Commission (the "SEC") covering the Escrow Stock upon
the earlier of (i) such time as Buyer undertakes to register other Buyer
Common Stock, subject to underwriter approval and commitments made to selling
shareholders, on a piggyback basis, (ii) on demand in the event the fair
market value of the Escrow Stock is less than 150% of the Personal Guaranty
Obligations, or (iii) upon demand by Buyer, at any time after one year after
the Closing Date.
(h) EXCHANGE OF CERTIFICATES From and after the Effective
Time, each holder of an outstanding certificate or certificates which
represented shares of Target Common Stock immediately prior to the Effective
Time ("CERTIFICATES") shall have the right to surrender each Certificate to
Buyer (or at Buyer's option, an exchange agent to be appointed by Buyer), and
receive promptly in exchange for all Certificates held by such holder a
certificate representing the number of whole shares of Buyer Common Stock
and/or stock of Surviving Corporation into which the Target Common Stock
evidenced by the Certificates so surrendered shall have been converted
pursuant to the provisions of ARTICLE 2 of this Agreement. From and after
the Effective Time, there shall be no further registration of transfers on
the records of Surviving Company or Target of shares of Target Common Stock
outstanding immediately prior to the Effective Time.
(i) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES No
dividends or other distributions declared or made after the Effective Time
with respect to Buyer capital stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Buyer capital stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Buyer capital stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any
dividends or other distributions with a record date after the Effective Time
previously paid with respect to such whole shares of Buyer capital stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Buyer capital stock.
(j) NO FRACTIONAL SHARES. No certificate or scrip
representing fractional shares of Buyer Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a shareholder
of Buyer. The total number of shares of Buyer Common Stock and shares of
stock of Surviving Corporation issuable to any single holder of Target Common
Stock shall be rounded down to the nearest whole share.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF TARGET. Target
represents and warrants to the Buyer that, subject to the specific
qualifications and limitations set forth below, the statements contained in
this SECTION 3(a) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this
Agreement throughout this SECTION 3(a)) with respect to itself, except as set
forth in the Disclosure Schedule (as defined in SECTION 4 below) to be
delivered by the Target to the Buyer on or before the execution of this
Agreement, and initialed by the Parties.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and this Agreement has been duly
executed and delivered by the Seller. This Agreement constitutes
the valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions, except that (A) such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable
principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally,
and to general equity principles, and
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(B) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding
therefore may be brought (the terms of clause (A) and (B) are
sometimes collectively referred to as the "EQUITABLE
EXCEPTIONS"). The Seller need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement by the Seller, nor the consummation of
the transactions contemplated hereby by the Seller, will (A)
violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which the Seller is
subject or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any part
the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject.
(iii) BROKER'S FEES. Seller has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with whom Seller has contracted with respect to the
transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
(iv) TARGET COMMON STOCK. The Seller owns
beneficially, and will own of record and beneficially at the
Closing Date, the number of Target Common Stock set forth next to
its name in SECTION 4(b) of the Disclosure Schedule, free and clear
of any restrictions on transfer (other than any restrictions under
the Securities Act and state securities laws), claims, Taxes,
Security Interests, options, warrants, rights, contracts, calls,
commitments, equities, and demands. The Seller is not a party to
any option, warrant, right, contract, call, put, or other agreement
or commitment providing for the disposition or acquisition of any
capital stock of Target (other than this Agreement). Except as set
forth in SECTION 3(a)(iv) the Disclosure Schedule, the Seller is
not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of
Target.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Seller that the statements contained in this
SECTION 3(b) are correct and complete in all respects as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this SECTION 3(b)), except as set forth in ANNEX I
attached hereto.
(i) ORGANIZATION OF THE BUYER. The Buyer is a
corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full
power and authority (including full corporate power and authority)
to execute and deliver this Agreement and to perform its
obligations hereunder and this Agreement has been duly executed and
delivered by the Buyer. This Agreement constitutes the valid and
legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions except for the Equitable Exceptions.
The Buyer need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement by the Buyer, nor the consummation of
the transactions contemplated hereby by the Buyer, will (A) violate
any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is
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subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
material contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest, or other arrangement
to which the Buyer is a party or by which it is bound or to which
any of its assets is subject and which has a adverse effect on
Buyer.
(iv) BROKERS' FEES. The Buyer has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement for which the Seller could become liable or obligated.
(v) INVESTMENT. The Buyer is not acquiring Target
Common Stock with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
(vi) CAPITALIZATION. The entire authorized capital
stock of Buyer consists of 100,000,000 shares of capital stock,
14,999,135 of which are issued and outstanding as of June 24, 1999.
All of the issued and outstanding shares of Buyer Common Stock have
been duly authorized, are validly issued, fully paid, and
nonassessable.
(vii) BUYER ACTION. The Board of Directors of Buyer and
Sub, by unanimous written consent or at a meeting duly called and
held, has by the unanimous vote of all directors (i) determined
that the Merger is fair and in the best interests of Buyer and Sub
and their respective stockholders, (ii) approved the Merger and
this Agreement in accordance with the provisions of Colorado and
Delaware Law, and (iii) directed that this Agreement and the Merger
be submitted to Sub stockholders for their approval and resolved to
recommend that Sub stockholders vote in favor of the approval of
this Agreement and the Merger.
(viii) INTERIM OPERATIONS OF SUB. Sub was formed solely
for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has
conducted its operations only as contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. The Target
represents and warrants to the Buyer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this SECTION 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this SECTION 4), except as set forth in the Disclosure Schedule to
be delivered by the Target to the Buyer concurrently with the execution of
this Agreement (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in SECTIONS 3 AND 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Target
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Target is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification. Target has full
corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. SECTION 4(a)
of the Disclosure Schedule lists the directors and officers of Target. The
Seller has delivered to the Buyer correct and complete copies of the charter
and bylaws of Target (as amended to date). The minute books containing the
records of meetings and/or resolutions of the stockholders, the board of
directors, and any committees of the board of directors, the stock
certificate books, and the stock record books of Target are or will be
correct and complete at the Closing Date. Target is not in default under or
in violation of any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of
Target consists of 10,000,000 shares of capital stock, 3,888,889 of which
shall be issued and outstanding as of the Closing Date and no Target Common
Stock are held in treasury. All of the issued and outstanding Target Common
Stock has been duly
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authorized, are validly issued, fully paid, and nonassessable, and are held
of record by the Seller. There are no outstanding or authorized options,
warrants, rights, contracts, calls, puts, rights to subscribe, conversion
rights, or other agreements or commitments to which Target is a party or
which are binding upon Target providing for the issuance, disposition, or
acquisition of any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, or similar rights with respect
to Target. There are no voting trusts, proxies, or any other agreements or
understandings with respect to the voting of the capital stock of Target.
(c) NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which Target is subject or any
provision of the charter or bylaws of Target or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any material contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest, or other arrangement to
which Target is a party or by which it is bound or to which any of its assets
is subject (or result in the imposition of any Security Interest upon any of
its assets). Target does not need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(d) SUBSIDIARIES. Target has no Subsidiaries and Target does
not control, directly or indirectly, or have any direct or indirect equity
participation in, any corporation, partnership, limited liability company,
organization or other business association.
(e) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are
the following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) drafts of compiled balance sheets and statements of income, changes in
stockholder's equity, and cash flows as of and for the year ended December
31, 1998 (the "MOST RECENT FISCAL YEAR END") and for the year ended December
31, 1997 for Target; and (ii) unaudited balance sheets and statements of
income, changes in stockholder's equity, and cash flow (the "MOST RECENT
FINANCIAL STATEMENTS") as of and for the three months ended March 31, 1999
(the "MOST RECENT FISCAL MONTH END") prepared by Buyer's certified public
accountant. To Target's Knowledge, the Financial Statements fairly represent
the financial condition of the Target. At the Closing Date, the Financial
Statements shall be correct and complete, fairly present the financial
condition of Target as of such dates, and shall be consistent with the books
and records of Target (which books and records are correct and complete).
(f) EVENTS SUBSEQUENT TO THE MOST RECENT FISCAL YEAR END.
