SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is entered into
as of August 12, 2003, by and among Trinity Learning Corporation, a Utah
corporation ("Acquirer") and the individuals listed on Annexure A hereto
(referred to individually herein as "Shareholder" and collectively as
"Shareholders").
RECITALS:
A. Shareholders are the record and/or beneficial owners of all of
the issued and outstanding capital stock of River Xxxxxx Training Pty Ltd,
a registered company under the Corporations Xxx 0000 (Cwth) (the
"Company").
B. Shareholder wishes to sell to Acquirer, and Acquirer wishes to
purchase from Shareholder, all of the issued and outstanding capital stock
of the Company set forth opposite such Shareholder's name on Annexure A
(the "Shares") upon the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions
hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
1.1 Sale and Delivery. Shareholder agrees to sell and deliver
to Acquirer, and Acquirer agrees to purchase and accept from Shareholder,
free and clear of all Liens, on the terms and subject to the conditions set
forth in this Agreement, and for the purchase price described in Section
1.2, good and marketable title to the Shares. The Shares to be sold and
purchased pursuant to this Agreement will, as of the Closing Date,
constitute in the aggregate all of the outstanding capital stock of the
Company.
1.2 Purchase Price. The aggregate purchase price (the "Purchase
Price") for all of the Shares shall be 700,000 shares of the Common Stock
of Acquirer (the "Acquirer Shares").
1.3 Escrow Agreement. Pursuant to an Escrow Agreement to be
entered into on or before the Closing Date (as defined in Section 8.1) in
the form attached as Exhibit 1.3 (the "Escrow Agreement"), among Acquirer,
Shareholders and an escrow agent (the "Escrow Agent"), Acquirer will
withhold from the Acquirer Shares and deposit into escrow an aggregate of
at least 350,000 shares of the Acquirer Shares (the "Escrow Shares"). From
the Acquirer Shares that would otherwise be distributable at Closing to
Shareholder, Escrow Shares shall be withheld and deposited into escrow.
Promptly after the Closing Date, Acquirer will deposit or cause to be
deposited in escrow pursuant to the Escrow Agreement, the Escrow Shares.
The Escrow Shares will be held in escrow as collateral for the
indemnification obligations of Shareholder under Section 12.2 below and
will be released from escrow pursuant to the Escrow Agreement.
2. REPRESENTATIONS AND WARRANTIES CONCERNING SHAREHOLDER
For purposes of the representations and warranties of Shareholders
contained herein, disclosure in any section of the Shareholder Disclosure
Letter (defined below) relating to one representation and warranty shall
not be deemed to qualify or to serve as an exception to another
representation and warranty unless (i) the same disclosure or an
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appropriate cross reference appears in the section of the Disclosure
Schedule relating to such other representation and warranty, or (ii) it is
clear from the reading of the disclosure that such disclosure is applicable
to such other representation or warranty. Each Shareholder hereby, jointly
and severally, represents and warrants that, except as disclosed in the
Shareholders' disclosure letter (the "Shareholder Disclosure Letter")
delivered by Shareholders to Acquirer herewith as amended from time to time
prior to Closing:
2.1 Ownership of Shares. Shareholder owns, or as of the Closing Date
will own, of record and beneficially the Shares, and has, and at all times
prior to and as of the Closing Shareholder will have, good and marketable
title to such Shares free and clear of all liens.
2.2 Delivery of Good Title. Upon delivery of the Shares to be sold
by such Shareholder hereunder, Acquirer will have good and marketable title
to the Shares, free and clear of all liens.
2.3 Execution and Delivery. All consents, approvals, authorizations
and orders necessary for the execution, delivery and performance by
Shareholder of this Agreement (including, without limitation, the transfer
and sale of the Shares to be sold by Shareholder to Acquirer) have been
duly and lawfully obtained, and Shareholder has, and at the Closing will
have, full right, power, authority and capacity to execute, deliver and
perform this Agreement. This Agreement has been duly executed and
delivered by Shareholder and constitutes a legal, valid and binding
agreement of Shareholder enforceable against Shareholder in accordance with
its terms, except as limited by (i) applicable bankruptcy, insolvency, and
other laws of general application affecting enforcement of creditors'
rights generally, and (ii) general principles of equity, including
limitations on the availability of specific performance, injunctive relief
or other equitable remedies.
2.4 No Conflicts. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any term or
provision of, or (with or without notice or passage of time, or both)
constitute a default under, any indenture, mortgage, deed of trust, trust
(constructive and other), loan agreement or other agreement or instrument
to which Shareholder is a party or by which Shareholder or the Shares are
bound, or violate any Legal Requirement applicable to or binding upon such
Shareholder.
2.5 No Brokers. No broker, finder or similar agent has been employed
by or on behalf of Shareholder in connection with this Agreement or the
transactions contemplated hereby, and Shareholder has not entered into any
agreement or understanding of any kind with any person or entity for the
payment of any brokerage commission, finder's fee or any similar
compensation in connection with this Agreement or the transactions
contemplated hereby.
2.6 Investment Intent.
(a) Purchase Entirely for Own Account. Shareholder is acquiring
the Acquirer's Shares for investment purposes only, for its own account,
and not as a nominee or agent of any other Person, and not with a view to
or for resale in connection with any distribution thereof within the
meaning of the Securities Act, and such Shareholder has no present
intention of selling, granting any participation in, or otherwise
distributing the same. Except as set forth on Item 2.6, Shareholder
further represents that it does not presently have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or
grant participations to such person or to any third person, with respect to
any of the Acquirer's Shares.
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(b) Disclosure of Information. Shareholder has had an
opportunity to discuss the business, management, financial affairs of
Acquirer and the terms and conditions of the offering of Acquirer Shares
with the management of Acquirer. Shareholder understands that such
discussions, as well as the written information provided to such
Shareholder by Acquirer, were intended to describe the aspects of
Acquirer's business and financial condition which it believes to be
material.
(c) Restricted Securities. Shareholder understands that the
Acquirer Shares have not been, and will not be, registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things,
the bona fide nature of the investment intent and the accuracy of
Shareholder's representations as expressed herein. Shareholder understands
that the Acquirer Shares are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from
Acquirer in a transaction not involving a public offering and that under
such laws and applicable regulations such the Acquirer Shares may be resold
without registration under the Securities Act only in certain limited
circumstances.
(d) Legends. Shareholder understands that the Acquirer Shares,
and any securities issued in respect thereof or exchange therefor, may bear
one or all of the following legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION
UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(ii) Any legend required by the securities laws of any
state to the extent such laws are applicable to the shares represented
by the certificate so legended.
3. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
Each Shareholder hereby, jointly and severally represents and warrants
that, except as disclosed in the relevant item of the Shareholders'
disclosure letter (the "Shareholder Disclosure Letter") delivered by
Shareholders to Acquirer herewith as amended from time to time prior to
Closing or as disclosed in the following paragraphs:
3.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the
Corporations Act of Australia, has the corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted and is qualified as a foreign corporation in each jurisdiction
where the nature of its business or location of its properties requires
such qualification except where the failure to so qualify would not result
in a Material Adverse Effect (as defined in Section 13.13.4 below) on the
Company.
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3.2 Capitalization.
(a) Authorized/Outstanding Capital Stock. As of the date
hereof, the authorized capital stock of the Company consists of three
hundred (300) shares of Capital Stock of which three hundred (300) shares
are issued and outstanding. All issued and outstanding shares of the
Company capital stock have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to any right of rescission
and have been offered, issued, sold and delivered by the Company in
compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of applicable federal and state securities
laws, except where the failure to so qualify would not result in a Material
Adverse Effect on the Company. A list of all holders of the Company's
capital stock, and the number of shares and options held by each, in each
case as of the date hereof, has been delivered by Shareholders to Acquirer
herewith as Item 3.2. As of the date hereof, Shareholders are the sole
shareholders of the Company.
(b) Options/Rights. There are no options, warrants, calls,
commitments, conversion privileges or preemptive or other rights or
agreements outstanding to purchase any of the Company's authorized but
unissued capital stock or any securities convertible into or exchangeable
for shares of the Company's capital stock or obligating the Company to
grant, extend, or enter into any such option, warrant, call, right,
commitment, conversion privilege or other right or agreement, and there is
no liability for dividends accrued but unpaid. There are no voting
agreements, rights of first refusal or other restrictions (other than
normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of the Company's outstanding securities.
The Company is not under any obligation to register under the Securities
Act any of its presently outstanding securities or any securities that may
be subsequently issued.
3.3 Subsidiaries and Guaranties. The Company does not have any
subsidiaries or any interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity. The Company is not a
guarantor of any obligation of a third party, whether or not such third
party is related to or affiliated with the Company.
3.4 No Violation of Existing Agreements or Laws. Neither the
execution and delivery of this Agreement or any of the Ancillary
Agreements, nor the consummation of the transactions provided for herein or
therein, will conflict with, or (with or without notice or lapse of time,
or both) result in a termination, breach or violation of (a) any provision
of the constitution of the Company, as currently in effect, (b) any
instrument or contract to which the Company or Shareholder is a party or by
which the Company or Shareholder is bound or (c) any federal, state, local
or foreign judgment, writ, decree, order, statute, rule or regulation
applicable to Shareholder, the Company or any Subsidiary or their
respective assets or properties, other than, with respect to (a), (b) and
(c), any such conflict, termination, breach or violation that would not
have a Material Adverse Effect on the Company. The consummation of the
transactions contemplated herein and succession by Acquirer as the sole
shareholder of the Company will not require the consent of any third party.
3.5 Litigation. There is no action, proceeding or claim or
investigation pending against the Company before any court or
administrative agency nor, to the knowledge of Shareholder, is there any
basis therefore, nor has any party threatened the same. Except as
disclosed in Item 3.5, there is no basis for any shareholder or former
shareholder of the Company, or any other person, firm, corporation or
entity to assert a claim against Shareholder, the Company, or Acquirer
based upon: (a) ownership or rights to ownership of any shares of the
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Company Stock or other securities, (b) any rights as a the Company
securities holder, including, without limitation, any option or other right
to acquire any the Company securities, any preemptive rights or any rights
to notice or to vote or (c) any rights under any agreement between the
Company and any the Company securities holder or former the Company
securities holder in such holder's capacity as such. There is no action,
suit, proceeding, claim, arbitration or investigation pending or as to
which Shareholder and/or the Company have received any notice of assertion
against Shareholder or the Company, which in any manner challenges or seeks
to prevent, enjoin, materially alter or materially delay any of the
transactions contemplated by this Agreement.
3.6 The Company Financial Statements. Shareholder has delivered
to Acquirer in Item 3.6(a) the Company's audited two-year comparative
balance sheet as of the date of its most recent fiscal year end
(respectively, the "Company Balance Sheet" and the "Balance Sheet Date")
and unaudited balance sheet as of June 30, 2003 and the Company's audited
income statements for the last two fiscal years and unaudited income
statement for the period since its most recent fiscal year end to June 30,
2003. The Company Financial Statements (a) are in accordance with the
books and records of the Company, and (b) fairly and accurately represent
the financial condition of the Company at the respective dates specified
therein and the results of operations for the respective periods specified
therein. The Company has no debt, liability or obligation of any nature,
whether accrued, absolute or contingent, and whether due or to become due,
that would be required under generally accepted accounting principles
("GAAP") to be reflected on the liabilities column of a balance sheet,
prepared as of the date hereof in accordance with GAAP and is not
reflected, reserved against or disclosed in the Company Financial
Statements, except for those that may have been incurred after the Balance
Sheet Date in the ordinary course of business consistent with past practice
("Ordinary Course").
