AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into as
of this 7th day of August, 2000 by and among EBIZ ENTERPRISES, INC., a Nevada
corporation ("Ebiz"), XXXXXXXXX.XXX, INC., a Delaware corporation ("LMI"), and
LINUX MALL ACQUISITION, INC., a Delaware corporation ("Merger Sub").
RECITALS
A. Ebiz and LMI have entered into a letter of intent reflecting each entity's
desire that Ebiz acquire all of the outstanding capital stock and equity
interests of LMI by means of a merger (the "Merger") of LMI with and into Merger
Sub, a direct, wholly owned subsidiary of Ebiz.
B. For federal income tax purposes, the parties intend that the Merger qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
C. The parties hereby set forth the terms, considerations and conditions of the
Merger.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE 1
THE MERGER AND RELATED MATTERS
1.1 The Merger.
(a) At the Effective Time (as hereinafter defined) and subject to and upon the
terms and conditions of this Agreement, LMI shall merge with and into Merger Sub
in accordance with the provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), the separate corporate existence of LMI shall cease and
Merger Sub shall continue as the surviving corporation (the "Surviving
Corporation"). The "Effective Time" shall occur upon the filing with the
Delaware Secretary of State of a certificate of merger (the "Certificate of
Merger") substantially in the form of Exhibit A attached hereto and executed in
accordance with the applicable provisions of the DGCL, or at such later time as
may be agreed to by Ebiz and LMI and specified in the Certificate of Merger.
Provided that this Agreement has not been terminated pursuant to Article 9, the
parties will cause the Certificate of Merger to be filed with the Delaware
Secretary of State as soon as practicable after the Closing (as defined in
Section 1.2 below).
(b) The Merger shall have the effects set forth in Sections 259, 260 and 261 of
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the properties, rights, privileges, powers and
franchises of LMI shall vest in the Surviving Corporation, and all debts,
liabilities and duties of LMI shall become the debts, liabilities and duties of
the Surviving Corporation. If, at any time after the Effective Time, the
Surviving Corporation considers or is advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties, or assets of either LMI or Merger Sub, or otherwise to carry out the
intent and purposes of this Agreement, the officers and directors of the
Surviving Corporation will be authorized to execute and deliver, in the name and
on behalf of each of LMI and Merger Sub, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of LMI and Merger Sub, all such other actions and things as the Board of
Directors of the Surviving Corporation may determine to be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the intent and purposes of this Agreement.
1.2 Closing.
The closing of the Merger (the "Closing") shall take place (i) at 9:00 a.m.
(Mountain Standard Time) at the offices of Xxxxx and Xxxx, LLP, within ten
business days following the date on which the last of the conditions set forth
in Article 6 (other than the filing of the Certificate of Merger and other than
any such conditions which by their terms are not capable of being satisfied
until the Closing Date (as hereinafter defined) or thereafter) is satisfied or,
when permissible, waived, or (ii) on such other date and at such other time or
place as is mutually agreed by the parties hereto. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
1.3 Conversion of Securities. At the Effective Time, by virtue of the Merger and
without any action on the part of Ebiz, Merger Sub, LMI or the holders of any of
their respective securities:
(a) Each share of common stock of LMI, par value $0.01 per share ("LMI Common
Stock") outstanding immediately prior to the Effective Time (other than those
shares for which an election for dissenters' rights has been made as
contemplated by Section 1.4) shall be converted into and represent the right to
receive, and shall be exchangeable for, 2.2 validly issued, fully paid and
non-assessable shares of common stock of Ebiz, par value $0.001 per share ("Ebiz
Common Stock").