Since the Most Recent Fiscal Year End, except as set forth on the Disclosure
Schedule, there has not been any adverse change in the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of Target. Without limiting the generality of the foregoing since
that date:
(i) Target has not sold, leased, transferred, or
assigned any of its significant assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of
Business;
(ii) Target has not entered into any contract, lease,
sublease, license or sublicense (or series or related contracts,
leases, subleases, licenses and sublicenses) either involving more
than $30,000 or outside the Ordinary Course of Business;
(iii) Target has not accelerated, terminated, modified,
or canceled any contract, lease, sublease, license or sublicense
(or series of related contracts, leases, subleases, licenses and
sublicenses) involving more than $50,000, in the aggregate, to
which Target is a party or by which it is bound;
(iv) no party has notified Target of any acceleration,
termination modification or cancellation of any Customer Contract
or any contract, agreement, lease, sublease, license or sublicense
(or series of related contracts, leases, subleases, licenses and
sublicenses), other than any
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employment or consulting agreements entered into in the Ordinary
Course of Business, involving more than $25,000 to which a Target
is a party or by which it is bound;
(v) Target has not imposed any Security Interest upon
any of its assets, tangible or intangible;
(vi) Target has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$50,000 individually or $100,000 in the aggregate, or outside the
Ordinary Course of Business;
(vii) Target has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any
other person (or series of related capital investments, loans, and
acquisitions) either involving more than $50,000 individually or
$100,000 in the aggregate;
(viii) Target has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease
obligations) either involving more than $50,000 in the aggregate or
outside the Ordinary Course of Business;
(ix) Target has not delayed or postponed (beyond its
normal practice) the payment of accounts payable and other
Liabilities;
(x) Target has not canceled, compromised, waived, or
released any right or claim (or series of related rights and
claims) either involving more than $50,000 in the aggregate or
outside the Ordinary Course of Business;
(xi) Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xii) there has been no change made or authorized in the
charter or bylaws of Target;
(xiii) Target has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion or
exercise) any of its capital stock;
(xiv) Except for distributions to Seller to pay its
income tax liabilities (but not cash-to-accrual tax liabilities),
Target has not declared, set aside, or paid any dividend or
distribution with respect to its capital stock nor redeemed,
purchased, or otherwise acquired any of its capital stock;
(xv) Target has not made any consulting or other
payment to the Seller outside the Ordinary Course of Business;
(xvi) Target has not experienced any damage, destruction
or loss involving more than $50,000 in the aggregate (whether or
not covered by insurance) to its property;
(xvii) Target has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business involving more
than $50,000 in the aggregate giving rise to any claim or right on
its part against the person or on the part of the person against it;
(xviii) Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement with
any of its full-time staff employees;
-10-
(xix) Target has not granted an increase outside the
Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees;
(xx) Target has not adopted any (A) bonus, (B)
profit-sharing, (C) incentive compensation, (D) pension, (E)
retirement, (F) medical, hospitalization, life, or other insurance,
(G) severance, or (H) other plan, contract or commitment for any of
its directors, officers, and employees, or modified or terminated
any existing such plan, contract or commitment;
(xxi) Target has not made any other material change in
employment terms for any of its directors, officers, and full-time
staff employees;
(xxii) Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary
Course of Business;
(xxiii) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving Target; and
(xxiv) Target has not committed to any of the foregoing.
(g) UNDISCLOSED LIABILITIES. To the best of Target's
Knowledge, Target does not have any Liability which is in excess of $50,000
in the aggregate, except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto), and (ii)
Liabilities which have arisen after the Most Recent Fiscal Year End in the
Ordinary Course of Business (none of which relates to any breach of contract,
breach of warranty, tort, infringement, or violation of law or arose out of
any charge, complaint, action, suit, proceedings, hearing, investigation,
claim, or demand).
(h) TAX MATTERS. The Target has filed all federal, state,
local and foreign income withholding and franchise Tax Returns which have
been required to be filed and have paid all Taxes indicated by said returns
and all assessments received by them or any of them to the extent such Taxes
have become due and payable. The Target does not have any tax deficiency or
claim outstanding, proposed or assessed. The Target has provided to Buyer
true and complete copies of all federal and state income Tax Returns for its
past five Tax years or such shorter period of time that Target has been in
existence.
(i) TANGIBLE ASSETS. Target owns or leases all material
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted.
(j) OWNED REAL PROPERTY. Target does not own nor does it have
any interest in any real property or improvements thereon (other than the
leases disclosed in SECTION 4(j) of the Disclosure Schedule, and the
leasehold improvements relating to the same) nor does Target have any
options, agreements or contracts under which it has the right or obligation
to acquire any interest in any real property or improvements (other than as
disclosed in SECTION 4(j) of the Disclosure Schedule).
(k) INTELLECTUAL PROPERTY. The Target owns or possesses
adequate rights or licenses to use all trademarks, trade names, service
marks, service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations,
trade secretes and rights necessary to conduct the business as now conducted
(the "TARGET INTELLECTUAL PROPERTY RIGHTS"). Except as set forth in SECTION
4(k) of the Disclosure Schedule, none of the Target Intellectual Property
Rights have expired or terminated or are expected to expire or terminate
during the five year period beginning on the date of execution of this
Agreement. Target does not have any knowledge that the Target Intellectual
Property Rights infringe on the similar rights of others or of any
development of similar or identical intellectual property rights by others
and, except as set forth in SECTION 4(k) of the Disclosure Schedule, there is
no claim, action or proceeding being made or brought against or, to the
Target's Knowledge, being threatened against the Target regarding trademarks,
trade names, patents, patent rights, inventions, copyrights, licenses,
service names, service marks, service xxxx registrations, trade secrets or
other infringement and the Target is unaware of
-11-
any facts or circumstances which might give rise to any of the foregoing.
The Target has taken reasonable security measures to protect the secrecy,
confidentiality and value of all if its Intellectual Property Rights.
(l) REAL PROPERTY LEASES. SECTION 4(l) of the Disclosure
Schedule lists and describes briefly all real property leased or subleased to
Target. Target has delivered to the Buyer correct and complete copies of the
leases and subleases listed in SECTION 4(l) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in SECTION
4(l) of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, subject to the Equitable
Exceptions;
(ii) the execution, delivery and performance of this
Agreement by the Seller and Target will not invalidate or make
unenforceable any lease or sublease;
(iii) Target is not and no other party to the lease or
sublease is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(iv) Target has not and no other party to the lease or
sublease has repudiated any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(vii) all facilities leased or subleased by Target
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and
regulations;
(m) CONTRACTS. SECTION 4(m) of the Disclosure Schedule lists
the following contracts, agreements, Customer Contracts or Agreements and
other written arrangements to which Target is a party:
(i) any written arrangement (or group of related
written arrangements) for the lease of personal property from or
to third parties providing for lease payments in excess of
$30,000 per annum;
(ii) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property or
for the furnishing or receipt of services which either calls for
performance over a period of more than one year or involves more
than the sum of $30,000;
(iii) any written arrangement concerning a limited
liability company, partnership or joint venture;
(iv) any written arrangement (or group of related
written arrangements) under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or
guarantee) indebtedness (including capitalized lease obligations)
involving more than $30,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or
intangible;
(v) any written arrangement requiring confidentiality
or noncompetition;
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(vi) any written arrangement involving the Seller and
its Affiliates;
(vii) any written arrangement with any of its directors,
officers, and employees in the nature of a collective bargaining
agreement, employment agreement, or severance agreement;
(viii) any written arrangement under which the
consequences of a default or termination could have an adverse
effect on the assets, Liabilities, business, financial condition,
operations, results of operations, or future prospects of Target;
(ix) any written Customer Contract or Agreement; or
(x) any other written arrangement (or group of related
written arrangements) either involving more than $30,000 or not
entered into in the Ordinary Course of Business.
Target has delivered to the Buyer a correct and complete copy of each
written arrangement listed in SECTION 4(m) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (A)
the written arrangement is legal, valid, binding, enforceable, and in full
force and effect, subject to the Equitable Exceptions; (B) the written
arrangement will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the Closing; (C) Target is
not, nor is any other party, in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration, under the written
arrangement; and (D) Target is not, nor has any other party, repudiated any
provision of the written arrangement. Target is not a party to any verbal
contract, agreement, or other arrangement which, if reduced to written form,
would be required to be listed in SECTION 4(m) of the Disclosure Schedule
under the terms of this SECTION 4(m). No unfilled Customer Contract or
Agreement obligating Target to perform services will result in a loss to
Target upon completion of performance. No customer of Target which accounts
for more than $50,000 of the annualized revenues of Target has indicated to
the Seller within the past year that it will stop, or decrease the rate of,
buying services from it.
(n) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of Target are reflected properly on its books and records, are
valid receivables subject to no setoffs or counterclaims, are presently
current and collectible, and will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Target.
(o) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of Target.
(p) INSURANCE. SECTION 4(p) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which Target has
been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past five (5) years:
(i) the name, address, and telephone number of the
agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings
are calculated and operate) of coverage; and
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(v) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy (A) Target is not in breach
or default (including with respect to the payment of premiums or the giving
of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default or permit termination,
modification, or acceleration, under the policy; and (B) to the Knowledge of
the Seller, no party to the policy has repudiated any provision thereof.
Target has been covered during the past five (5) years by insurance in scope
and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. SECTION 4(p) of the Disclosure
Schedule describes any self-insurance arrangements affecting Target.