3.7 Taxes.
(a) For purposes of this Agreement, the following terms
have the following meanings: "Tax" (and, with correlative meaning, "Taxes"
and "Taxable") means any and all taxes, including without limitation
(i) any income, profits, alternative or add-on minimum tax, gross receipts,
sales, use, value-added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, net
worth, premium, property, environmental or windfall profit tax, custom,
duty or other tax governmental fee or assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental entity responsible for the
imposition of any such tax (domestic or foreign) (a "Taxing Authority"),
(ii) any liability for the payment of any amounts of the type described in
clause (i) above as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period or as the
result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii)
above as a result of any express or implied obligation to indemnify any
other person.
(b) All Tax returns, statements, reports and forms
(including estimated Tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority on or before the
Effective Time, by or on behalf of the Company and each of its Subsidiaries
(collectively, the "Company Returns"), have been or will be filed when due
(including any extensions of such due date), and all amounts shown to be
due thereon on or before the Effective Time have been or will be paid on or
before such date. The Company Financial Statements fully accrue all actual
liabilities for Taxes with respect to all periods through the dates thereof
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and to the knowledge of Shareholder, the Company does not have any
contingent liabilities for Taxes except as disclosed in Item 3.7. The
Company Balance Sheet fully accrues consistent with past practices all
actual liabilities for Taxes (i) with respect to all periods through the
Balance Sheet Date, and (ii) with respect to all transactions and events
occurring on or prior to such date. Except as disclosed in Item 3.7(b),
all information set forth in the notes to the Company Financial Statements
relating to Tax matters is true, complete and accurate in all material
respects.
(c) No Tax liability since May 31, 2003 has been incurred
other than in the ordinary course of business, and adequate provision has
been made for all Taxes since that date in accordance with past practices
on a timely basis. The Company has timely withheld and paid to the
applicable financial institution or Taxing Authority all amounts required
to be withheld. None of the Company Returns have been audited. The
Company has not granted any extension or waiver of the limitation period
applicable to any the Company Returns.
(d) There is no claim, audit, action, suit, proceeding, or
investigation now pending or, to the knowledge of Shareholder, threatened
against or with respect to the Shares, the Company or any Subsidiary in
respect of any Tax, nor to the knowledge of Shareholder is there any basis
therefor. There are no liabilities for Taxes with respect to any notice of
deficiency or similar document of any Tax Authority received by the Company
or any Subsidiary which have not been satisfied in full (including
liabilities for interest, additions to tax and penalties thereon and
related expenses). Neither the Company nor any Subsidiary nor any person
on behalf of the Company has entered into or will enter into any agreement
or consent pursuant to Section 341(f) of the Code or any comparable
provision under state or foreign Tax laws. There are no liens for taxes
upon the assets of the Company or any Subsidiary except liens for current
Taxes not yet due. The Company has not been and will not be required to
include any adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing.
(e) There is no contract, agreement, plan or arrangement,
including without limitation the provisions of this Agreement and the
Employment Agreements, covering any employee, director or independent
contractor or former employee, director or independent contractor of the
Company that, individually or collectively, could give rise to the payment
of any amount that would not be an allowable deduction from the income of
the Company pursuant to the provisions of the Income Tax Assessment Xxx
0000 (Cwth). Other than pursuant to this Agreement, the Company or any
Subsidiary is not a party to or bound by (or will prior to the Effective
Date become a party to or bound by) any tax indemnity, tax sharing or tax
allocation agreement. The Company has previously provided or made
available to Acquirer true and correct copies of all the Company Returns,
and, as reasonably requested by Acquirer, prior to or following the date
hereof, presently existing information statements, reports, work papers,
Tax opinions and memoranda and other Tax data and documents.
The Company has not been at any time within the past five
years, and will not be prior to the Effective Time, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
3.8 Title to Properties. The Company has good and marketable
title to all of its material assets and properties (including but not
limited to those shown on the balance sheet as of the Balance Sheet Date
included in the Company Financial Statements), free and clear of all liens,
charges or encumbrances (other than ( i ) liens for taxes not yet due and
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payable; (ii) liens or obligations reflected or disclosed on the Balance
Sheet as of the Balance Sheet Date; (iii) liens which are not material in
character, amount or extent, and which do not materially detract from the
value or materially interfere with the use of the property subject thereto
or affected thereby; and (iv) contractor's liens and liens with respect to
taxes that are not yet due and payable (the foregoing (i), (ii), (iii) and
(iv), "Permitted Liens"). The machinery and equipment included in such
assets are in good condition and repair, normal wear and tear excepted, and
all leases of real or personal property to which the Company or any
Subsidiary is a party are fully effective and afford the Company or the
Subsidiary peaceful and undisturbed possession of the subject matter of the
lease. Neither the Company nor any Subsidiary is in violation of any
zoning, building, safety or environmental ordinance, regulation or
requirement or other law or regulation applicable to the operation of owned
or leased real property which would have a Material Adverse Effect on the
Company, and neither the Company nor any Subsidiary has received any notice
of such violation with which it has not complied or had waived.
3.9 Absence of Certain Changes. Since the Balance Sheet Date,
the Company has carried on its business in the Ordinary Course
substantially in accordance with the procedures and practices in effect on
the Balance Sheet Date. Except in connection with the transactions
contemplated by this Agreement and the Company Ancillary Agreements, since
the Balance Sheet Date there has not been with respect to the Company:
(a) any change in the financial condition, properties,
assets, liabilities, business, material rights relating to Intellectual
Property (as defined below), results of operations, which change by itself
or in conjunction with all other such changes, whether or not arising in
the Ordinary Course, have had or is reasonably likely to have a Material
Adverse Effect on the Company;
(b) any contingent liability incurred thereby as guarantor
or surety with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
assets or properties thereof (other than Permitted Liens);
(d) any obligation or liability incurred thereby other than
in the Ordinary Course, which obligations or liabilities do not exceed in
the aggregate $10,000;
(e) any purchase, license, sale or other disposition, or
any agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the properties, assets or goodwill of the Company
other than in the Ordinary Course;
(f) any damage, destruction or loss, whether or not covered
by insurance, that has had a Material Adverse Effect on the Company;
(g) any declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, the
capital stock thereof, any split, stock dividend, combination or
recapitalization of the capital stock thereof, any direct or indirect
redemption, purchase or other acquisition of the capital stock thereof;
(h) any labor dispute or claim of unfair labor practices,
any change in the compensation payable or to become payable to any of its
officers, employees or agents (other than pursuant to existing agreements
set out on Item 3.9(h) or, in the case of non-officers, in the Ordinary
Course), or any bonus payment or arrangement made to or with any of such
officers, employees or agents other than amounts paid pursuant to Employee
Plans, as that term is defined in Section 3.14.3, disclosed in Item 3.14.3
or bonuses in an aggregate amount not to exceed $10,000 for all persons to
whom bonuses are paid;
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(i) any loss of key executive, management or development
personnel thereof;
(j) any payment or discharge of a lien or liability
thereof, which lien or liability was not either (i) shown on the balance
sheet as of the Balance Sheet Date included in the Company Financial
Statements or (ii) incurred in the Ordinary Course after the Balance Sheet
Date;
(k) any obligation or liability incurred thereby to any of
its officers, directors, shareholders or affiliates, or any loans or
advances made thereby to any of its officers, directors, shareholders or
affiliates, except normal compensation and expense allowances payable to
officers and employees;
(l) any loss on or prior to the date of this Agreement of
one or more Material Customers (as defined in Section 3.22) or such number
of customers which together represent a material amount of business or any
indication that such a loss is, or losses are, reasonably likely;
(m) any amendment or change in the Constitution of the
Company;
(n) any issuance or sale of any debt or equity securities
(including but not limited to stock) thereby or of any options or other
rights to acquire from the Company, directly or indirectly, any debt or
equity securities (including but not limited to stock) thereof; or
(o) any termination, or any extension, amendment,
relinquishment, expiration or non-renewal that to Shareholder's knowledge
resulted from third party dissatisfaction with the Company's services or
contract performance, of any contract to which the Company is a party, or
any written request received by the Company for or to effect any of the
foregoing, other than, in each such case, where any such action or
requested action would not have a Material Adverse Effect on the Company.
3.10 Agreements and Commitments. As of the date of this
Agreement the Company is not a party or subject to any oral or written
executory contract or, to the extent expressly enumerated in paragraphs
below, commitment, that is material to the Company, its financial
condition, business or prospects, including but not limited to the
following:
(a) Any contract, commitment, letter agreement or purchase
order providing for payments by or to the Company in an aggregate amount of
(i) $10,000 or more in the Ordinary Course or (ii) $5,000 or more not in
the Ordinary Course;
(b) Any license agreement under which the Company is
licensor (except for any nonexclusive software license granted by the
Company to customers in the Ordinary Course); or under which the Company is
licensee (except for standard "shrink wrap" licenses for off-the-shelf
software products with a license fee or purchase price of under $5,000 per
copy or seat);
(c) Any material agreement by the Company to encumber,
transfer or sell rights in or with respect to any material item of the
Company Intellectual Property (as defined in Section 3.11 hereof),
excluding non-exclusive software licenses;
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(d) Any agreement for the sale or lease of real or tangible
personal property involving more than $10,000 per year;
(e) Any dealer, distributor, sales representative, original
equipment manufacturer, value-added remarketer or other agreement for the
distribution of the Company's products;
(f) Any franchise agreement;
(g) Any stock redemption or agreement obligating the
Company to purchase its capital stock;
(h) Any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons or the
payment of royalties to any other person, excluding non-exclusive software
licenses;
(i) Any instrument evidencing indebtedness for borrowed
money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee or otherwise, except for trade
indebtedness or any advance to any employee of the Company incurred or made
in the Ordinary Course, and except as disclosed in the Company Financial
Statements;
(j) Any contract containing covenants purporting to limit
the Company's freedom to compete in any line of business, market or
industry and/or in any geographic area; or
(k) Any contract for the employment of any officer,
employee or consultant of the Company or any other type of contract or
commitment with any officer, employee or consultant of the Company that is
not immediately terminable by the Company without cost or other liability.
All agreements, obligations and commitments disclosed in Item 3.10, Item
3.11, Item 3.14.3 or Item 3.14.6 as required by Section 3.10, Section 3.11,
Section 3.14.3 or Section 3.14.6, as the case may be, are valid and in full
force and effect, except where the failure to be such would not have a
Material Adverse Effect on the Company. Neither the Company nor to
Shareholder's knowledge any other party is in breach of or default under
any material term of any such agreement, obligation or commitment nor has
such other party threatened such a breach or default. The Company is not a
party to any contract or arrangement that Shareholder believes will have a
Material Adverse Effect on the Company. The Company does not have
liability for renegotiation of government contracts or subcontracts that
can reasonably be expected to have a Material Adverse Effect on the
Company.