(b) Each share of Series A Preferred Stock of LMI (the "LMI Series A Preferred
Stock") or Series B Preferred Stock of LMI (the "LMI Series B Preferred Stock"),
each par value $0.01 per share (collectively, "LMI Preferred Stock"),
outstanding immediately prior to the Effective Time (other than those shares for
which an election for dissenters' rights has been made as contemplated by
Section 1.4) shall be converted into the number of validly issued, fully paid
and non-assessable shares of Ebiz Common Stock equal to (i) with respect to the
LMI Series A Preferred Stock, the product of (A) 2.2 multiplied by (B) the
number of shares of LMI Common Stock into which each share of LMI Series A
Preferred Stock is convertible immediately prior to the Effective Time and (ii)
with respect to the LMI Series B Preferred Stock, the product of (A) 2.2
multiplied by (B) the number of shares of LMI Common Stock into which each share
of LMI Series B Preferred Stock is convertible immediately prior to the
Effective Time. Immediately prior to the Effective Time, all outstanding
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debentures of LMI issued before March 1, 2000 and a Designated Portion (as
hereinafter defined) of the outstanding principal and interest of each debenture
of LMI issued after March 1, 2000 shall be converted automatically into LMI
Preferred Stock in accordance with the terms of such debentures. "Designated
Portion" shall mean 30.5%, unless the liquidation provisions contained in
Article IV.B.2(b)(i) of the Certificate of Incorporation of LMI and Section
3(b)(i) of the Certificate of Designations of Series B Preferred Stock of LMI
are waived, amended or otherwise rendered inapplicable to the Merger on or
before the Closing Date, in which case Designated Portion shall mean 20%. All
LMI Preferred Stock issued upon such conversion shall be converted into Ebiz
Common Stock as provided above. The portion of outstanding principal and
interest of each debenture of LMI issued after March 1, 2000 that remains
unconverted immediately after the Effective Time, which portion shall be 69.5%,
unless the liquidation provisions contained in Article IV.B.2(b)(i) of the
Certificate of Incorporation of LMI and Section 3(b)(i) of the Certificate of
Designations of Series B Preferred Stock of LMI are waived, amended or otherwise
rendered inapplicable to the Merger on or before the Closing Date, in which case
such portion shall be 80%, shall be assumed by Ebiz at the Effective Time (the
"Assumed LMI Debentures") on the terms and conditions set forth in each such
debenture; provided, however, that ninety days after the Effective Time, the
Assumed LMI Debentures shall convert automatically into shares of Ebiz Common
Stock on such a basis that there is issued with respect to each of the Assumed
LMI Debentures the same number of shares of Ebiz Common Stock as would have been
issued with respect to such Assumed LMI Debenture had it been converted into LMI
Preferred Stock immediately prior to the Effective Time. Prior to the Closing,
all outstanding convertible notes (the "Canopy Notes") issued to The Canopy
Group, Inc. ("Canopy") shall, at the election of Canopy and in accordance with
the terms of the Canopy Notes, either be repaid by LMI or be converted into LMI
Common Stock.
(c) For purposes of this Agreement, "Merger Consideration" shall mean (i) with
respect to each share of LMI Common Stock, the number of shares of Ebiz Common
Stock into which each share of LMI Common Stock is converted pursuant to Section
1.3(a) of this Agreement, (ii) with respect to each share of LMI Preferred
Stock, the number of shares of Ebiz Common Stock into which each share of LMI
Preferred Stock is converted pursuant to Section 1.3(b) of this Agreement and
(iii) with respect to the Assumed LMI Debentures, the number of shares of Ebiz
Common Stock into which the Assumed LMI Debentures are to be converted pursuant
to Section 1.3(b) of this Agreement.
1.4 Dissenting Shares.
(a) Notwithstanding anything to the contrary in this Agreement, if appraisal
rights are available to holders of LMI Common Stock or LMI Preferred Stock
pursuant to Section 262 of the DGCL ("Section 262"), each outstanding share of
LMI Common Stock or LMI Preferred Stock, the holder of which has demanded and
perfected his demand for appraisal of the fair value of such shares in
accordance with Section 262 and has not effectively withdrawn or lost his right
to such appraisal (the "Dissenting Shares"), shall not be converted into or
represent a right to receive the Merger Consideration, but the holder thereof
shall be entitled only to such rights as are granted by Section 262. LMI shall
give Ebiz prompt written notice upon receipt of any such written demands for
appraisal of the fair value of shares of LMI Common Stock or LMI Preferred Stock
and of withdrawals of such demands and any other instruments provided pursuant
to Section 262 (any stockholder duly making such demand being hereafter called a
"Dissenting Stockholder"). Each Dissenting Stockholder who becomes entitled,
pursuant to the provisions of Section 262, to payment for his shares of LMI
Common Stock or LMI Preferred Stock shall receive payment therefor from the
Surviving Corporation (but only after the amount thereof shall have been agreed
upon or at the times and in the amounts required by Section 262), and such
shares of LMI Common Stock or LMI Preferred Stock, as the case may be, shall be
cancelled.
(b) If any holder of shares of LMI Common Stock or LMI Preferred Stock who
demands appraisal of the fair value of his shares under Section 262 shall
effectively withdraw or lose (through failure to perfect or otherwise) his right
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to such appraisal, the shares of LMI Common Stock or LMI Preferred Stock of such
holder shall be converted into a right to receive the Merger Consideration.
1.5 Exchange of Share Certificates.
(a) As soon as practicable after the Effective Time and surrender to Ebiz of any
certificate (a "Certificate") that immediately prior to the Effective Time
represented any shares of LMI Common Stock or LMI Preferred Stock, Ebiz shall,
subject to Section 1.5(c) and Article 10, if such Certificate represented shares
of stock which were converted in the Merger into the right to receive the Merger
Consideration, distribute to the person in whose name such Certificate shall
have been issued, a certificate registered in the name of such person
representing the Merger Consideration payable in respect of such shares. Each
Certificate so surrendered shall forthwith be cancelled.