(q) LITIGATION. SECTION 4(o) of the Disclosure Schedule sets
forth each instance in which Target (i) is subject to any unsatisfied
judgment, order, decree, stipulation, injunction, or charge or (ii) is a
party or, to the Knowledge of the Target, is threatened to be made a party to
any charge, complaint, action, suit, proceeding, hearing, or investigation of
or in any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. Except as
specifically described on SECTION 4(o) of the Disclosure Schedule, no matter
listed thereon could individually result in a material adverse effect to
Target. Neither the Seller nor any of the directors or the officers (or
employees with responsibility for litigation matters) of Target has any
reason to believe that any such charge, complaint, action, suit, proceeding,
hearing, or investigation may be brought or threatened against Target.
(r) EMPLOYEES. To the Knowledge of the Target, no key employee
or full-time group of employees has any plans to terminate employment with
Target. Target is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes. To the Knowledge
of Target, Target has not committed any unfair labor practice. Target has no
Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of Target.
(s) EMPLOYEE BENEFITS. SECTION 4(s) of the Disclosure Schedule
lists all Employee Benefit Plans that Target maintains or to which Target
contributes for the benefit of any current or former employee of Target.
(i) Each Employee Benefit Plan (and each related trust
or insurance contract) complies in form and in operation in all
respects with the applicable requirements of ERISA and the Code.
(ii) All required reports and descriptions, if any,
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each Employee Benefit
Plan. The requirements of Part 6 of Subtitle B of Title I of
ERISA and of Code Sec. 4980B have been met with respect to each
Employee Welfare Benefit Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which
are due have been paid to each Employee Pension Benefit Plan and
all contributions for any period ending on or before the Closing
Date which are not yet due have been paid to each Employee
Pension Benefit Plan or accrued in accordance with the past
custom and practice of Target. All premiums or other payments
which are due for all periods ending on or before the Closing
Date have been paid with respect to each Employee Welfare Benefit
Plan.
(iv) Each Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Sec. 401(a) and has received, within the last two
years, a favorable determination letter from the Internal Revenue
Service.
(v) The market value of assets under each Employee
Pension Benefit Plan (other than any Multiemployer Plan) equals
or exceeds the present value of Liabilities thereunder
(determined on an accumulated benefit obligation basis) as of the
last day of the most recent plan year. No Employee
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Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of a
Reportable Event as to which notices would be required to be
filed with the PBGC. No proceeding by the PBGC to terminate any
Employee Pension Benefit Plan (other than any Multiemployer Plan)
has been instituted or, to the Knowledge of the Seller and
directors and officers (and employees with responsibility for
employee benefits matters) of Target, threatened.
(vi) There have been no Prohibited Transactions with
respect to any Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration or investment
of the assets of any Employee Benefit Plans. No charge,
complaint, action, suit, proceeding, hearing, investigation,
claim, or demand with respect to the administration or the
investment of the assets of any Employee Benefit Plan (other than
routine claims for benefits) is pending or, to the Knowledge of
the Seller and the directors and officers (and employees with
responsibility for employee benefits matters) of Target,
threatened. Neither the Seller nor any of the directors or the
officers (or employees with responsibility for litigation
matters) of Target has any Knowledge of any Basis for any such
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand.
(vii) The Target has delivered to the Buyer correct and
complete copies of (A) the plan documents and summary plan
descriptions, (B) the most recent determination letter received
from the Internal Revenue Service, (C) the most recent Form 5500
Annual Report, and (D) all related trust agreements, insurance
contracts, and other funding agreements which implement each
Employee Benefit Plan.
Target does not contribute to, has never contributed to, nor ever has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan. Target has
not incurred, and neither the Seller nor any of the directors or the officers
(or employees with responsibility for litigation matters) of Target has any
reason to expect that Target will incur, any Liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA (including
any withdrawal Liability) or under the Code with respect to any Employee
Pension Benefit Plan that Target and the Controlled Group of Corporations
which includes Target maintains or ever has maintained or to which any of
them contributes, ever has contributed, or ever has been required to
contribute. Target does not maintain, nor has it ever maintained or
contributed to, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing health, accident, or life insurance benefits
to former employees, their spouses, or their dependents (other than in
accordance with Code Sec. 162(k)).
(t) GUARANTIES. Target is not a guarantor nor is it otherwise
liable for any Liability or obligation (including indebtedness) of any other
person.
(u) ENVIRONMENT, HEALTH, AND SAFETY.
(i) Target and its respective predecessors and Affiliates
have complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments
(and all agencies thereof) concerning the environment, public
health and safety, and employee health and safety, and no charge,
complaint, action, suit, proceeding, hearing, investigation,
claim, demand, or notice has been filed or commenced against any
of them alleging any failure to comply with any such law or
regulation.
(ii) Target has no Liability (and, to the best of
Target's Knowledge, there is no Basis related to the past or
present operations, properties, or facilities of Target and its
respective predecessors and Affiliates for any present or future
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against Target giving rise to any
Liability) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation
and Recovery Act of 1976, the Federal Water Pollution Control Act
of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act
of 1974, the Toxic Substances Control Act of 1976, the Refuse Act
of 1899, or the Emergency Planning and Community Right-to-Know
Act of 1986 (each as
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amended), or any other law (or rule or regulation thereunder) of
any federal, state, local, or foreign government (or agency
thereof), concerning release or threatened release of hazardous
substances, public health and safety, or pollution or protection
of the environment.
(iii) Target has no Liability (and Target, and its
respective predecessors or Affiliates have not handled or
disposed of any substance, arranged for the disposal of any
substance, or owned or operated any property or facility in any
manner that could form the Basis for any present or future
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant
to any statute) against Target giving rise to any Liability) for
damage to any site, location, or body of water (surface or
subsurface) or for illness or personal injury.
(iv) Target has no Liability (and to the best of
Target's Knowledge, there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against Target giving rise to any
Liability) under the Occupational Safety and Health Act, as
amended, or any other law (or rule or regulation thereunder) of
any federal, state, local, or foreign government (or agency
thereof) concerning employee health and safety.
(v) Target does not have any Liability (and to the best
of Target's Knowledge, Target has not exposed any employee to any
substance or condition that could form the Basis for any present
or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand (under the common law or pursuant
to statute) against Target giving rise to any Liability) for any
illness of or personal injury to any employee.
(vi) Target has obtained and been in compliance in all
respects with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and
has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all federal,
state, local, and foreign laws (including rules, regulations,
codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health
and safety, worker health and safety, and pollution or protection
of the environment, including laws relating to emissions,
discharge, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
(vii) To the best of Target's Knowledge, all properties
and equipment used in the business of Target have been free of
asbestos, PCB's, methylene chloride, trichloroethylene, 1,2
trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances.
(viii) To the best of Target's Knowledge, no pollutant,
contaminant, or chemical, industrial, hazardous, or toxic
material or waste ever has been buried, stored, spilled, leaked,
discharged, emitted, or released on any real property that Target
owns or ever has owned or that Target leases or ever has leased.
(v) LEGAL COMPLIANCE. Except as it would not, individually or
in the aggregate, have a material adverse effect:
(i) Target has, to the best of Target's Knowledge,
complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments
(and all agencies thereof). No charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has
been filed or commenced against Target which is currently pending
and alleges any failure to comply with any such law or regulation.
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(ii) Target has, to the best of Target's Knowledge,
complied with all applicable laws (including rules and
regulations thereunder) relating to the employment of labor
(including but not limited to the engagement of independent
contractors under the Fair Labor Standards Act of 1938, as
amended, and the rules and regulations promulgated thereunder),
employee civil rights, hiring of engaging non-United States
citizens, and equal employment opportunities.
(iii) To the best of Target's Knowledge, Target has not
violated in any respect or received a notice or charge asserting
any violation of the Xxxxxxx Act, the Xxxxxxx Act, the
Xxxxxxxx-Xxxxxx Act, or the Federal Trade Act, each as amended.
(iv) To the best of Target's Knowledge, Target has not:
(A) made or agreed to make any contribution,
payment, or gift of funds or property to any governmental
official, employee, or agent where either the
contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state, local, or
foreign jurisdiction;
(B) established or maintained any unrecorded
fund or asset for any purpose, or made any false entries
on any books or records for any reason; or
(C) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any
other person, to any candidate for federal, state, local,
or foreign public office in excess of $500.
(v) Target has filed in a timely manner all reports,
documents, and other materials it was required to file (and the
information contained therein was correct and complete in all
respects) under all applicable laws (including rules and
regulations thereunder).
(vi) Target has possession of all records and documents
it was required to retain under all applicable laws (including
rules and regulations thereunder).
(w) CERTAIN BUSINESS RELATIONSHIPS WITH TARGET. Except as set
forth in SECTION 4(w) of the Disclosure Schedule, Target has not been
involved in any business arrangement or relationship with Seller or his
Affiliates within the past twenty-four (24) months, and neither the Seller
nor its Affiliates owns any material property or right, tangible or
intangible, which is used in the business of Target.