3.11 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property" means:
(i) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof, regardless of country or
formal name (collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications"
and, with the Issued Patents, the "Patents");
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(iii) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including all rights of authorship, use,
publication, reproduction, distribution, performance, transformation, moral
rights and rights of ownership of copyrightable works, semiconductor
topography works and mask works, and all rights to register and obtain
renewals and extensions of registrations, together with all other interests
accruing by reason of international copyright, semiconductor topography and
mask work conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names
(collectively, "Trademarks");
(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how,
formulae, trade secrets, technical data and proprietary processes;
(vi) all databases and all collected data and all rights
therein throughout the world;
(vii) all computer software, including all source code,
object code firmware, development tools, files, records and data and all
media on which any of the foregoing is recorded; and
(viii) all Web addresses, rights and domain names and all
rights under all Web cross-linking agreements.
(b) With respect to each item of Intellectual Property
incorporated into any product of the Company or used in connection with any
service offered or provided by the Company or otherwise used in the
business of the Company and in each case owned by the Company or licensed
to the Company (except "off the shelf" or other software widely available
through regular commercial distribution channels at a cost not exceeding
$5,000 per copy or seat or CPU on standard, non-negotiated terms and
conditions) ("Company Intellectual Property"), the Shareholder Disclosure
Letter lists as of the date of this Agreement at Item 3.11:
(i) all Patents, all registered Trademarks, and all
registered Copyrights, including the jurisdictions in which each such
Intellectual Property has been issued or registered or in which any such
application for such issuance and registration has been filed.
(ii) the following agreements relating to the products or
service offerings or capabilities of the Company, including products or
service offerings or capabilities currently under development (collectively
the "Company Services") or other Company Intellectual Property: all
(A) agreements granting any right to distribute or sublicense any of the
Company Services on any exclusive basis, (B) any exclusive licenses of
Intellectual Property to or from the Company, (C) projects under agreements
pursuant to which the amounts actually paid or payable individually under
firm commitments to or by the Company are $10,000 or more, (D) joint
development agreements, (E) any agreement by which the Company grants any
ownership right to any Intellectual Property owned by the Company other
than nonexclusive software licenses entered into with customers in the
Ordinary Course, (F) any option relating to any Company Intellectual
Property, and (G) agreements pursuant to which any party is granted any
rights to access source code or to use source code to create derivative
works of Company Intellectual Property.
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(c) the Shareholder Disclosure Letter contains an accurate list
as of the date of this Agreement of all licenses, sublicenses and other
agreements to which the Company is a party and pursuant to which the
Company is authorized to use any Intellectual Property owned by any third
party (except "off the shelf" or other software widely available through
regular commercial distribution channels at a cost not exceeding $5,000 per
copy or seat or CPU on standard non-negotiated terms and conditions and any
rights implied by law) ("Third Party Intellectual Property").
(d) To the best of Shareholder's knowledge, there is no
unauthorized use, disclosure, infringement or misappropriation of any
Company Intellectual Property, including any Third Party Intellectual
Property, by any employee of the Company and the Company has not received
actual notice that any former employee or any other third party has made
any unauthorized use, disclosure, infringement or misappropriation of any
Company Intellectual Property, including any Third Party Intellectual
Property. The Company has not entered into any agreement to indemnify any
other person against any charge of infringement of any Intellectual
Property, other than indemnification provisions contained in sales or
services agreements arising in the ordinary course of business, copies of
which have been delivered to Acquirer or its counsel. There are no
royalties, fees or other payments payable by the Company to any Person,
under any written or oral contract or understanding or otherwise, by reason
of the ownership, use, sale or disposition of any Intellectual Property.
(e) The Company is not in breach of any license, sublicense or
other agreement relating to Company Intellectual Property or Third Party
Intellectual Property Rights. Neither the execution, delivery or
performance of this Agreement or any ancillary agreement contemplated
hereby nor the consummation of any of the transactions contemplated by this
Agreement will contravene, conflict with or result in any violation of
Acquirer's right to own or use any Company Intellectual Property, including
any Third Party Intellectual Property.
(f) All registered Trademarks and registered service marks held
by the Company are valid and subsisting. Except for such as are not past
due, all maintenance and annual fees have been fully paid and all fees paid
during prosecution and after issuance of any patent comprising or relating
to such item have been paid in the correct entity status amounts. The
Company has not infringed, misappropriated or made unlawful use of, is not
currently infringing, misappropriating or making unlawful use of, and has
not received any written notice or written communication alleging or
relating to any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Intellectual Property or other
proprietary right or asset owned or used by any third party. Without
limiting the foregoing, the offering and sale of the Company Services by
the Company does not, and the offering and sale of the Company Services
immediately after the Effective Time will not, and the business of the
Company as conducted as of the date hereof does not, and the Company's use
of Intellectual Property as of the date hereof does not, to Shareholder's
knowledge, infringe or violate any Intellectual Property of any other
person. There is no proceeding pending or threatened, nor has any written
claim or demand been made, which challenges the legality, validity,
enforceability or ownership of any item of Company Intellectual Property or
Third Party Intellectual Property. The Company has not brought a
proceeding alleging infringement of Company Intellectual Property or breach
of any license or agreement involving Intellectual Property against any
third party.
(g) All current and former officers and managerial and technical
employees and employees engaged in development of the Company have executed
and delivered to the Company an agreement (containing no exceptions or
exclusions from the scope of its coverage other than as set forth in the
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standard form supplied to Acquirer) regarding the protection of proprietary
information and the assignment to the Company of any Intellectual Property
arising from services performed for the Company by such persons, the form
of which has been supplied to Acquirer. All current and former consultants
and independent contractors to the Company involved in the development,
modification, marketing and servicing of the Company's products, and/or
Company Intellectual Property have executed and delivered to the Company an
agreement (containing no exceptions or exclusions from the scope of its
coverage other than as set forth in the standard form) regarding the
protection of proprietary information and the assignment to the Company of
any Intellectual Property arising from services performed for the Company
by such persons except where the failure to obtain such agreements from
former employees and independent contractors would not have a Material
Adverse Effect on the Company. No employee or independent contractor of the
Company is in violation of any term relating to Intellectual Property of
any patent disclosure agreement or employment contract or any other
contract or agreement relating to the relationship of any such employee or
independent contractor with the Company or of any other term of any such
agreements or contracts. Other than with respect to Third Party
Intellectual Property that is not used in connection with the Company
Services, no current or former officer, director, shareholder, employee,
consultant or independent contractor has any right, claim or interest in or
with respect to any Company Intellectual Property. To the best knowledge of
Shareholder, the Company is not using any trade secrets, and to the
knowledge of Shareholder, the Company is not using any other confidential
information, of any former employer of any past or present employees.
(h) Shareholder has disclosed in Item 3.11(h) all measures and
precautions taken to protect and maintain the confidentiality of all
Company Intellectual Property. The Company has taken all commercially
reasonable and customary measures and precautions necessary to maintain and
protect the full value of all Intellectual Property it owns except where
such failure to protect and maintain would not have a Material Adverse
Effect on the Company. All use, disclosure or appropriation of
confidential and proprietary information of any third party ("Confidential
Information") has, to Shareholder's knowledge, been pursuant to the terms
of a written agreement between the Company and the owner of such
Confidential Information, or is otherwise lawful.
(i) No product liability claims have been communicated in
writing to or, to Shareholder's knowledge, threatened against the Company.
(j) A complete list of each of the principal the Company
Services, together with a brief description of each, is set forth in
Item 3.11(j). The Company Services, including the performance and results
thereof, conform in all material respects with any published specification,
published documentation or written performance standard provided with
respect thereto by the Company.
(k) The Company is not subject to any proceeding or outstanding
decree, order, judgment, or stipulation which may affect the validity, use
or enforceability of any Company Intellectual Property or restricting in
any manner the use, transfer, or licensing thereof by the Company. The
Company is not subject to any agreement which restricts in any material
respect the use, transfer, or licensing by the Company of Company
Intellectual Property or the Company Services, excluding agreements
relating to Third Party Intellectual Property.
(l) The Company owns all right, title and interest in, or has
the right to use, all Intellectual Property that is material to or
reasonably necessary to the conduct of its business as presently conducted
("Material Company Intellectual Property"). Shareholder is not aware of
any loss, cancellation, termination or expiration of any Patent or Patent
Application, registered Trademark, or registered Copyright relating to any
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Company Intellectual Property. Copies of all forms of nondisclosure or
confidentiality agreements currently utilized by the Company to protect
Company Intellectual Property have been provided to Acquirer. The Company
has not granted any reseller, distributor, sales representative, original
equipment manufacturer, value added reseller or other third party any right
to reproduce, manufacture, sell, license, furnish or distribute any the
Company Services in any market segment or geographic location.
3.12 Compliance with Laws. Except for noncompliance that would
not result in a Material Adverse Effect on the Company, the Company has
complied, or prior to the Closing Date (as defined in Section 8.1 hereof)
will have complied, and is or will be at the Closing Date in full
compliance, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all orders, writs, injunctions, awards,
judgments and decrees, applicable to the Company or to the assets,
properties and business thereof, including, without limitation: (a) all
applicable federal and state securities laws and regulations (b) all
applicable federal, state and local laws, ordinances and regulations, and
all orders, writs, injunctions, awards, judgments and decrees, pertaining
to (i) the sale, licensing, leasing, ownership or management of owned,
leased or licensed real or personal property, products or technical data,
(ii) employment or employment practices, terms and conditions of
employment, or wages and hours and (iii) safety, health, fire prevention,
environmental protection (including toxic waste disposal and related
matters described in Section 3.20 hereof), building standards, zoning or
other similar matters, (c) the Export Administration Act and regulations
promulgated thereunder and other laws, regulations, rules, orders, writs,
injunctions, judgments or decrees applicable to the export or re-export of
controlled commodities or technical data, (d) the Immigration Reform and
Control Act and (e) all governmental and nongovernmental regulations
related to the operation and use of the Internet. The Company has received
all permits and approvals from, and has made all filings with, third
parties, including government agencies and authorities, that are necessary
to the conduct of its business as presently conducted except where the
failure to receive such permit or approval or make such filing would not
have a Material Adverse Effect on the Company.
3.13 Certain Transactions and Agreements. No person who is an
officer of the Company nor any member of their immediate families, has any
direct or indirect ownership interest in or any employment or consulting
agreement with any firm or corporation that competes with the Company
(except with respect to any interest in less than 1% of the outstanding
voting shares of any corporation whose stock is publicly traded). None of
said officers or any directors of the Company or any member of their
immediate families, is directly or indirectly interested in any contract
with the Company, including, but not limited to, any loan agreements
(excluding travel advances), except for normal compensation for services as
an officer (disclosed in Item 3.14.3), director or employee of the Company
and except for the normal rights of a shareholder, warrantholder or
optionholder. None of such officers or directors or family members has,
except for the normal rights of a shareholder or an option holder, any
interest in any (a) Company Intellectual Property or (b) any interest in
any property (other than Company Intellectual Property) used in the
business of the Company, whether such property is real or personal,
tangible or intangible.