(b) As soon as practicable after the conversion of the Assumed LMI Debentures
pursuant to Section 1.3(b), Ebiz shall, subject to Section 1.5(c) and Article
10, distribute to the holders of Assumed LMI Debentures, a certificate
registered in the name of each such holder representing the Merger Consideration
payable in respect of the conversion of the Assumed LMI Debentures.
(c) At and after the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of shares of LMI Common Stock, LMI
Preferred Stock or Assumed LMI Debentures that were converted into the right to
receive the Merger Consideration. Each share of Ebiz Common Stock into which
shares of LMI Common Stock or LMI Preferred Stock shall be converted in the
Merger shall be deemed to have been issued at the Effective Time. Each share of
Ebiz Common Stock into which the Assumed LMI Debentures shall be converted in
connection with the Merger shall be deemed to have been issued at the time such
conversion occurs pursuant to Section 1.3(b).
1.6 Warrants; Stock Options.
(a) Upon the Effective Time, Ebiz shall assume LMI's obligations under the
warrants issued by LMI ("LMI Warrants"), a list of which is contained in
Schedule 3.5 and pursuant to the terms of the LMI Warrants, each warrant shall
be exercisable for the number of shares of Ebiz Common Stock to which the holder
of such warrant would have been entitled to receive in the Merger if such holder
had exercised its LMI Warrant immediately before the Merger.
(b) Upon the Effective Time, Ebiz shall assume all outstanding stock options of
LMI (the "LMI Stock Options"), a list of which is contained in Schedule 3.5,
with adjustment in the number and exercise price as set forth in the terms of
the LMI Stock Options, and such LMI Stock Options shall be exercisable for
shares of Ebiz Common Stock.
1.7 Tax Free Merger. The cancellation of shares of LMI Common Stock and LMI
Preferred Stock issued prior to Closing in exchange for Ebiz Common Stock is
intended to qualify as a reorganization within the meaning of ss.368(a) of the
Code. The parties hereto will perform and refrain from performing all acts as
required by the Code and all rules, regulations or judicial interpretations
thereof as necessary to cause this transaction to be treated as a reorganization
as stated above, to the extent such treatment is available without altering the
terms of this Agreement.
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ARTICLE 2
ADDITIONAL TERMS
2.1 Executive Management. Upon consummation of the Merger, the executive
management of Ebiz shall be:
Xxxxxxx Xxxxxx Chairman and President
Xxxxx Xxxx Chief Executive Officer
Xxxxxxx Xxxxxx Chief Marketing Officer
Xxx Xxxxxxx Chief Financial Officer
At the Closing, Ebiz shall offer to enter into Employment Agreements with such
persons substantially in the form attached as Exhibit B hereto.
2.2 Board of Directors. Upon consummation of the Merger, Ebiz shall cause the
number of members of its Board of Directors to equal seven. Ebiz shall fill 5 of
such 7 directorships by appointing 2 inside Directors as directed by LMI acting
through its Chief Executive Officer and 3 outside Directors as mutually agreed
upon by Ebiz and LMI acting through their respective Chief Executive Officers
(collectively the "Appointed Directors"). Each such Director shall be appointed
to hold office until a successor is properly elected and qualified. At the next
annual or special meeting of Ebiz shareholders following the Merger at which an
election of Directors is properly held, Ebiz shall nominate the Appointed
Directors along with the Directors of Ebiz as of the Closing for election to the
Board of Directors of Ebiz, and shall not nominate any other person for a
Director position. At Closing, the principal shareholders of Ebiz and LMI shall
execute a Shareholder Voting Agreement and Proxy in substantially the form
attached as Exhibit C hereto. As used herein, "principal shareholder" means any
holder of 10% or more of the authorized and outstanding shares, as of the
Closing, of LMI Common Stock or Ebiz Common Stock.
2.3 Name of Surviving Corporation: Certificate of Incorporation; Bylaws
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Delaware law.
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by Delaware law.
2.4 Registration Rights/Lock-up.
(a) At the Closing, Ebiz shall enter into a Registration Rights Agreement (the
"Registration Rights Agreement") with each of the shareholders of LMI,
substantially in the form attached as Exhibit D hereto. Upon the conversion of
the Assumed LMI Debentures pursuant to Section 1.3(b), Schedule A to the
Registration Rights Agreement shall be automatically amended to list each holder
of an Assumed LMI Debenture as a "Shareholder" with respect to the Ebiz Common
Stock received by such holder in connection with the conversion.