(x) BROKERS' FEES. Target does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or similar
representative with respect to the transactions contemplated by this
Agreement.
(y) DISCLOSURE. The representations and warranties contained
in this SECTION 4 as amended, modified and/or supplemented by the Disclosure
Schedules do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in
this SECTION 4 not misleading.
(z) INVENTORY Target has no inventory.
(aa) WARRANTIES To the best of Target's Knowledge, each
product or service sold, leased, or delivered by the Target has been in
conformity with all applicable contractual commitments and all express and
implied warranties in all material respects, and the Target has no Liability
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for warranty claims set forth in the Most Recent
Financial Statements as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Target. No
product or service, sold, leased, or delivered by the Target is subject to
any guaranty, warranty, or other indemnity beyond the standard terms and
conditions of sale or lease. SECTION 4(aa) of the Disclosure Schedule
includes copies of
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the standard terms and conditions of sale or lease for the products or
services sold, leased or delivered by Target containing applicable guaranty,
warranty, and indemnity provisions).
(bb) ACCOUNTING CONTROLS. The Target maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization; (ii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iii) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) YEAR 2000 COMPLIANCE. Based upon warranties made by
suppliers, all of Target's products, hardware and software, mechanical,
electrical or other system that contains a microchip or software which is
date sensitive (including, but not limited to: business, accounting and order
fulfillment systems, payroll and employee benefit systems, security systems
and equipment controllers), and which are material to Target's continued
operations (hereinafter the "PRODUCTS AND SYSTEMS") are designed to be used
prior to, during, and after the calendar year 2000 AD, and that the Products
and Systems will operate during each such time period without error relating
to date data, specifically including any error relating to, or the product
of, data which represents or references different centuries or more than one
century. Target has not independently conducted a 2000 AD compliance audit.
(dd) ACCREDITED INVESTOR. Seller (A) understands that the
Buyer Common Stock has not been, and will not be, registered under the
Securities Act, or under any state securities laws, and is being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (B) is acquiring the Buyer Common Stock solely
for his or its own account for investment purposes, and not with a view to
the distribution thereof, (C) is a sophisticated investor with knowledge and
experience in business and financial matters, (D) effective on or before the
Closing Date, has received certain information concerning the Buyer and has
had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Buyer Common Stock,
(E) is able to bear the economic risk and lack of liquidity inherent in
holding the Buyer Common Stock., and (F) is an Accredited Investor.
(ee) PERSONAL GUARANTY OBLIGATIONS. SECTION 4(ee) of the
Disclosure Schedule shall identify all of the agreements underlying the
Personal Guaranty Obligations of the Stockholder and sets forth, with respect
to each such agreement, (i) the name of the creditor, (ii) the type of
instrument (e.g. finance lease), (iii) the periodic payment due under the
agreement, and (iv) the remaining principal balance due under the agreement.
The Personal Guaranty Obligations of the Stockholder do not exceed, in the
aggregate $1,000,000.
5. [RESERVED].
6. ADDITIONAL COVENANTS. The Parties covenant and agree as follows:
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any
other Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under SECTION 8 below). The Seller acknowledges and agrees that from
and after the Closing the Buyer will be entitled to possession of all
documents, books, records, agreements, and financial data of any sort
relating to Target; provided that Seller may retain any copies of the
foregoing as shall be necessary to comply with applicable tax and other laws,
regulations and ordinances.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction on
or prior to the Closing Date involving Target, each of the other Parties will
cooperate with him or it and his, her or its counsel in the contest or
defense, make available their personnel, and provide such testimony and
access to their books and records as shall be
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necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under SECTION 8
below).
(c) TRANSITION. The Seller will not take any action that
primarily is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of Target
from maintaining the same business relationships with Target (and with
Surviving Corporation) after the Closing for a period of 24 months
thereafter as it maintained with Target prior to the Closing. The Seller
will refer all customer inquiries relating to Target 's Business to the Buyer
and/or Surviving Corporation from and after the Closing for a period of 24
months thereafter.
(d) CONFIDENTIALITY. The Seller will treat and hold as such
all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement for a
period of three (3) years from the Closing, and deliver promptly to the Buyer
or destroy, at the request and option of the Buyer, all tangible embodiments
(and all copies) of the Confidential Information which are in its possession,
other than information held by Seller required for tax purposes. In the
event that the Seller is requested or required (by oral question or request
for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, the Seller will notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this SECTION 6(d). If, in
the absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, that Seller
may disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER,
that the Seller shall use its reasonable best efforts to obtain, at the
reasonable request and at the expense of the Surviving Corporation, an order
or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public prior to
the time of disclosure.
(e) TERMINATION OF BANK FACILITIES; RELEASE OF GUARANTIES.
Buyer and Seller shall take all commercially reasonable best efforts
necessary to completely and unconditionally release Xxxxx X. Xxxxxxxx as
guarantor on all Personal Guaranty Obligations within the 24 month period
after the Closing Date.
(f) MONITORING INFORMATION. Prior to the Closing, Target
shall deliver such information as may reasonably be requested by Buyer.
(g) LANDLORDS' CONSENTS. Seller shall exercise his best
efforts to cause, on or before the expiration of thirty (30) days after the
Closing Date, Surviving Corporation to obtain from its landlords (to the
extent required under the pertinent premises lease) written consent to this
transaction, which consents are necessary resulting from the transactions
contemplated by this Agreement.
(h) ADDITIONAL TAX MATTERS.
(i) The Seller shall cause his Certified Public
Accountant to prepare for Target's predecessor, Enterprise
Systems Group, Inc., ("ENTERPRISE") (at Seller's sole cost and
expense) all Tax Returns required to be filed by Enterprise for
the period January 1, 1999 through the effective date of the
Merger with Target. In the event that Enterprise reports a
profit for such period, Surviving Corporation shall distribute to
Seller an amount equal to his tax liability for such period on or
before the date Seller is obligated to pay such Tax. Surviving
Corporation shall cause its Certified Public Accountant to
prepare all tax returns for Target covering the period January 1,
1998 through the Closing Date. The cost of preparation of such
short period tax return shall be paid by Buyer. Buyer shall
cause Surviving Corporation to file such returns.
(ii) Buyer and Seller recognize that each of them will
need access, from time to time, after the Closing Date, to
certain accounting and Tax records and information held by the
Buyer and/or Surviving Corporation to the extent such records and
information pertain to events occurring on or prior to the
Closing Date; therefore, Buyer agrees to cause Surviving
Corporation to (A) use its
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best efforts to properly retain and maintain such records for a
period of six (6) years from the date the Tax Returns for the
year in which the Closing occurs are filed or until the
expiration of the statute of limitations that applies to the Tax
Return in question (i.e., including Tax Returns for years
preceding the year in which the Closing occurs), whichever is
later, and (B) allow the Seller and its agents and
representatives at times and dates mutually acceptable to the
Parties, to inspect, review and make copies of such records as
such other Party may deem necessary or appropriate from time to
time, such activities to be conducted during normal business
hours and at the other Party's expense.
(iii) Each of Buyer, Target, Surviving Corporation and
Seller agree to report the merger for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the
Code.
(i) COVENANT NOT TO SOLICIT. For a period of five (5) years
from and after the Closing Date, the Seller will not, directly or
indirectly, as principal, agent, trustee or through the agency of any
corporation, partnership, association or agent or agency, (i) service or
solicit any of Surviving Corporation 's Business from any customer of
Surviving Corporation, (ii) request or advise any customer of Surviving
Corporation to withdraw, curtail or cancel such customer 's business with
Surviving Corporation, or (iii) hire, assist others in hiring, or solicit for
employment or consulting services any person employed or engaged by Surviving
Corporation, other than Xxxxx Honekor or his replacement, at any time within
the two (2) year period immediately preceding such solicitation; PROVIDED,
HOWEVER, that (x) no owner of less than five percent (5%) of the outstanding
stock of any publicly traded corporation shall be deemed to engage solely by
reason thereof in any of its businesses or (y) the provision of accounting
services shall not be deemed to be engaged in the Business. For purposes of
this Agreement, the Parties have agreed to allocate US $1.00 to the covenant
contained in this SECTION 6(i). The covenant contained in this SECTION 6(i)
shall terminate immediately upon consummation of a repurchase acquisition by
the Seller, as contemplated in SECTION 10(p).
(j) OPERATION OF BUSINESS. Prior to Closing, the Seller will
cause Target not to, and the Target will not, engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business without Buyer's prior written consent. Without limiting the
generality of the foregoing:
(i) the Target will not authorize or effect any change
in its charter, articles of incorporation or bylaws;
(ii) the Target will not grant any options, warrants, or
other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock
(except upon the conversion or exercise of options, warrants,
and other rights currently outstanding);
(iii) the Target will not declare, set aside, or pay any
dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of its capital stock;
(iv) the Target will not issue any note, bond, or other
debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation
outside the Ordinary Course of Business;
(v) the Target will not impose any Security Interest
upon any of its assets outside the Ordinary Course of Business;
(vi) the Target will not make any capital investment in,
make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) the Target will not make any change in employment
terms for any of its directors, officers, and employees outside
the Ordinary Course of Business; and
(viii) the Target will not commit to do any of the
foregoing.