3.14 Employees.
3.14.1 The Company does not have any employment contract or
consulting agreement currently in effect that is not terminable at will
without penalty or payment of compensation by the Company (other than
agreements with the purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
13
3.14.2 The Company (a) has not ever been or is now subject
to a union organizing effort, (b) is not subject to any collective
bargaining agreement with respect to any of its employees, (c) is not
subject to any other material contract, written or oral, with any trade or
labor union, employees' association or similar organization or (d) does not
have has any current labor dispute. The Company has good labor relations,
and Shareholder has no knowledge of any facts indicating that the
consummation of the transactions provided for herein (other than any
contemplated reductions in force associated therewith) will have a Material
Adverse Effect on the Company and has no knowledge that any of the
Company's key development or other employees intends to leave its employ
where such departure would reasonably be expected to have a Material
Adverse Effect on the Company.
3.14.3 Item 3.14.3 delivered by Shareholder to Acquirer
herewith contains a list of all severance agreements, pension,
superanuation, retirement, disability, medical, dental or other health
plans, life insurance or other death benefit plans, profit sharing,
deferred compensation agreements, stock, option, bonus or other incentive
plans, vacation, long service, sick, holiday or other paid leave plans,
severance plans or other similar employee benefit plans maintained by the
Company or any trade or business which is treated as a single employer with
the Company or in which any employees of the Company participate (the
"Employee Plans"), as well as all employment and consulting agreements to
which the Company is a party. Each of the Employee Plans, and its
operation and administration, is in compliance in all material respects
with each of the respective Employee Plans' terms and with all applicable,
federal, state, local and other governmental laws and ordinances, orders,
rules and regulations. Shareholder has delivered to Acquirer a true and
complete copy of, to the extent applicable, (a) all Employee Plans as well
as all employment and consulting agreements to which the Company is a party
as amended, (b) the Company's three most recent annual reports, (c) each
trust agreement related to such Employee Plans, (d) most recent summary
plan description for each Employee Plan for which a description is
required, (e) any material contract regarding the funding arrangement for
any Employee Plan. No Employee Plans will be subject to any surrender fees
or service fees upon termination other than the normal and reasonable
administrative fees associated with the termination of benefit plans. No
employee of the Company or any Subsidiary and no person subject to any
Company or any Subsidiary health plan has made medical claims through such
health plan during the twelve months preceding the date hereof for more
than $5,000 in the aggregate.
3.14.4 To the knowledge of Shareholder, no employee of the
Company is in violation of any term of any employment contract, patent or
trade secret disclosure agreement or noncompetition agreement or any other
contract or agreement, or any restrictive covenant, relating to the right
of any such employee to be employed by the Company or to use trade secrets
or proprietary information of others, and the employment of any employee of
the Company does not subject the Company to any material liability to any
third party.
3.14.5 The Company is not a party to any (a) agreement with
any employee of the Company (i) the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a
transaction involving the Company in the nature of any of the transactions
contemplated by this Agreement (ii) providing any term of employment or
compensation guarantee or (iii) providing severance benefits or other
benefits after the termination of employment of such employee regardless of
the reason for such termination of employment other than as required by
law, or (b) agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be materially increased, or the vesting of
benefits of which will be materially accelerated, by the occurrence of any
of the transactions contemplated by this Agreement.
14
3.14.6 A list of all employees of the Company and their
current base compensation as of the date of this Agreement is disclosed on
Item 3.14.6. Copies of all offer letters and other documents reflecting
bonus arrangements of any Company officer, director or employee have been
delivered to Acquirer.
3.14.7 All contributions due from the Company with respect
to any of the Employee Plans through the Balance Sheet Date have been made
or accrued on the Company's financial statements.
3.15 Corporate Documents. Shareholder has made available to
Acquirer for examination all documents and information disclosed in Items
3.1 through 3.25 or other exhibits called for by this Agreement which have
been reasonably requested by Acquirer' legal counsel, including, without
limitation, the following: (a) copies of the Company's Certificate of
Registration and Constitution as currently in effect; (b) the Company's
minute book containing all records of all proceedings, consents, actions
and meetings of the Company's directors and shareholders; (c) the Company's
stock ledger, journal and other records reflecting all stock issuances and
transfers; and (d) all permits, orders and consents issued by any
regulatory agency with respect to the Company, or any securities of the
Company, and all applications for such permits, orders and consents.
3.16 No Brokers. Neither Shareholder nor the Company is
obligated for the payment of fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any transaction provided for herein or
therein.
3.17 Books and Records. The books, records and accounts of the
Company (a) are in all material respects true and complete, and (b) have
been maintained in accordance with reasonable business practices except
where failure to maintain such books, records and accounts in accordance
with reasonable business practices will not have a Material Adverse Effect
on anyone relying on such books, record and accounts.
3.18 Environmental Matters.
3.18.1 To Shareholder's knowledge, during the period that
the Company has leased or owned its properties or leased, owned or operated
any facilities, there have been no disposals, releases or threatened
releases of Hazardous Materials (as defined below) on, from or under any
such properties or facilities that would have a Material Adverse Effect on
the Company. Shareholder has no knowledge of any presence, disposals,
releases or threatened releases of Hazardous Materials on, from or under
any of such properties or facilities, which may have occurred prior to the
Company or any Subsidiary having taken possession of any of such properties
or facilities which might reasonably be expected to have a Material Adverse
Effect on the Company. For purposes of this Agreement, the terms
"disposal," "release," and "threatened release" have the definitions
assigned thereto by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. 9601 et seq., as amended ("CERCLA").
For the purposes of this Section 3.18, "Hazardous Materials" mean any
hazardous or toxic substance, material or waste which is or becomes prior
to the Closing Date, regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant," "toxic chemical," "hazardous
material," "toxic substance" or "hazardous chemical"; under any applicable
federal, state or local statute, ordinance, rule or regulation that has a
scope or purpose similar to (i) CERCLA; (ii) the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (iii) the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.;
15
(iv) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (v)
the Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et
seq.; or (vi) regulations promulgated under any of the above statutes.
3.18.2 To Shareholder's knowledge, none of the properties or facilities
currently leased or owned by the Company or any properties or facilities
previously leased or owned by the Company is in violation of any federal,
state or local law, ordinance, regulation or order relating to industrial
hygiene or to the environmental conditions on, under or about such
properties or facilities, including, but not limited to, soil and ground
water condition which violation would have a Material Adverse Effect on the
Company.
3.18.3 During the Company's occupancy of any properties or
facilities owned or leased at any time by the Company, neither the Company,
nor to Shareholder's knowledge, any third party, has used, generated,
manufactured, released or stored on, under or about such properties and
facilities or transported to or from such properties and facilities any
Hazardous Materials that would have or is reasonably likely to have a
Material Adverse Effect on the Company.
3.18.4 During the time that the Company has owned or leased
the properties and facilities currently occupied by it or any properties
and facilities previously occupied by the Company, there has been no
material litigation, proceeding or administrative action brought or
threatened against the Company, or any material settlement reached by the
Company with, any party or parties alleging the presence, disposal, release
or threatened release of any Hazardous Materials on, from or under any of
such properties or facilities.
3.19 Government Contracts. All representations, certifications
and disclosures made by the Company to any Government Contract Party (as
defined below) have been in all material respects current, complete and
accurate at the times they were made. There have been no acts, omissions
or noncompliance with regard to any applicable public contracting statute,
regulation or contract requirement (whether express or incorporated by
reference) relating to any of the Company's contracts with any Government
Contract Party in either case that have led to or is reasonably likely to
lead to, either before or after the Closing Date, (a) any material claim or
dispute involving the Company, and/or Acquirer as successor in interest to
Shareholder and any Government Contract Party or (b) any suspension,
debarment or contract termination, or proceeding related thereto. There
has been no act or omission that relates to the marketing, licensing or
selling to any Government Contract Party of any of the Company's technical
data, computer software, products and services and that has led to or is
reasonably likely to lead to, either before or after the Closing Date, any
cloud on any of the Company's rights in and to its technical data, computer
software, products and services. There is currently no dispute between the
Company and any Government Contract Party. For purposes of this Section
3.19, the term "Government Contract Party" means any independent or
executive agency, division, subdivision, audit group or procuring office of
the federal, state, territorial, provincial, county, local or municipal
government, including any prime contractor of the federal government and
any higher level subcontractor of a prime contractor of the federal
government, and including any employees or agents thereof, in each case
acting in such capacity.
3.20 Warranties, Guarantees and Indemnities. The Company has not
provided to its customers or any third parties (i) any warranties or
guarantees regarding the Company Services; (ii) any rights to obtain
refunds with respect to the Company Services or (iii) any indemnities with
respect to intellectual property infringement.
16
3.21 No Shareholder Claims. No shareholder of the Company has
claimed in writing any interest in any additional shares of the Company's
capital stock, or any options, warrants or other securities of the Company,
except for the number of shares of the Company Stock which such person is
shown to be the owner of on Item 3.2, and no third party who is not
disclosed on Item 3.2 has made in writing, any claim of entitlement to
receive any shares of the capital stock of the Company, any warrants or
other rights to acquire any capital stock of the Company or any other
securities of the Company, and to Shareholder's knowledge no such claim has
been made orally.
3.22 Customer Relationships. The Company has good commercial
working relationships with its customers. No customer accounting for more
than 5% of the Company's revenues in any month during the last twelve (12)
calendar months (a "Material Customer") has canceled or otherwise
terminated its relationship with the Company, decreased or limited
materially the amount of product or services ordered from the Company or
threatened in writing (or to Shareholder's knowledge orally) to take any
such action.
3.23 Product and Service Quality. All services provided by the
Company to customers on or prior to the Closing Date conform to applicable
contractual commitments, implied warranties not disclaimed, express
warranties, product specifications and quality standards published by the
Company in all material respects, and the Company does not have any
material liability (and the Company is not aware of any basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against the Company giving rise to any
liability) for replacement or repair thereof, or for the taking of any
remedial action with respect thereto or other damages in connection
therewith. All material complaints received since January, 2001 from
customers regarding the Company's services are set out in Item 3.23 in
detail reasonably sufficient to understand the nature of the complaint and
the resolution or lack of resolution thereof.
3.24 Insurance. The Company maintains the insurance coverage
disclosed on Item 3.24. Item 3.24 sets forth all claims made under such
insurance policies since the Company's inception and the premiums that
apply with respect to such insurance policies as of the date of this
Agreement.
3.25 Disclosure. The Company has not failed to disclose any
information known to it that is material to a decision to consummate the
transactions contemplated herein. This Agreement (including Schedules and
Exhibits) and the certificates and instruments delivered pursuant to this
Agreement at the Closing by or on behalf of Shareholder, to Shareholder's
knowledge, do not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements contained herein and
therein not misleading in light of the circumstances under which they were
made.
4. REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Acquirer hereby represents and warrants, that, except as
disclosed on the Acquirer disclosure letter delivered to Shareholder
herewith as amended from time to time in non-material respects prior to
Closing:
4.1 Organization and Good Standing. Acquirer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Utah. The Acquirer has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now
conducted and as proposed to be conducted.
17
4.2 Power, Authorization and Validity; Adverse Changes.
4.2.1 Acquirer has the corporate right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement, and each other agreement to be entered by Acquirer in connection
(the "Acquirer Ancillary Agreements"). This Agreement has been duly
executed and delivered by Acquirer and the Acquirer Ancillary Agreements
have been or will be duly executed and delivered by Acquirer (as
applicable). The execution, delivery and performance of this Agreement and
the Acquirer Ancillary Agreements have been duly and validly approved and
authorized by Acquirer's Board of Directors and shareholders, as
applicable, and no other corporate approvals or proceedings on the part of
Acquirer are necessary to authorize this Agreement and the transactions
contemplated hereby.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary or required to be made or obtained to enable
Acquirer to enter into, and to perform its obligations under, this
Agreement and the Acquirer Ancillary Agreements, except for such filings as
may be required to comply with federal and state securities laws.
4.2.3 This Agreement is and the Acquirer Ancillary
Agreements are, or when executed and delivered by Acquirer and the other
parties thereto will be, valid and binding obligations of Acquirer,
enforceable against Acquirer in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally, (b) rules of law
governing specific performance, injunctive relief and other equitable
remedies; and (c) the enforceability of provision requiring indemnification
in connection with the offering, issuance or sale of securities.
4.2.4 Since June 30, 2003, there has not been with respect
to Acquirer any Material Adverse Change.
4.3 No Violations. Neither the execution nor delivery of this
Agreement or any Acquirer Ancillary Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with, or (with
or without notice or lapse of time, or both) result in a termination,
breach or violation of (a) any provision of the Certificate of
Incorporation or Bylaws of Acquirer as currently in effect or (b) any
instrument or contract to which Acquirer is a party or by which Acquirer is
bound, or (c) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Acquirer or their
respective assets or properties, other than, with respect to (a), (b) and
(c), any such, conflict, termination, breach or violation that would not
have a Material Adverse Effect on Acquirer .
4.4 Disclosure. Acquirer has furnished Shareholder with its
most recent annual report on Form 10-K (the "Form 10-K") for the year ended
September 30, 2002 and all other reports or documents required to be filed
by Acquirer pursuant to Section 13(a) or 15(d) of the 1934 Act since the
filing of the Form 10-K through the date hereof and, hereafter, through the
Closing Date, in each case as may be amended (the "Acquirer Disclosure
Package"). The items in the Acquirer Disclosure Package, (including,
without limitation, any financial statement or schedules included therein)
(i) were prepared in substantial compliance with the requirements of the
Securities Act, or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder, as the case may
be, and (ii) to Acquirer's knowledge, did not at the time of filing (or if
amended, supplemented or superseded by a filing prior to the date hereof,
on the date of that filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
18
under which they were made, not misleading. Acquirer has filed all forms,
reports and documents required to be filed with the SEC in the last twelve
(12) months under the Securities Act, or the Exchange Act, and the rules
and regulations thereunder.
4.5 Duly Issued Shares. The Acquirer shares to be issued
pursuant to this Agreement have been reserved for such issuance and, when
issued and delivered in accordance with this Agreement will be duly and
validly issued, fully paid and nonassessable.
4.6 Litigation. There is no litigation, suit, action, or
proceeding pending, or to the knowledge of Acquirer, threatened against
Acquirer or any subsidiary, nor is there, to the knowledge of Acquirer, any
basis therefore.
4.7 Capitalization.
(a) Authorized/Outstanding Capital Stock. As of the date
hereof, the authorized capital stock of Acquirer consists of 100,000,000
shares of Common Stock, no par value, of which 13,419,774 shares are issued
and outstanding and 1,000,000 shares of Preferred Stock, no par value, of
which no shares are issued and outstanding. All issued and outstanding
shares of Acquirer capital stock have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to any right of
rescission and have been offered, issued, sold and delivered by Acquirer in
compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of applicable federal and state securities
laws, except where the failure to so qualify would not result in a Material
Adverse Effect on Acquirer.
(b) Options/Rights. There are no options, warrants, calls,
commitments, conversion privileges or preemptive or other rights or
agreements outstanding to purchase any of Acquirer's authorized but
unissued capital stock or any securities convertible into or exchangeable
for shares of Acquirer capital stock or obligating Acquirer to grant,
extend, or enter into any such option, warrant, call, right, commitment,
conversion privilege or other right or agreement, and there is no liability
for dividends accrued but unpaid. There are no voting agreements, rights
of first refusal or other restrictions (other than normal restrictions on
transfer under applicable federal and state securities laws) applicable to
any of Acquirer's outstanding securities.
5. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, each of the Shareholders, jointly and severally, covenant
to and agree with Acquirer as follows:
5.1 Advice of Changes. Shareholders will promptly advise
Acquirer in writing (a) of any event occurring subsequent to the date of
this Agreement that would render any representation or warranty of the
Company contained in this Agreement, if made on or as of the date of such
event or the Closing Date, untrue or inaccurate in any material respect
(however, no advisory need be provided regarding any event or action
contemplated or permitted under this Agreement and (b) of the occurrence of
any Material Adverse Change with respect to the Company.
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5.2 Maintenance of Business. The parties hereto understand and
acknowledge that it is their intent to work closely together during the
period from the date hereof until the Closing Date. Shareholders will use
commercially reasonable efforts to carry on and preserve the Company's
business and its relationships with customers, suppliers, employees and
others in substantially the same manner as it has prior to the date hereof.
If any Shareholder becomes aware of a material deterioration in the
Company's relationship with any material customer, supplier or key
employee, such Shareholder will promptly bring such information to the
attention of Acquirer in writing and, if requested by Acquirer, will use
commercially reasonable efforts to restore the relationship.
5.3 Conduct of Business. Shareholders will cause the Company to
continue to conduct its business and maintain its business relationships in
the Ordinary Course and will not, without the prior written consent of the
Chief Executive Officer or Chief Financial Officer of Acquirer, not to be
unreasonably withheld, conditioned or delayed:
(a) borrow any money other than pursuant to existing lines
of credit;
(b) enter into any capital expenditure by the Company in
excess of $10,000 (in the case of transactions or commitments which are
neither made in the Ordinary Course nor contemplated by the Company's
current capital expenditure budget) or $10,000 (in the case of transactions
or commitments made in the Ordinary Course);
(c) encumber or permit to be encumbered any of its assets
except in the Ordinary Course;
(d) dispose of any of its assets except in the Ordinary
Course;
(e) enter into any lease or contract for the purchase or
sale of any property, real or personal, tangible or intangible, except in
the Ordinary Course or enter into any agreement of the types described in
Section 3.10 to the extent involving amounts in excess of $10,000;
(f) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained
to the date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary (except for
annual increases in the Ordinary Course and disclosed to Acquirer in
writing and approved by Acquirer, such approval not to unreasonably be
withheld) or special remuneration to any officer, employee or consultant
(except pursuant to existing arrangements heretofore disclosed in writing
to Acquirer) or enter into any new employment or consulting or severance
agreement with any such person, or enter into any new agreement or plan of
the type described in Section 3.14.3;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or
other distribution in respect of capital stock, or, except as contemplated
in this Agreement, redeem or otherwise acquire any of its capital stock
excluding repurchases of unvested shares upon employee termination;
(j) amend or terminate or settle any disputes under any
contract, agreement or license to which it is a party of a nature required
to be disclosed in Section 3.11;
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(k) lend any amount to any person or entity, other than
advances for travel and expenses which are incurred in the Ordinary Course
and which are not material in amount, which travel and expenses shall be
reasonably documented by receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation except
for the endorsement of checks and other negotiable instruments in the
Ordinary Course and which are not material in amount;
(m) waive or release any material right or claim except in
the Ordinary Course;
(n) issue or sell any shares of its capital stock of any
class or any other of its securities, or issue, grant, modify or create any
warrants, obligations, subscriptions, options, convertible securities,
stock appreciation rights or other commitments to issue shares of capital
stock or accelerate the vesting of any outstanding option or other
security;
(o) split or combine the outstanding shares of its capital
stock of any class or enter into any recapitalization affecting the number
of outstanding shares of its capital stock of any class or affecting any
other of its securities;
(p) except for the Merger, merge, consolidate or reorganize
with, or acquire any entity;
(q) amend its constitution;
(r) agree to any audit assessment by any tax authority or
file any federal or state income or franchise tax return unless copies of
such returns have been delivered to Acquirer;
(s) license any of its technology or any Company
Intellectual Property, except in the Ordinary Course;
(t) change or terminate any insurance coverage;
(u) terminate the employment of any key employee disclosed
in Item 3.9; or
(v) agree to do any of the things described in the
preceding clauses 5.3(a) through 5.3(u).
5.4 Certain Agreements. Shareholders will cause all present
employees and consultants of the Company engaged in development activity
who have not previously executed the Company's forms of assignments of
copyright and other intellectual property rights to the Company to execute
such forms.
5.5 Regulatory Approvals. Shareholders will execute and file,
or join in the execution and filing, of any application or other document
that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign, which
may be reasonably required, or which Acquirer may reasonably request, in
connection with the consummation of the transactions provided for in this
Agreement. Shareholders will use commercially reasonable efforts to obtain
or assist Acquirer in obtaining all such authorizations, approvals and
consents.
21
5.6 Necessary Consents. Shareholders will use commercially
reasonable efforts to obtain such written consents and waivers (including
waivers of any applicable refusal or co-sale rights that may apply to the
transactions hereby contemplated) and take such other actions as may be
necessary or appropriate for Shareholders to facilitate and allow the
consummation of the transactions provided for herein and to facilitate and
allow Acquirer to carry on the Company's business after the Closing Date.
5.7 Litigation. Shareholders will notify Acquirer in writing
promptly after learning of any material action, suit, proceeding or
investigation by or before any court, board or governmental agency,
initiated by or against the Company or any Subsidiary or threatened against
it or any Subsidiary.
5.8 No Other Negotiations. In consideration of the time and
effort to be devoted to the transactions contemplated by this Agreement,
each Shareholder agrees not to engage in discussions concerning a potential
financing or an acquisition of the Company with any third party for a 45-
day period beginning on the date of this Agreement.
5.9 Access to Information. Until the Closing Date, Shareholders
will provide Acquirer and its agents with reasonable access to the files,
books, records and offices of the Company, including, without limitation,
any and all information relating to the Company taxes, commitments,
contracts, leases, licenses, real, personal and intangible property and
financial condition. Shareholders will cause the Company's accountants to
cooperate with Acquirer and its agents in making available all financial
information reasonably requested, including without limitation the right to
examine all working papers pertaining to all financial statements prepared
or audited by such accountants.