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(k) ACCESS AND INFORMATION. Each of the Parties will (i)
afford to the other Party and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, the "REPRESENTATIVES") full access at reasonable times upon
reasonable prior notice to the officers, employees, agents, properties,
offices and other facilities of such Party and to their books and records,
(ii) furnish promptly to the other Party and its Representatives such
information concerning the business, properties, contracts, records and
personnel of such Party (including financial, operating and other data and
information) as may be reasonably requested, from time to time, by or on
behalf of the other Party. No investigation by any Party hereto shall affect
any representation or warranty in this Agreement of any Party hereto or any
condition to the obligations of the Parties hereto.
(l) APPROPRIATE ACTION; CONSENTS; FILINGS.
(i) The Target and Buyer will each use reasonable
efforts (i) to take, or to cause to be taken, all appropriate
action, and to do, or to cause to be done, all things necessary,
proper or advisable under applicable law or otherwise to
consummate and make effective the transactions contemplated by
this Agreement, (ii) to obtain from any governmental authorities
any permits or orders required to be obtained by Target or Buyer
in connection with the authorization, execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby, (iii) to make all necessary
filings, and thereafter make any other required submissions, with
respect to this Agreement required under (A) the Securities Act
and the Securities Exchange Act, and any other applicable federal
or state securities laws, and (B) any other applicable law.
(ii) Each of the Target and Buyer will give prompt
notice to the other of (i) any notice or other communication from
any Person alleging that the consent of such Person is or may be
required in connection with the transaction contemplated hereby,
(ii) any notice or other communication from any governmental
authority in connection with the transaction contemplated hereby,
(iii) any litigation or claim, relating to or involving or
otherwise affecting the Target or the Buyer that relates to the
consummation of the transactions contemplated hereby; and (iv)
any change that is reasonably likely to have an adverse effect on
the Target or Buyer.
(iii) Each of the Target and Buyer will give any notices
to third Persons, and use reasonable efforts to obtain any
consents from third Persons necessary, proper or advisable (as
determined in good faith by Buyer with respect to such notices or
consents to be delivered or obtained by the Target) to consummate
the transactions contemplated by this Agreement.
(m) EVENT NOTICES. From and after the date of this Agreement
until the Closing, each Party hereto will promptly notify the other Party
hereto of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any condition to the
obligations of such Party to effect the transactions contemplated by this
Agreement not to be satisfied and (ii) the failure of such Party to comply
with any covenant or agreement to be complied with by it pursuant to this
Agreement which would be likely to result in any condition to the obligations
of such Party to effect the transactions contemplated by this Agreement not
to be satisfied. No delivery of any notice pursuant to this SECTION 6(m)
will cure any breach of any representation or warranty of such Party
contained in this Agreement or otherwise limit or affect the remedies
available hereunder to the Party receiving such notice.
(n) EXCLUSIVITY. Prior to the termination of this Agreement,
the Target and the Seller will not solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the
acquisition of all or substantially all of or a controlling interest in the
capital stock or assets of the Target (including any acquisition structured
as a merger, consolidation, or share exchange). If Target or Seller receive
any such proposals prior to the termination of this Agreement, Target and
Seller agree to (1) notify Buyer of such proposal or offer within 1 business
day, and (2) notify the party making such proposal or offer that Target is
not interested in any transaction involving such offer or proposal, or any
modification to such offer or proposal. Target will not consider or enter
into any transaction, or commitment to enter into any transaction, with any
party that makes an offer or proposal prior to the termination of this
Agreement, or that inquires of Target prior to the termination of this
Agreement whether Target might be interested in receiving or considering any
offer, proposal, or transaction of the type described in this section.
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(o) LEGEND. The Target and the Seller acknowledge and agree
that certificates evidencing Surviving Corporation's common stock and Buyer
Common Stock to be issued to the Seller as contemplated under this Agreement
will bear the following legend or a substantially similar endorsement:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THE HOLDER HEREOF, BY ACCEPTING SUCH SECURITIES, AGREES FOR THE
BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER, (B) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, (C) IN
ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT AND IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) IN
ACCORDANCE WITH ANY OTHER EXEMPTION UNDER THE SECURITIES ACT AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS UPON THE
DELIVERY OF A LEGAL OPINION, REASONABLY SATISFACTORY TO THE
ISSUER, TO THE FOREGOING EFFECT.
(p) NOTICES AND CONSENTS. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in SECTIONS
3(a)(ii), 3(b)(iii), and 4(c) above. Without limiting the generality of the
foregoing, each of the Parties will file any Notification and Report Forms
and related material that it may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice under the Xxxx-Xxxxx-Xxxxxx Act, will use its reasonable best efforts
to obtain a waiver from the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary in connection
therewith.
(q) RESIGNATION OF TARGET DIRECTORS. As of the Closing Date,
Target shall have received the resignations of each of its directors. Buyer
covenants that as long as Xxxxx X. Xxxxxxxx remains a shareholder of
Surviving Corporation, he shall be entitled to appoint or elect at least one
member of the board of directors of the Surviving Corporation.
(r) POST-CLOSING OPERATION OF SURVIVING CORPORATION.
(i) From the Closing Date through the period until the
Escrow Stock (as defined in the Escrow Agreement provided for
herein) is released in accordance with the terms of the Stock
Escrow Agreement, Buyer shall not cause Surviving Company to pay
dividends or to pay any of Buyer's allocated general and
administrative expenses.
(ii) Buyer will use commercially reasonable efforts to
spin-off the Surviving Corporation within twenty-four (24) months
after the Closing Date. Buyer agrees not to sell any stock of
the Surviving Corporation in an initial public offering, unless
Seller shall also have the right to sell his shares in the
Surviving Corporation at the price per share at which Buyer sells
similar equity interests (subject only to customary underwriter
cutbacks that apply to all shareholders equally), and the
above-described spin-off covenant shall terminate upon a public
offering. Notwithstanding anything to the contrary in this
sub-Section (ii), Buyer will not spin-off (and Seller will not
ask Buyer to spin-off) Surviving Company in a transaction that
would cause (in the opinion of Seller's tax counsel, subject to
review and acceptance of such opinion by Buyer's counsel) either
the Merger
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contemplated herein to be re-characterized as a taxable event or
cause the spin-off to be a taxable event (whether due to a
failure to satisfy the continuity of business enterprise
requirements or for other reasons).
(iii) During the twelve (12) month period following the
Closing Date, Seller shall not sell more than 1,000 shares of
Buyer Common Stock per day in any public transaction without the
prior written approval of Xxxxx X. Xxxxxxx, or his successor as
CEO of Buyer, so long as the price per share of Buyer Common
Stock is greater than Ten Dollars ($10) (provided that such
approval shall not be unreasonably withheld, if the sale is to
pay any income tax or expense incurred by Seller as a result of
the transactions contemplated under this Agreement). Buyer will
use good faith, commercially reasonable efforts to register, at
Buyer's sole cost and expense, for resale the Buyer Common Stock
held by Seller, on or before April 1, 2000. Nothing contained
herein shall prohibit or restrict Seller from selling any of his
shares in a private transaction.
(iv) Buyer shall not enter into a transaction whereby
any of the stock of Surviving Corporation or substantially all of
the assets of the Surviving Corporation is to be transferred to a
third party, unless Seller shall also have the right to
participate in such sale at the same consideration received by
Buyer for shares or assets, as the case may be, in the Surviving
Corporation.
(v) In the event that the consummation of the
transactions contemplated hereby results in the Surviving
Corporation being unable to obtain financing required in the
ordinary operation of its business from traditional lending
sources, Buyer will support the Surviving Corporation's
reasonable cash flow requirements and operating deficits as set
forth in the Surviving Corporation's budget, so long as such
budget is reasonable and has been approved in advance by Buyer.
Buyer shall not cause Surviving Corporation to pay dividends or
issue stock to finance Surviving Corporation 's cash flow needs.
(vi) After the Closing Date, all ASP-related businesses
acquired by Buyer or its wholly owned subsidiaries shall be held
as subsidiaries by the Surviving Corporation. For a period of
one year following the Closing, all ASP-related businesses shall
be acquired for consideration, other than issuing shares in
Surviving Corporation. Notwithstanding the foregoing, nothing
contained herein shall prevent Surviving Corporation from issuing
shares in Surviving Corporation to Buyer and nothing shall
prevent Buyer from selling or reissuing such shares.
(vii) Upon any issuance or sale by the Surviving
Corporation of its shares of capital stock, Seller shall be
provided prior notice of such proposed transaction and shall have
the right to purchase that number of Surviving Corporation shares
as is required to maintain the percentage of equity Seller held
in the Surviving Corporation immediately prior to such issuance
or sale. The price to be paid by Seller for such additional
shares in Surviving Corporation pursuant to the exercise of such
preemptive right shall be the price at which Buyer Common Stock
is valued for purposes of calculating the consideration that is
paid for the acquired company. If Seller does not exercise the
above right to purchase, the dilution of his interest shall be
determined at a price equal to (I), in a cash transaction, the
per share price offered to or by the third party or (II), if not
a cash transaction, a per share price of the amount, as agreed to
by Buyer and Seller, that would reflect what the Buyer would have
paid in cash (for example, discounting the value of any
consideration paid for illiquidity). In the event that the Buyer
and Seller do not reach an agreement as to the valuation of such
additional shares, the Buyer and Seller shall select an
independent third party appraiser to determine the appropriate
price per share. The valuation reached by such independent third
party appraiser shall be binding on the Buyer and Seller.
(viii) Buyer shall cause Surviving Corporation not to
dividend any cash or assets to Buyer for so long as any of
Seller's Personal Guaranty Obligations remain outstanding.
(ix) Buyer shall provide piggyback registration rights
at Surviving Corporation's
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expense, upon reasonable and customary terms, involving all stock
owned by Seller in Surviving Corporation and all Buyer Common
Stock subsequently acquired by Seller or any employees of
Surviving Corporation pursuant to options issued
contemporaneously herewith or with Closing.
(x) Target and Seller acknowledges that Buyer is not a
public reporting company under the Exchange Act. With a view to
making available to the Seller the benefits of Rule 144
promulgated under the Securities Exchange Act, or any other
similar rule or regulation of the Securities Exchange Commission
that may at any time permit the Seller to sell securities of the
Buyer to the public without registration ("RULE 144"), the Buyer
agrees, for a period of one year commencing upon effectiveness of
any registration statement filed by the Buyer with the SEC (or if
no registration statement becomes effective within one year
subsequent to Closing Date, then at any time upon Seller's
demand), to:
(I) make and keep adequate and current public
information with respect to the buyer available, as those
terms are understood and defined in Rule 144;
(II) file with the SEC in a timely manner all
reports and other documents required to filed by an issuer
of securities registered under the Exchange Act so as to
maintain the availability of Rule 144 to the Seller,
notwithstanding that the Buyer would not have to maintain
such filing but for this provision of the Agreement; and
(III) furnish to the Seller so long as such Seller
owns Buyer Common Stock, promptly upon request, (i) a copy
of the most recent annual or quarterly report of the
Buyer, and (ii) such other information as may be
reasonably requested to permit the Seller to sell such
securities pursuant to Rule 144 without registration.
(xi) So long as Seller is an officer and/or director of
Surviving Corporation, Surviving Corporation shall maintain the
indemnity provisions contained in the bylaws of Target on the
date hereof and shall, within a reasonable time following the
Closing Date, obtain, if available for a commercially reasonable
price, and maintain, "errors and omissions" insurance for all
directors and officers in commercially reasonable amounts and on
commercially reasonable terms.
(xii) Neither Buyer nor Surviving Corporation shall issue
a press release or otherwise announce the effectiveness of the
merger unless Seller, in his reasonable discretion, has approved
the manner and content of the offer of employment to be made to
all of Target's employees.
(s) BLUE SKY LAWS. Buyer shall take such steps as may be
necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the Buyer Common Stock
in connection with the Merger. Target shall use its reasonable good faith
efforts to assist Buyer, at Surviving Corporation's expense, as may be
necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Buyer
Common Stock in connection with the Merger.
(t) OTHER FILINGS. As promptly as practicable after the date
of this Agreement, Surviving Corporation and Buyer will prepare and file any
other filings required under the Securities Act or any other Federal, foreign
or state securities or blue sky laws relating to the Merger and the
transactions contemplated by this Agreement (the "OTHER FILINGS"). The Other
Filings will comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. Whenever any
event occurs which is required to be set forth in an amendment or supplement
to the Other Filings, Surviving Corporation or Buyer, as the case may be,
will promptly inform the other of such occurrence and cooperate in making any
appropriate amendment or supplement, and/or mailing to stockholders of
Surviving Corporation, such amendment or supplement.
-24-
(u) CONTINUITY OF BUSINESS ENTERPRISE. Buyer will continue the
historic business line of Surviving Corporation, or use at least a
significant portion of Surviving Corporation 's historic business assets in a
business, in each case within the meaning of Treasury Regulation Sec.
1.368-1(d).
7. CONDITIONS TO THE MERGER.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction or waiver of the following
conditions:
(i) the representations and warranties set forth in
SECTION 3(a) and SECTION 4 above shall be true and correct in all
respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with
all of its covenants hereunder in all respects through the
Closing;
(iii) Target (A) will have given (and the Seller will
have caused Target to give) any notices to third parties, and
Target will have used (and Seller will have caused Target to use)
its reasonable best efforts to obtain third-party consents, that
the Buyer may reasonably request in connection with the matters
pertaining to Target disclosed or required to be disclosed in the
Disclosure Schedule; (B) will have procured all necessary third
party consents required to consummate this Agreement and the
transactions contemplated hereby; and (C) will have taken any
additional action (and the Seller will cause Target to take any
additional action) that may be necessary, proper, or advisable in
connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments,
governmental agencies, and third parties that he, she or it may
be required to give, make, or obtain to consummate this Agreement
and the transactions contemplated hereby;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable judgment, order, decree, stipulation,
injunction, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of the
Buyer to own, operate, or control the Surviving Corporation or
its stock (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(v) the Target shall have delivered to the Buyer a
certificate (without qualification as to knowledge or materiality
or otherwise) to the effect that each of the conditions specified
above in SECTION 7(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions
thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired or
otherwise been terminated and the Parties and Target shall have
received all other authorizations, consents and approvals of
governments and governmental agencies set forth herein and in the
Disclosure Schedule;
(vii) the Buyer and Target shall have received from Xxxxx
X. Xxxxxxxx an executed employment agreement in the form and
substance attached hereto as EXHIBIT B;
(viii) the Buyer shall have received from counsel to the
Target an opinion with respect to the matters set forth in
EXHIBIT C attached hereto, addressed to the Buyer and dated as of
the Closing Date;
(ix) the Buyer shall have received the resignations,
effective as of the Closing, of each director of Target (other
than Seller) prior to the Closing;
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(x) the Buyer shall be satisfied in its sole discretion
with the results of its continuing legal, financial and business
due diligence investigations of Target, all of which shall be
final and completed to Buyer's satisfaction prior to Closing;
(xi) no material adverse change shall have occurred in
Target's Business or its future prospects;
(xii) Seller shall have caused Target to cancel each
outstanding phantom stock, deferred bonus or option plan, if any,
and all outstanding bonuses, options, interests or rights
thereunder, at no cost to the Buyer or Target except for the
Seller;
(xiii) all liens and Security Interests securing debts of
Target which have been paid in full prior to or at the Closing
shall have been fully released of record to the satisfaction of
the Buyer and all Uniform Commercial Code financing statements
covering such debts shall have been terminated;
(xiv) no unsatisfied liens for the failure to pay Taxes
of any nature whatsoever shall exist against Target, or against
or in any way affecting any Target Share;
(xv) all deferred Taxes shall be assumed and/or
discharged by Target;
(xvi) Target shall have caused all of Target's officers,
directors and/or employees of Target to, have repaid in full all
debts and other obligations such persons may owe, if any, owed to
Target;
(xvii) the Buyer shall have received from Target the
Financial Statements;
(xviii) all appropriate corporate and shareholder
authorizations of Target shall have been obtained, including but
not limited to the following: the holders of the issued and
outstanding Target Common Stock shall have duly approved this
Agreement and the Merger all in accordance with applicable law,
the certificate of incorporation and bylaws of Target;
(xix) since December 31, 1998, Target shall have made no
dividend, consulting or other payment to the Seller, except for
normal payments to the Seller to cover its federal and state
income tax obligations as calculated on a cash basis for income
tax purposes, but not to exceed the accrued earnings generated
for the period January 1, 1999 through the date of Closing, and
to Seller for its employment salaries (not to exceed current
compensation); provided, however, that no payment shall be made
for any cash-to-accrual tax liability as a result of the
transactions contemplated hereby;
(xx) except as set forth on the Disclosure Schedule,
since December 31, 1998, Target shall not have transferred,
conveyed, disposed of and/or sold any of material assets, except
in the Ordinary Course of Business;
(xxi) except as set forth on the Disclosure Schedule,
since December 31, 1998, Target, without the prior written
consent of Buyer, shall not have made any capital expenditure (or
series of related capital expenditures) either involving more
than $50,000 individually or $100,000 in the aggregate, or
outside the Ordinary Course of Business;
(xxii) the Buyer and Xxxxx X. Xxxxxxxx shall have
delivered an executed copy of the Stock Escrow Agreement in the
form and substance attached hereto as EXHIBIT D and Buyer shall
have deposited the shares with the escrow agent;
(xxiii) Seller shall have obtained a tax opinion from
Seller's counsel that the transactions contemplated herein will
not result in any income Tax;
-26-
(xxiv) Buyer shall have received the consents from third
parties to consummate the transaction, including X.X. Xxxxxxx; and
(xxv) Target shall have completed a tax free
consolidation with The Enterprise Systems Group, Inc.;
The Buyer may waive any condition specified in this SECTION 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations
of the Seller to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction or waiver of the
following conditions:
(i) the representations and warranties set forth in
SECTION 3(b) above shall be true and correct in all respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with
all of its covenants hereunder in all respects through the
Closing;
(iii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable judgment, order, decree, stipulation,
injunction, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement or (B) cause any
of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such judgment, order,
decree, stipulation, injunction, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate (without qualification as to knowledge or materiality
or otherwise) to the effect that each of the conditions specified
above in SECTION 7(b)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions
thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired or
otherwise been terminated and the Parties and Target shall have
received all other authorizations, consents, and approvals of
governments and governmental agencies set forth herein and in the
Disclosure Schedule;
(vi) Seller shall have received from the Buyer an
executed employment agreement in the form and substance attached
hereto as EXHIBITS B and shall have received the written grant of
the founders options, consisting of 200,000 shares of Buyer
Common Stock at an exercise price of $10.55 per share;
(vii) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Seller;
(viii) the Buyer and Seller shall have delivered an
executed copy of the Stock Escrow Agreement in the form and
substance attached hereto as EXHIBIT D and Buyer shall have
deposited the shares with the escrow agent;
(ix) the Buyer shall have exercised its good faith
efforts to obtain an opinion of counsel for the benefit of Seller
opining as to the matters contained in SECTION 3(b)(vi);
(x) Seller shall have obtained a tax opinion from
Seller's counsel that the transactions contemplated herein will
not result in any income Tax;
-27-
(xi) Buyer shall have received the consents from third
parties to consummate the transaction, including X.X. Xxxxxxx;
(xii) Target shall have completed a tax free
consolidation with The Enterprise Systems Group, Inc.; and
(xii) all appropriate corporate and shareholder
authorizations of Target shall have been obtained, including but
not limited to the following: the holders of the issued and
outstanding Target Common Stock shall have duly approved this
Agreement and the Merger all in accordance with applicable law,
the certificate of incorporation and bylaws of Target.