5.10 Satisfaction of Conditions Precedent. Shareholders will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 10, and Shareholders
will use commercially reasonable efforts to cause the transactions provided
for in this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of
third parties and to make all filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order
to effect the transactions provided for herein.
5.11 Blue Sky Laws. Shareholders shall use commercially
reasonable efforts to assist Acquirer to the extent necessary to comply
with the securities and Blue Sky laws of all jurisdictions applicable in
connection with the transactions contemplated herein.
5.12 Notification of Employee Problems. Shareholders will
promptly notify Acquirer if any of the Company's officers becomes aware
that any of its key employees intends to leave its employ.
5.13 Benefit Plans; Cash Compensation. As soon as practicable
after the execution of this Agreement, Acquirer and Shareholders shall
confer and work together in good faith to agree upon mutually acceptable
employee benefit, superanuation, and compensation arrangements for the
Company's employees following the Effective Date. Shareholders shall take
such actions as are necessary to terminate its participation in such
Employee Plans as is requested by Acquirer, provided that Acquirer shall
take such steps as are commercially and administratively reasonable to
ensure that (i) those of the Company's employees who are eligible to
participate in each such Employee Plan shall be entitled to participate in
employee benefit plans maintained by Acquirer effective immediately
following the Effective Date.
22
5.14 Sale of Shares Pursuant to Regulation D or Section 4(2).
The parties hereto acknowledge and agree that the Acquirer's Shares
issuable pursuant to Section 1 hereof shall constitute "restricted
securities" within the meaning of the Securities Act. The certificates
representing the Acquirer's Shares shall bear the legends set forth in
Section 2. It is acknowledged and understood that Acquirer is relying on
certain written representations made by Shareholders. Shareholders will
execute and deliver to Acquirer an Investor Representation Certificate in
the form attached hereto as Exhibit 5.15.
6. ACQUIRER PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, or such later time as provided herein, Acquirer covenants
to and agrees with Shareholders as follows:
6.1 Access to Information. Until the Closing Date,
Shareholders will have reasonable access to Acquirer's management and
officers and material information regarding Acquirer, including without
limitation, material information relating to Acquirer's business and
financial condition. Acquirer's accountants will cooperate with
Shareholders' accountants in making available all financial information
reasonably requested to evaluate Acquirer's financial statements.
6.2 Satisfaction of Conditions Precedent. Acquirer will
use all commercially reasonable efforts to satisfy or cause to be satisfied
all the conditions precedent which are set forth in Section 9, and Acquirer
will use all commercially reasonable efforts to cause the transactions
provided for in this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of
third parties and to make all filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order
to effect the transactions provided for herein.
6.3 Regulatory Approvals. Acquirer will execute and file,
or join in the execution and filing, of any application or other document
that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign, which
may be reasonably required, or which Shareholders may reasonably request,
in connection with the consummation of the transactions provided for in
this Agreement. Acquirer will use all reasonable efforts to obtain all
such authorizations, approvals and consents.
6.4 Indemnification. From and after the Effective Time,
Acquirer agrees to indemnify and hold harmless each current and former
director and officer of the Company against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to
the Effective Time, asserted or claimed after the Effective Time, to the
fullest extent that the Company would have been permitted under its
organizational documents and applicable law in effect on the date hereof to
indemnify such person (and in connection therewith Acquirer shall advance
expenses as incurred to the fullest extent provided for under Acquirer's
organizational documents and applicable law as from time to time in effect,
provided the person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such person is
not entitled to indemnification). Shareholder represents that there is no
current basis for any indemnity claim under this Section 6.4.
23
6.5 Cooperation in Obtaining Necessary Consents. Acquirer
will cooperate with Shareholders as reasonably requested by Shareholders in
order to assist Shareholders to obtain such written consents as are
contemplated by Section 5.6 hereof.
6.6 Closing Deliverables. Prior to Closing, Acquirer
shall deliver to Shareholders true and accurate copies of the following
items: (i) Acquirer's Certificate of Incorporation, as amended to date;
(ii) a Certificate of Good Standing from the Utah Secretary of State, of
recent date, regarding Acquirer; (iii) a certified copy of the resolutions
of the Acquirer's Board of Directors approving this Agreement and the
issuance of the Acquirer Shares hereby contemplated; and (iv) a certificate
of the transfer agent of Acquirer of recent date reflecting the number of
outstanding shares of capital stock of Acquirer; and (v) a copy of the
letter from Acquirer's counsel to Acquirer's transfer agent confirming that
the shares of Acquirer stock issued pursuant to this Agreement are duly
issued.
7. ACQUIRER POST-CLOSING OBLIGATIONS
7.1 Reports Under the 1934 Act. With a view to making available
to Shareholder the benefits of Rule 144 promulgated under the Securities
Act of 1 ("SEC Rule 144") and any other rule or regulation of the SEC that
may at any time permit Shareholder to sell shares of Acquirer Common Stock
to the public without registration, Acquirer will:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and
other documents required of Acquirer under the Act and the Securities
Exchange Act of 1934, as amended;
(c) furnish to Shareholder forthwith upon request so long as
Shareholder holds any shares of Acquirer Common Stock, whenever applicable
(i) a written statement by Acquirer that it has compiled with its reporting
requirements under SEC Rule 144, the 1933 Act, and the 1934 Act, (ii) a
copy of the most recent annual or quarterly report of Acquirer and such
other reports and documents filed by Acquirer with the SEC, and (iii) such
other information as may be reasonably requested in availing Shareholder of
any current rule or regulation of the SEC (or any future rule or regulation
containing issuer information requirements comparable to or less burdensome
than current SEC Rule 144) which permits the selling of any such securities
without registration; and
(d) in the event that at any time after the first
anniversary of the Closing, Shareholder requests to transfer any Acquirer
Common Stock in accordance with the provisions of SEC Rule 144, Acquirer
will advise its transfer agent that the holding period for such shares, as
determined pursuant to Rule 144(d), commenced on the Closing Date, and,
assuming that all other conditions to SEC Rule 144 are met, that such
shares will be transferable by Shareholder pursuant to SEC Rule 144 from
and after one year from such date.
7.2 Advance of Funds. On Closing, Acquirer shall loan to
Company Seventy-Five Thousand Australian Dollars (AUS$75,000). The
proceeds of such advances shall be used first to pay all outstanding
principal and accrued interest under the short-term loan obligations of the
Company owed to each of Xxxxxxx XxXxxxxxx ("XxXxxxxxx") and Xxxx Xxxxxx
("Xxxxxx") evidenced by the promissory notes identified on Annexure "B"
(the "Short-Term Notes") and second towards working capital of the Company.
The Shareholders hereby acknowledge and agree that such advance is
sufficient to satisfy and discharge all of Company's obligations under the
Short-Term Notes.
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8. CLOSING MATTERS
8.1 The Closing. Subject to termination of this Agreement as
provided in Section 11 below, the closing of the transactions provided for
herein (the "Closing") will take place at the offices of Xxxxxxx, Xxxxx &
Xxxxxxx, 000 Xxxxx 000 Xxxx, Xxxxx 000, Xxxxxx, Xxxx 00000 at 10:00 a.m.,
Mountain Time on the first business day following the last to be satisfied
of the conditions to closing or such other date as the parties agree (the
"Closing Date"). At the Closing:
(a) Shareholders shall deliver or cause to be delivered to
Acquirer, against provision by Acquirer to Shareholders of the
consideration set forth in Sections 1.2(a) and 1.2(b):
(i) an irrevocable general proxy in favor of Acquirer with
respect to the Shares being sold by Shareholders hereunder;
(ii) all of the documents, certificates and instruments
required to be delivered, or caused to be delivered, by such Shareholders
pursuant to Section 10 hereof; and
(iii) all records, documents and files of the Company, or
copies thereof including without limitation, all minute books, stock
records and internal accounting records. Shareholders may retain copies of
and shall be provided reasonable access after the Closing to all such
records, documents and files.
(b) Against delivery of the irrevocable general proxy in favor
of Acquirer with respect to the Shares being sold by Shareholders
hereunder:
(i) Acquirer shall cause a certificate or certificates
representing the Acquirer Shares to be delivered to the registered holder
or placed in escrow with the Escrow Agent, as applicable; and
(ii) Acquirer shall deliver all of the documents,
certificates and instruments required to be delivered, or caused to be
delivered, by such Shareholders pursuant to Section 9 hereof.
8.2 Shares Certificates. As soon as practicable, but in any event
within seven (7) business days after the transfer of the Shares has been
stamped pursuant to applicable federal law, Shareholders shall deliver or
cause to be delivered to Acquirer a certificate or certificates
representing the Shares being sold by Shareholders hereunder duly endorsed
for transfer, or accompanied by duly executed assignments separate from
certificate, transferring to Acquirer good and marketable title to such
Shares, free and clear of all liens.
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9. CONDITIONS TO OBLIGATIONS OF SHAREHOLDER
Obligations hereunder are subject to the fulfillment or satisfaction,
on and as of the Closing, of each of the following conditions (any one or
more of which may be waived by Shareholders):
9.1 Accuracy of Representations and Warranties. The
representations and warranties of Acquirer set forth in Section 4 shall be
accurate in all material respects and Shareholders shall have received a
certificate to such effect executed on behalf of Acquirer by its Chief
Executive Officer and its Chief Financial Officer.
9.2 Covenants. Acquirer shall have performed and complied in
all material respects with all of its covenants contained in Section 6 on
or before the Closing Date, and Shareholders shall have received a
certificate to such effect executed on behalf of Acquirer by its Chief
Executive Officer or Chief Financial Officer.
9.3 Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency or threat thereof, or any other
fact or circumstance, which would prohibit or render illegal the
transactions contemplated by this Agreement.
9.4 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall
have been taken such other actions, as may be required to consummate the
transactions contemplated by this Agreement by any regulatory authority
having jurisdiction over the parties and the actions herein proposed to be
taken, including but not limited to satisfaction of all requirements under
applicable federal and state securities laws.
9.5 No Litigation. No litigation or proceeding initiated by a
party other than Shareholders shall be pending which will have the probable
effect of enjoining or preventing the consummation of any of the
transactions provided for in this Agreement.
9.6 Requisite Approvals. The principal terms of this Agreement
shall have been approved and adopted by Acquirer, as required by applicable
law and by their respective Boards of Directors.
9.7 Employment Agreements. Each of Xxxxxxx XxXxxxxxx
("XxXxxxxxx") and Xxxx Xxxxxx ("Xxxxxx") shall have entered into employment
agreements in a form attached as Exhibit 9.7.
9.8 Escrow Agreement. Acquirer and Escrow Agent shall have
executed and delivered to Shareholder the Escrow Agreement.
10. CONDITIONS TO OBLIGATIONS OF ACQUIRER
The obligations of Acquirer hereunder are subject to the fulfillment
or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Acquirer):
10.1 Accuracy of Representations and Warranties. The
representations and warranties of Shareholder set forth in Sections 2 and 3
shall be accurate in all material respects and Acquirer shall have received
a certificate to such effect executed on behalf of Shareholder.
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10.2 Covenants. Shareholder shall have performed and complied in
all material respects with all of its covenants contained in Section 5 on
or before the Closing and Acquirer shall have received a certificate to
such effect signed by Shareholder.