(xiii) Buyer shall have issued to Target a promissory note
in the form of the promissory note attached hereto as EXHIBIT E.
The promissory note shall have an original principle balance of
$253,753, payable in six (6) equal monthly installments of
$43,753.
The Seller may waive any condition specified in this SECTION 7(b) if it
executes a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL. All of the representations and warranties of the
Target contained in SECTION 4 above (other than the representations and
warranties of the Target contained in SECTION 4(k) above) shall survive the
Closing hereunder (even if the Buyer knew or had reason to know of any
misrepresentation or breach of warranty at the time of the Closing) and continue
in full force and effect for a period of three (3) years thereafter (subject to
any applicable statutes of limitations). The other representations, warranties,
and covenants of the Parties contained in this Agreement (including the
representations and warranties of the Target contained in SECTION 4(k) above)
shall survive the Closing (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty or covenant at the time of the
Closing) and continue in full force and effect for a period of five (5) years
thereafter, except as otherwise provided elsewhere in this Agreement.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event Target breaches any of its
representations, warranties, agreements, and covenants contained
herein, and provided that the particular representation,
warranty, agreement, or covenant survives the Closing and that
the Buyer makes a written claim for indemnification against the
Target pursuant to SECTION 10(h) below within the applicable
survival period, then the Target agrees to severally indemnify
the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach.
(ii) In the event the Seller breaches any of his
covenants contained in Section 6, then the Seller agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach. Additionally, Buyer may
pursue an action for specific performance and/or damages. Seller
acknowledges that an action for damages may not be sufficient and
waives any defense that an action for damages would be sufficient
to compensate Buyer in the event of a breach. In addition, upon
a material breach by Seller, Buyer shall be relieved of its
obligations to perform and comply with any covenants to be
performed after Closing.
(iii) Target agrees to indemnify Buyer from and against
the entirety of any Adverse Consequences Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
-28-
caused by any Liability of the Target for Taxes of the Target
with respect to any Tax year or portion thereof ending on or
before the Closing Date, to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown in the Most Recent
Target Financial Statements, as such reserve is adjusted for the
passage of time through the Closing Date in accordance with the
past custom and practice of the Target in filing its Tax Returns
and (b) for the unpaid Taxes of any Person (other than the
Target) under Treasury Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER.
(i) In the event the Buyer breaches any of its
representations, warranties, and covenants contained herein, and provided
that the particular representation, warranty, or covenant survives the
Closing and that the Seller makes a written claim for indemnification against
the Buyer pursuant to SECTION 10(h) below within the applicable survival
period, then the Buyer agrees to indemnify the Seller from and against the
entirety of any Adverse Consequences the Seller may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Seller may suffer after the end of the applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by
the breach and, in the case of a breach of a covenant to be performed after
Closing, Seller may pursue an action for specific performance and/or damages.
Buyer acknowledges that an action for damages may not be sufficient and
waives any defense that an action for damages would be sufficient to
compensate Seller in the event of a breach. In addition, upon a material
breach by Buyer, Seller shall be relieved of his obligations to perform and
comply with any covenants to be performed after Closing, including, without
limitation, Sections 6 (c), 6(d), 6 (i) and 6(r).
(ii) Buyer agrees to indemnify Seller from and against the
entirety of any Adverse Consequences Seller may suffer from, arising out of,
relating to, in the nature of, or caused by any Liability with respect to the
Target's, Surviving Corporation's and/or obligations to issue or cause to be
issued any stock, options and/or equity compensation to any existing or
former employee of Target, whether based upon contract, tort or other legal
theory, including, without limitation, Securities Act claims or claims of
breach of fiduciary duty.
(iii) Buyer agrees to indemnify Seller from and against the
entirety of any Adverse Consequences Seller may suffer from, arising out of,
relating to, in the nature of or caused by any Liability with respect to the
Guaranteed Obligations.
(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall
notify any Party (the "INDEMNIFIED PARTY") with respect to any matter which
may give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this SECTION 8, then the Indemnified Party shall
notify in writing each Indemnifying Party thereof promptly; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is damaged and materially prejudiced from adequately defending
such claim. In the event any Indemnifying Party notifies the Indemnified
Party within 30 days after the Indemnified Party has given notice of the
matter that the Indemnifying Party is assuming the defense thereof, (A) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (B)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense (except that the Indemnifying Party will be responsible for the fees
and expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has
a conflict of interest), (C) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to the matter
without the written consent of the Indemnifying Party (not to be withheld
unreasonably), and (D) the Indemnifying Party will not consent to the entry
of any judgment with respect to the matter, or enter into any settlement
which does not include a provision whereby the plaintiff or claimant in the
matter releases the Indemnified Party from all Liability with respect
thereto, without the written consent of the Indemnified Party (not to be
withheld unreasonably). In the event no Indemnifying Party notifies in
writing the Indemnified Party within twenty (20) days after the Indemnified
Party has given notice of the matter that the Indemnifying Party is assuming
the defense thereof, however, the Indemnified Party
-29-
may defend against, or enter into any settlement with respect to, the matter
in any manner it reasonably may deem appropriate. At any time after
commencement of any such action, any Indemnifyin Party may request an
Indemnified Party to accept a bona fide offer from the other Party(ies) to
the action for a monetary settlement payable solely by such Indemnifying
Party (which does not burden or restrict the Indemnified Party nor otherwise
prejudice him or her) whereupon such action shall be taken unless the
Indemnified Party determines that the dispute should be continued, the
Indemnifying Party shall be liable for indemnity hereunder only to the extent
of the lesser of (i) the amount of the settlement offer or (ii) the amount
for which the Indemnified Party may be liable with respect to such action.
In addition, the Party controlling the defense of any third party claim shall
deliver, or cause to be delivered, to the other Party copies of all
correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the defense of the
third party claim, and timely notices of, and the right to participate in (as
an observer) any hearing or other court proceeding relating to the third
party claim.
(e) DETERMINATION OF LOSS. The Parties shall make appropriate
adjustments for Tax benefits and insurance proceeds (reasonably certain of
receipt and utility in each case) and for the time cost of money (using the
Applicable Rate as the discount rate) in determining the amount of loss for
purposes of this SECTION 8.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory or common law remedy any Party may have for breach of
representation, warranty, covenant or indemnity.
(g) DISPUTE RESOLUTION. The Parties hereby covenant and agree
that, except as otherwise set forth in this Agreement, any suit, dispute,
claim, demand, controversy or cause of action of every kind and nature
whatsoever, known or unknown, fixed or contingent, that the Parties may now
have or at any time in the future claim to have based in whole or in part, or
arising from or that in any way is related to the negotiations, execution,
interpretation or enforcement of this Agreement (collectively, the
"DISPUTES") shall be completely and finally settled by submission of any such
Disputes to arbitration under the Commercial Rules of Arbitration of the
American Arbitration Association ("AAA") then in effect. If the Parties to
the Dispute are unable to agree on a single arbitrator, then such binding
arbitration shall be conducted before a panel of three (3) arbitrators that
shall be comprised of one (1) arbitrator designated by each Party to the
Dispute and a third arbitrator designated by the two (2) arbitrators selected
by the Parties to the Dispute. Unless the Parties to the Dispute agree
otherwise, the arbitration proceedings shall take place in Denver, Colorado
and the arbitrator(s) shall apply the law of the State of Colorado, USA, to
all issues in dispute, in accordance with Section 10(j), below. The findings
and any award of the arbitrator(s) shall be final and binding on the Parties
to the Dispute. Judgment on such award may be entered in any court of
appropriate jurisdiction, or application may be made to that court for a
judicial acceptance of the award and an order of enforcement, as the Party
seeking to enforce that award may elect. Notwithstanding any applicable
rules of arbitration, all arbitral awards shall be in writing and shall set
forth in particularity the findings of fact and conclusions of law of the
arbitrator or arbitrators. The arbitrators shall have no power or authority
to make any award for consequential or punitive damages.
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing in
the event the Seller is in breach of any representation,
warranty, or covenant contained in this Agreement in any respect
and such breach has not been cured within ten (10) days of
written notice thereof, and the Seller may terminate this
Agreement by giving written notice to the Buyer at any time prior
to the Closing in the event the Buyer is in breach of any
representation, warranty, or covenant contained in this Agreement
in any respect and such breach has not been cured within ten (10)
days of written notice thereof;
-30-
(iii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing if
the Closing shall not have occurred on or before September 24,
1999 by reason of the failure of any condition precedent under
SECTION 7(a) hereof (unless the failure results primarily from
the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement);
(iv) the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing if
the Buyers are in breach of any warranty or covenant contained
herein or if the Closing shall not have occurred on or before
September 24, 1999 by reason of the failure of any condition
precedent under SECTION 7(b) hereof (unless the failure results
primarily from the Seller himself or itself breaching any
representation, warranty, or covenant contained in this
Agreement);
(v) the Buyer may terminate this Agreement by giving
written notice to Seller on or before September 24, 1999, if the
Buyer is not reasonably satisfied with the results of its
continuing business, legal, environmental, and accounting due
diligence regarding the Target; or
(vi) the Seller may terminate this Agreement by giving
written notice to Seller on or before September 24, 1999, if the
Seller is not reasonably satisfied with the results of their
continuing business, legal, environmental, and accounting due
diligence regarding the Buyer.
Nothing contained in this SECTION 9(a) shall alter, affect, modify or
restrict either Parties' rights to rely on and/or seek indemnification for a
breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
(b) EFFECT OF TERMINATION. If either Buyer or Seller terminates
this Agreement pursuant to SECTION 9(a) above, all obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party.
10. MISCELLANEOUS.
(a) [INTENTIONALLY OMITTED]
(b) PRESS RELEASES AND ANNOUNCEMENTS. Either Party may issue
press releases and announcements relating to the subject matter of this
Agreement without the prior written approval of the other Party hereto;
PROVIDED, HOWEVER, that any Party making such disclosure shall provide copies
of such disclosures to the other Party as soon as reasonably practicable.
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and
their respective successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, that may have related in any way to the
subject matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of his, her or its rights, interests, or obligations
hereunder without the prior written approval of the Buyer and the Seller;
PROVIDED, HOWEVER, that the Buyer may assign any or all of its rights and
interests hereunder to a wholly-owned Subsidiary or an Affiliate (in any or
all of which cases the Buyer nonetheless shall remain liable and responsible
for the performance of all of its obligations hereunder).
(f) FACSIMILE/COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all
of which together will constitute one and the same instrument. A facsimile,
telecopy or other reproduction of this Agreement may be executed by one or
more Parties hereto, and an
-31-
executed copy of this Agreement may be delivered by one or more Parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such Party can be seen,
and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all Parties
hereto agree to execute an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.
(g) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given if
(and then two business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to Target:
Prentice Technologies, Inc.
0000 XXX Xxxxxxxxx, #0000
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxx, President
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Seller:
Xxxxx Xxxxxxxx
00000 Xxxxx Xxxx Xxxxxxx
Xxxxxx, XX 00000
Tel: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxx, P.C.
0000 Xxxxxxxx Xxxxxx
Xxxxx X, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Buyer:
Telecom Wireless Corporation
0000 XXX Xxxxxxxxx, 00xx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxx, CEO
Xxx X. Xxxxxx, General Counsel
Tel: (000) 000-0000
Fax: (000) 000-0000
-32-
with a copy to:
Xxxxx & Xxxxxxx L.L.P.
One Xxxxx Center
0000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) SUBMISSION TO JURISDICTION. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE SELLER AND BUYER HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS (AND NOT THE CONFLICT OF LAWS) OF
THE STATE OF COLORADO.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed
by the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the Parties agree that the
court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as
so modified after the expiration of the time within which the judgment may be
appealed.
(l) EXPENSES. Buyer and Seller agree that legal fees and
costs incurred by Seller and Target in connection with this Agreement and the
transactions contemplated herein shall be borne equally by Seller and Target.
The Seller acknowledges and agrees that Target has not borne or will bear any
of the Seller's costs and expenses (including any of its legal fees and
expenses and investment banking fees) in connection with this Agreement or
any of the transactions contemplated hereby. In the event that the
transactions contemplated hereby result in Seller owing monies to Surviving
Corporation or Buyer, Seller may satisfy such obligations by surrendering
that number of shares of Buyer Common Stock, the value of which is equal to
such obligation. For purposes of this SECTION 10(l), Buyer Common Stock
shall be valued at the average closing price for the Buyer Common Stock for
the twenty (20) days immediately prior to such surrender.
(m) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any
Party. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant relating to the same subject matter as any other
representation, warranty or
-33-
covenant (regardless of the relative levels of specificity) which the Party
has not breached, it shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state thereof
having jurisdiction over the Parties and the matter, in addition to any other
remedy to which they may be entitled, at law or in equity.
(p) BUYOUT OPTION. In the event, within one year after the
Closing Date, Buyer (i) shall file a voluntary bankruptcy petition, (ii) an
involuntary bankruptcy petition shall be filed against Buyer and not
discharged within sixty (60) days, (iii) shall admit in writing its inability
to pay its debts as they mature or (iv) shall cease to be a going concern,
then Seller may repurchase the stock of the Surviving Corporation held by
Buyer or its assignee(s) for consideration consisting of (1) the stock of the
Surviving Corporation received hereunder by Seller, plus (2) the stock of
Buyer received hereunder by Seller, plus (3) cash in the amount of any
increase in the shareholders' equity of Surviving Corporation from the
Closing Date to the closing of such repurchase (the "REPURCHASE PRICE"). In
connection with any repurchase of the stock of the Surviving Corporation,
Buyer, its assignee(s) and their respective affiliates shall be removed from
any and all personal guarantees associated with the operation of the Target
or Surviving Corporation. Notwithstanding the foregoing, Seller shall no
longer have the right to repurchase stock of the Surviving Corporation if (i)
Surviving Corporation has acquired stock or assets of any other entities, or
(ii) the Surviving Corporation has merged with any other activities after the
Closing Date, or (iii) the Surviving Corporation has been spun off or has
registered any stock for public sale.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
TELECOM WIRELESS CORPORATION
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: E.V.P. CFO
TWC/PRENTICE ACQUISITION COMPANY, INC.
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: E.V.P. CFO
TARGET:
PRENTICE TECHNOLOGIES, INC.
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President
SELLER:
/s/ Xxxxx X. Xxxxxxxx
---------------------------------------------
Xxxxx X. Xxxxxxxx
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EXHIBIT A
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FINANCIAL STATEMENTS
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EXHIBIT B
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FORM OF RICHMOND EMPLOYMENT AGREEMENT
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EXHIBIT C
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FORM OF OPINION OF SELLER'S LEGAL COUNSEL
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EXHIBIT D
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FORM OF STOCK ESCROW AGREEMENT
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EXHIBIT E
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FORM OF PROMISSORY NOTE
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ANNEX I
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EXCEPTIONS TO REPRESENTATIONS
AND WARRANTIES OF THE BUYER
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DISCLOSURE SCHEDULE OF THE TARGET AND SELLER
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