10.3 Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency in effect that would prohibit or
render illegal the transactions provided for in this Agreement.
10.4 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall
have been taken such other action, as may be required to consummate the
transactions contemplated by this Agreement by any regulatory authority
having jurisdiction over the parties and the actions herein proposed to be
taken, including but not limited to satisfaction of all requirements under
applicable federal and state securities laws.
10.5 Consents. Acquirer shall have received all written
consents, assignments, waivers, authorizations or other certificates
necessary to provide for the continuation in full force and effect of any
and all contracts and leases of the Company which if not continued would
have a Material Adverse Effect on the Company.
10.6 Absence of Material Adverse Change. Since the Balance Sheet
Date, there shall not have been any Material Adverse Change with respect to
the Company.
10.7 Requisite Approvals. The principal terms of this Agreement
shall have been approved and adopted by Acquirer's Board of Directors.
10.8 No Litigation. No litigation or proceeding shall be
threatened or pending which will have the probable effect of enjoining or
preventing the consummation of any of the transactions provided for in this
Agreement or which have had or could reasonably be expected to have
Material Adverse Effect on the Company.
10.9 Escrow. Acquirer shall have received the Escrow Agreement,
executed by Shareholders and the Escrow Agent, which agreement provides for
the escrow of the Escrow Shares on the terms and conditions of the Escrow
Agreement.
10.10 Employment Agreements. Each of XxXxxxxxx and Xxxxxx shall
have entered into employment agreements in a form attached as Exhibit 9.7.
10.11 Investor Representation Certificate. Shareholder shall
have executed and delivered to Acquirer an Investor Representation
Certificate in the form attached hereto as Exhibit 5.15.
10.12 Company Approval. The Board of Directors of the Company
shall have approved the principal terms of this Agreement and the
transactions contemplated hereby.
11. TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by the mutual written consent of Acquirer and
Shareholders;
27
(b) upon notice by either party, if the Closing shall not
have been consummated by September 1, 2003 (the "Final Date") other than as
the result of a breach of this Agreement by the terminating party;
(c) by Shareholders, if there has been a breach by Acquirer
of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Acquirer which has or can reasonably be expected
to have a Material Adverse Effect on Acquirer and which Acquirer fails to
cure within a reasonable time, not to exceed thirty (30) days, after
written notice thereof (except that no cure period will be provided for a
breach by Acquirer which by its nature cannot be cured);
(d) by Acquirer, if there has been a breach by Shareholders
of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Shareholders which have or can reasonably be
expected to have a Material Adverse Effect on the Company and which
Shareholders fail to cure within a reasonable time not to exceed thirty
(30) days after written notice thereof (except that no cure period will be
provided for a breach by Shareholder which by its nature cannot be cured);
(e) by Acquirer, if Shareholders breach their obligations
under Section 5.8 or Section 5.12; or
(f) by either party, if a permanent injunction or other
order by any federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the transactions contemplated by
this Agreement will have been issued and will have become final and
nonappealable.
Any termination of this Agreement under this Section 11.1 will be
effective by the delivery of written notice of the terminating party to the
other party hereto.
11.2 Certain Continuing Obligations. Following any termination
of this Agreement pursuant to this Section 11, the parties hereto will
continue to perform their respective obligations under Sections 13.11 and
13.15 but will not be required to continue to perform their other covenants
under this Agreement, except as provided in Section 11.1(c) and (d).
12. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS
12.1 Survival of Representations. The representations and
warranties of the parties hereto contained in this Agreement or in any
writing delivered pursuant hereto or thereto or at the Closing shall
survive the Closing and the consummation of the transactions contemplated
hereby and thereby (and any examination or investigation by or on behalf of
any party hereto) until the first anniversary of the Closing Date (the
"Indemnification Period"); provided, that the Indemnification Period for
representations and warranties contained in Section 3.7, Section 3.14 and
Section 3.18 of this Agreement shall not terminate until the expiration of
any applicable statute of limitations; provided, further, that the
Indemnification Period for representations and warranties contained in
Sections 2.1, 2.2, 2.3, 2.4, 3.4, 3.11, 3.21 and 4.6 of this Agreement
shall not terminate but shall continue indefinitely. Notwithstanding the
foregoing, each Subparagraph under this Section 12 shall not be so limited
and shall survive until any claims under this Agreement are resolved in
accordance with this Agreement. The covenants contained in Section 7 shall
survive in accordance with their terms.
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12.2 Shareholders Indemnification.
(a) Each Shareholder shall, jointly and severally,
indemnify and hold harmless Acquirer and its officers, shareholders,
directors, agents, affiliates and employees (the "Acquirer Indemnified
Parties"), against and in respect of all actions, damages, claims, losses,
liabilities and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred by an Acquirer Indemnified
Party (all such amounts being hereinafter sometimes referred to as
"Damages") arising out of or related to (i) any misrepresentation or breach
of any warranty made by any Shareholder pursuant to Section 2 or Section 3
of this Agreement, (ii) the nonperformance or breach of any covenant,
agreement or obligation of the Company or Shareholders contained in this
Agreement, or (iii) any failure of any Shareholders to have good, valid and
marketable title to the issued and outstanding shares of the Company's
Common Stock, free and clear of all liens, claims, pledges, options,
adverse claims, assessments and charges of any nature whatsoever, or to
have the full right, capacity and authority to vote said shares of the
Company's Common Stock. There shall be no liability for indemnification
under this Section 12.2 unless the aggregate amount of Damages hereunder
exceeds Ten Thousand Dollars ($10,000), and then only to the extent such
aggregate amount of Damages exceeds $10,000. The liability of Shareholders
for Damages hereunder shall be satisfied first from the Escrow Shares. The
value of the Parent Shares shall be the Fair Market Value (as defined in
Section 12.5) thereof as determined at on the date any such Damages become
due and payable.
(b) If an Acquirer Indemnified Party believes it has
incurred any Damages which are subject to indemnification under Section
12.2, it shall promptly provide written notice thereof to Shareholders.
(c) With respect to claims or demands by third parties,
whenever an Acquirer Indemnified Party shall have received notice that such
a claim or demand has been asserted or threatened, which, if true, would
result in indemnification under Section 12.2, the Acquirer Indemnified
Party shall as soon as reasonably practicable, and in any event within
thirty (30) days of receipt of such notice, notify Shareholders'
Representative of such claim or demand and of all relevant facts within its
knowledge which relate thereto. Shareholders' Representative shall then
have the right to undertake the defense of any such claims or demands
utilizing counsel they select and approved by Acquirer, which approval
shall not be unreasonably withheld, conditioned or delayed; provided
however, that Shareholders' Representative shall not settle or otherwise
compromise any such action without the prior written consent of the
Acquirer Indemnified Party unless such settlement affords the Acquirer
Indemnified Party a full release. In the event that Shareholders'
Representative shall fail to give notice of their intention to undertake
the defense of any such claim or demand within twenty (20) days after
receiving notice that it has been asserted or threatened, the Acquirer
Indemnified Party shall have the right to satisfy and discharge the same by
payment, compromise or otherwise. For purposes of this Agreement,
"Shareholders' Representative" shall mean Xxxxxxx XxXxxxxxx.
(d) If an Acquirer Indemnified Party believes it has
incurred any Damages which are subject to indemnification under Section
12.2(a) and such Damages do not involve a third party claim or demand
described in Section 12.2(d), it shall forward notice thereof to
Shareholders' Representative and shall state therein the amount of Damages
it believes it has suffered, and shall provide, in reasonable detail the
facts alleged as the basis for such claim and the section or sections of
this Agreement alleged to have been violated (a "Damages Notice"). No
later than thirty (30) days after receipt of a Damages Notice from an
29
Acquirer Indemnified Party, Shareholders' Representative shall deliver to
Acquirer either a notice accepting such claim for Damages or a notice that
Shareholders dispute the claim for Damages. A failure to provide the
Acquirer Indemnified Party with notice disputing a claim for Damages within
thirty (30) days of receipt of a Damages Notice from an Acquirer
Indemnified Party shall be deemed acceptance of such claim.
12.3 Acquirer Indemnification.
(a) Acquirer shall indemnify and hold harmless
Shareholders, their heirs and assigns (the "Shareholder Indemnified
Parties"), against and in respect of all actions, damages, claims, losses,
liabilities and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred by a Shareholder Indemnified
Party within the Indemnification Period, arising out of or related to (i)
any misrepresentation or breach of any warranty made by Acquirer pursuant
to Section 4 of this Agreement, or (ii) the nonperformance or breach of any
covenant, agreement or obligation of Acquirer contained in this Agreement.
There shall be no liability for indemnification under this Section 12.3
unless the aggregate amount of Damages hereunder exceeds Ten Thousand
Dollars ($10,000), and then only to the extent such aggregate amount of
Damages exceeds $10,000. In no event shall Acquirer's indemnification
obligations under this Section 12 exceed the Fair Market Value of the
Acquirer Shares on the Closing Date.
(b) If a Shareholder Indemnified Party believes it has
incurred any Damages that are subject to indemnification under Section
12.3, it shall promptly provide written notice thereof to Acquirer.
(c) With respect to claims or demands by third parties,
whenever a Shareholder Indemnified Party shall have received notice that
such a claim or demand has been asserted or threatened, which, if true,
would result in indemnification under Section 12.3, Shareholder Indemnified
Party shall as soon as reasonably practicable, and in any event within
thirty (30) days of receipt of such notice, notify Acquirer of such claim
or demand and of all relevant facts within its knowledge which relate
thereto. Acquirer shall then have the right to undertake the defense of
any such claims or demands utilizing counsel selected by it and approved by
Shareholder, which approval shall not be unreasonably withheld, conditioned
or delayed, provided however, that Acquirer shall not settle or otherwise
compromise any such action without the prior written consent of Shareholder
Indemnified Party unless such settlement affords Shareholder Indemnified
Party a full release. In the event that Acquirer shall fail to give notice
of its intention to undertake the defense of any such claim or demand
within twenty (20) days after receiving notice that it has been asserted or
threatened, Shareholder Indemnified Party shall have the right to satisfy
and discharge the same by payment, compromise or otherwise.
(d) If a Shareholder Indemnified Party believes it has
incurred any Damages which are subject to indemnification under Section
12.3(a) and such Damages do not involve a third party claim or demand
described in Section 12.3(c), it shall forward a Damages notice to
Acquirer. No later than thirty (30) days after receipt of a Damages Notice
from a Shareholder Indemnified Party, Acquirer shall deliver to Shareholder
Indemnified Party either a notice accepting such claim for Damages or a
notice that Acquirer disputes the claim for Damages. A failure to provide
Shareholder Indemnified Party with notice disputing a claim for Damages
within thirty (30) days of receipt of a Damages Notice from a Shareholder
Indemnified Party shall be deemed acceptance of such claim.
30
12.4 Insurance Recoveries; Tax Benefits.
Any indemnity payment made by Shareholders to any Acquirer
Indemnified Party, on the one hand, or by Acquirer to any Shareholder
Indemnified Party, on the other hand, pursuant to this Section 12 in
respect of any claim (i) shall be net of an amount equal to (x) any
insurance proceeds realized by and paid to the respective Shareholder
Indemnified Parties or Acquirer Indemnified Parties minus (y) any related
costs and expenses, including the aggregate cost of pursuing any related
insurance claims plus any correspondent increases in insurance premiums or
other chargebacks, and (ii) shall be (A) reduced by an amount equal to the
tax benefits, if any, attributable to such claim and (B) increased by an
amount equal to the taxes, if any, attributable to the receipt of such
indemnity payment, but only to the extent that such tax benefits are
actually realized, or such taxes are actually paid, as the case may be, by
Shareholder Indemnified Parties or Acquirer Indemnified Parties or any
consolidated, combined or unitary group of which such Shareholder
Indemnified Parties or Acquirer Indemnified Parties are a member.
12.5 Fair Market Value. For purposes of this Section 12, "Fair
Market Value" shall mean:
(i) if Parent's Common Stock is traded on an exchange
or are quoted on the NASDAQ National Market, the average of the closing or
last sale price reported for the ten business days immediately preceding
the date Damages become due and payable;
(ii) if Parent's Common Stock is not traded on an
exchange or on the NASDAQ National market, but is traded in the over-the-
counter market, the average of the closing bid and asked prices reported
for the ten market days immediately preceding the date Damages become due
and payable; and,
(iii) in all other cases, the fair market value as
determined in good faith by Acquirer's Board of Directors.
13. MISCELLANEOUS
13.1 Governing Law. Except to the extent for corporate matters
governed by the internal laws of South Australia and Utah, the internal
laws of the State of Utah (irrespective of its choice of law principles)
will govern the validity of this Agreement, the construction of its terms,
and the interpretation and enforcement of the rights and duties of the
parties hereto.
13.2 Assignment; Binding Upon Successors and Assigns. No party
hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
13.3 Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of the void or unenforceable
provision.
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13.4 Counterparts. This Agreement may be executed in
counterparts, each of which will be an original as regards any party whose
name appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, bear the signatures of
all parties reflected hereon as signatories.
13.5 Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by a writing signed by the party to
be bound thereby. The waiver by a party of any breach hereof or default in
the performance hereof will not be deemed to constitute a waiver of any
other default or any succeeding breach or default.
13.6 No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of
the right to enforce any of the provisions hereof on any occasion will not
be construed to be a waiver of the right of such party to enforce such
provision on any other occasion.
13.7 Notices. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be
delivered personally or by mail or express delivery, postage prepaid, and
will be deemed given upon actual delivery or, if mailed by registered or
certified mail, on the third business day following deposit in the mails,
addressed as follows:
(i) If to Acquirer:
Trinity Companies, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxx, President
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to: Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxx & Xxxxxxx
000 Xxxxx 000 Xxxx, Xxxxx 000
Xxxxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
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(ii) If to the Shareholders:
Xxxxxxx XxXxxxxxx
00 Xxxxxx Xxxxxx
Xxxxxxx, Xxxxx Xxxxxxxxx
Xxxxxxxxx
Phone: x00 0 0000 0000
Fax: x00 0 0000 0000
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 13.7.
13.8 Construction of Agreement. The language hereof will not be
construed for or against any party based solely on that party being the
drafting party. A reference to an article, section or exhibit will mean an
article or section in, or an exhibit to, this Agreement, unless otherwise
explicitly set forth. The titles and headings in this Agreement are for
reference purposes only and will not in any manner limit the construction
of this Agreement. For the purposes of such construction, this Agreement
will be considered as a whole.
13.9 No Joint Venture. Nothing contained in this Agreement will
be deemed or construed as creating a joint venture or partnership between
the parties hereto. No party is by virtue of this Agreement authorized as
an agent, employee or legal representative of any other party. No party
will have the power to control the activities and operations of any other,
and the parties' status is, and at all times, will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself
out as having any authority or relationship in contravention of this
Section.
13.10 Further Assurances. Each party agrees to cooperate fully
with the other party and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the transactions
provided for herein and to carry into effect the intent of this Agreement.
13.11 Taxes Stamp duty and other like transaction taxes incurred
by any person under or in consequence of this Agreement (including, without
limitation, share transfers) shall be paid by the Acquirer.
Public Announcement. Acquirer and Shareholder will issue a press
release approved by both parties announcing this Agreement as soon as
practicable following the execution of this Agreement. Acquirer may issue
such press releases, and make such other disclosures regarding the
transactions contemplated by this Agreement, as it determines to be
required or appropriate under applicable securities laws. Shareholder will
not make any other public announcement or disclosure of the transactions
contemplated by this Agreement until such time as Acquirer has issued such
press releases, and made such other disclosures regarding this Agreement
required under applicable securities laws or the time period designated by
federal securities laws for making such disclosures has lapsed.
Shareholder will take all reasonable precautions to prevent any trading in
the securities of Acquirer by officers, directors, employees and agents of
Shareholder having knowledge of any material information regarding Acquirer
provided hereunder, including, without limitation, the existence of the
transactions contemplated by this Agreement (the "Acquirer Material
Information"), until the information in question has been publicly
disclosed. Shareholder agrees not to trade in the securities of Parent
until the Acquirer Material Information has been disclosed.
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13.12 Time is of the Essence. The parties hereto acknowledge
and agree that time is of the essence in connection with the execution,
delivery and performance of this Agreement, and that they will each utilize
reasonable best efforts to satisfy all the conditions to Closing.
13.13 Certain Definitions.
13.13.1 "Entity" shall mean any corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust company (including any
limited liability company or joint stock company), firm or other
enterprise, association, organization or entity.
13.13.2 "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign or other government; or (c) governmental or quasi-governmental
authority of any nature (including any governmental division, department,
agency, commission, instrumentality, official, organization, unit, body or
Entity and any court or other tribunal).
13.13.3 "Legal Requirement" shall mean any statute, law,
ordinance, rule, regulation, permit, order, writ, judgment, injunction,
decree or award issued, enacted or promulgated by any local, state, federal
or foreign court, government, governmental department, commission, agency
board or instrumentality.
13.13.4. "Material Adverse Effect" and "Material Adverse
Change" For purposes of this Agreement, the terms "Material Adverse
Effect" and "Material Adverse Change" mean or refer to, with respect to any
entity, any adverse change, circumstance or effect that, individually or in
the aggregate with all other adverse changes, circumstances and effects, is
or is reasonably likely to be materially adverse to the financial
condition, properties, assets, liabilities, material Intellectual Property
rights, business, or operating results of such entity, and its subsidiaries
if any, taken as a whole, except for those changes, circumstances or events
that are caused by (i) general business or economic conditions, (ii)
conditions affecting the market in which such entity competes, (iii)
conditions resulting from the announcement of this Agreement or the
pendency of the consummation of the transactions contemplated herein and
(iv) conditions resulting from or relating to the taking of any action
contemplated by this Agreement or otherwise agreed to by Acquirer.
13.13.5 "Person" shall mean any individual, Entity or
Governmental Body.
13.14 Expenses. All expenses incurred in connection
with this Agreement on behalf of Shareholders, including, but not limited
to, all accounting, legal and investment banking and other related fees,
shall be paid by Shareholders, and not by the Company or Acquirer.
13.15 Absence of Third Party Beneficiary Rights. No
provisions of this Agreement are intended, nor will be interpreted, to
provide or create any third party beneficiary rights or any other rights of
any kind in any client, customer, affiliate, partner or employee of any
party hereto or any other person or entity, except as specifically
otherwise provided to be for the benefit of officers, directors, employees
or shareholders of the Company in Sections 5.13 and 6.4 (as to officers and
directors), and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
34
13.16 Entire Agreement. This Agreement and the exhibits
hereto constitute the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and supersede all prior
and contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties with
respect to the subject matter hereof. The express terms hereof control and
supersede any course of performance or usage of trade inconsistent with any
of the terms hereof.
13.17 Sole Remedy. The parties' sole and exclusive
remedy for breach of any representation, warranty or covenant herein shall
be the indemnification provision of Article 12.
13.18 Arbitration. Any dispute arising out of this
Agreement under the Commercial Arbitration Rules (the "AAA Rules") of the
American Arbitration Association (the "AAA"). This arbitration provision
is expressly made pursuant to and shall be governed by the Federal
Arbitration Act, 9 U.S.C. Section 1-14. The Parties agree that pursuant
to Section 9 of the Federal Arbitration Act, a judgment of a United States
District Court of competent jurisdiction shall be entered upon the award
made pursuant to the arbitration. A single arbitrator, who shall have the
authority to allocate the costs of any arbitration initiated under this
paragraph, shall be selected according to the AAA Rules within ten (10)
days of the submission to the AAA of the response to the statement of claim
or the date on which any such response is due, whichever is earlier. The
arbitrator shall be required to furnish to the parties to the arbitration a
preliminary statement of the arbitrator's decision that includes the legal
rationale for the arbitrator's conclusion and the calculations pertinent to
any damage award being made by the arbitrator. The arbitrator shall then
furnish each of the parties to the arbitration the opportunity to comment
upon and/or contest the arbitrator's preliminary statement of decision
either, in the discretion of the arbitrator, through briefs or at a
hearing. The arbitrator shall render a final decision following any such
briefing or hearing. The arbitrator shall conduct the arbitration in
accordance with the Federal Rules of Evidence. The arbitrator shall decide
the amount and extent of pre-hearing discovery which is appropriate. The
arbitrator shall have the power to enter any award of monetary and/or
injunctive relief (including the power to issue permanent injunctive relief
and also the power to reconsider any prior request for immediate injunctive
relief by any party and any order as to immediate injunctive relief
previously granted or denied by a court in response to a request therefor
by any party), including the power to render an award as provided in Rule
43 of the AAA Rules. The arbitrator shall have the power to award the
prevailing party its costs and reasonable attorneys' fees; provided,
however, that the arbitrator shall not award attorneys' fees to a
prevailing party if the prevailing party received a settlement offer unless
the arbitrator's award to the prevailing party is greater than such
settlement offer without taking into account attorneys' fees in the case of
the settlement offer or the arbitrator's award. In addition to the above
courts, the arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration.
13.19 Interpretation. All references to currency under this
Agreement are United States dollars and all references to "federal" shall
include both the United States and Australia in the context of such
references and all references to "state" shall include both the states of
the United States and the Australian equivalents.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ACQUIRER SHAREHOLDERS
Trinity Learning Corporation
By: _____________________________ By: __________________________
Name: __________________________ Xxxxxxx XxXxxxxxx
Title: _________________________
By:___________________________
Xxxx Xxxxxx
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF REORGANIZATION
36
ANNEX A
Shareholders No. of Shares
Xxxxxxx XxXxxxxxx 150
Xxxx Xxxxxx 150
37
ANNEX B
Short Term Loans.
-----------------
Promissory Note issued by the Company to Xxxx Xxxxxx in the principal
amount of AUS$35,000; and
Promissory Note issued by the Company to Xxxxxxx XxXxxxxxx in the principal
amount of AUS$35,000.
38