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(b) At the Closing, Ebiz shall cause each of Xxxxxxx Xxxxxx and Xxxxxxx Xxxxxx
to execute and deliver a lock-up agreement (the "Lock-Up Agreement")
substantially in the form attached as Exhibit E hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LMI
LMI hereby represents and warrants to Ebiz as follows:
3.1 Organization, Capacity and Authority.
(a) LMI has been duly organized and is validly existing and in good standing
under the laws of the State of Delaware and has the full corporate power and
authority to own its properties and to carry on its business as now being
conducted. LMI is duly qualified and in good standing as a foreign corporation
in the states set forth on Schedule 3.1(a) hereto and is not required to qualify
in any other state as a foreign corporation, where the failure to do so would
have a material adverse effect on its conduct of business. LMI has full
corporate power and authority to enter into this Agreement and, subject to
obtaining the approval of LMI's stockholders, to perform its obligations
hereunder. The execution, delivery and performance of this Agreement have been
duly authorized by the Board of Directors of LMI and no other corporate
proceeding on the part of LMI is necessary to authorize this Agreement or the
transactions contemplated hereby other than the approval of this Agreement and
the transactions contemplated hereby by LMI's stockholders and holders of LMI
debentures.
(b) Except as set forth on Schedule 3.1(b), LMI does not directly or indirectly
own any equity or similar interest in, or any interest convertible or
exchangeable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
3.2 No Conflict, Breach or Default. The execution and delivery of this
Agreement and the performance by LMI of the terms hereof do not (a) assuming the
approval of this Agreement and the transactions contemplated hereby by LMI's
stockholders, conflict with or result in a violation of the Certificate of
Incorporation or Bylaws of LMI, (b) violate any order, writ, judgment or decree
to which LMI is a party or is subject, or (c) conflict with or result in a
violation of, or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of LMI under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
lease, license, agreement or other instrument or obligation to which LMI is
bound or by which LMI or any of its properties or assets may be bound except, in
the case of this clause (c), where such conflict, violation, default,
termination, cancellation or acceleration would not, individually or in the
aggregate, have a material adverse effect on the transactions contemplated
hereby or on the business, assets, results of operations, financial condition or
prospects ("Material Adverse Effect") of LMI.
3.3 Approvals and Consents. Except for the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, and except as set forth on
Schedule 3.3 hereto, no approval, authorization, consent, exemption,
registration, filing or other action by or filing with any governmental
authority is required in connection with the execution and delivery by LMI of
this Agreement or the transactions contemplated herein.
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3.4 Valid Obligation. This Agreement constitutes a legal, valid and binding
obligation of LMI enforceable against LMI in accordance with its terms, except
that (a) the enforceability of the same may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting enforcement of creditors'
rights generally, and (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.5 Capital Stock of LMI. The authorized capital stock of LMI consists of
25,000,000 shares of common stock, $.01 par value, of which 2,651,662 shares are
issued and outstanding and 15,000,000 shares of preferred stock, $.001 par
value, of which (i) 2,400,000 shares have been designated as Series A Preferred
Stock of which no shares are outstanding, (ii) 8,600,000 shares have been
designated as Series B Preferred Stock of which no shares are outstanding and
(iii) 4,000,000 shares are undesignated of which no shares are outstanding. LMI
has awarded options to purchase 559,250 shares of common stock under the 2000
Incentive Stock Option Plan. All the outstanding shares of common stock of LMI
have been duly and validly authorized and issued, and are fully-paid and
non-assessable, and there exist no preemptive rights of any present or former
stockholders of the common stock. Except as set forth on Schedule 3.5, LMI has
no other outstanding securities convertible into or exercisable for its capital
stock and no other agreements of any nature whatsoever whereby LMI may, under
any circumstances, be obligated to issue, sell, repurchase or redeem additional
shares of capital stock.
3.6 LMI Financial Statements.
(a) Schedule 3.6(a) hereto sets forth a listing of financial statements of LMI
delivered to Ebiz (collectively, the "LMI Financial Statements"). The LMI
Financial Statements are true, accurate and complete and present fairly the
financial position of LMI as of the dates stated and the results of the
operations of LMI for the periods stated.
(b) LMI has no liabilities or obligations of a material nature (whether accrued,
absolute, asserted, unasserted, known, unknown, contingent or otherwise) except
for those described in the most current LMI Financial Statements ("Current LMI
Financial Statements"), described in Schedule 3.6(b) hereto or otherwise
disclosed to Ebiz.
3.7 Books and Records. The books and records of LMI are complete and correct and
have been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The books and records,
financial and otherwise, of LMI accurately set out and disclose the financial
position of LMI, and all transactions of LMI have been accurately recorded in
such books and records. The minute books of LMI contain accurate and complete
records of all meetings held of, and all material corporate actions taken by,
its shareholders or Board of Directors or any committee of its Board of
Directors.
3.8 Regulatory Filings. LMI has heretofore filed all reports, registration
statements and schedules as required pursuant to any applicable law except where
the failure to make such filings has not had and could not be reasonably
expected to have a Material Adverse Effect on LMI. All such filings by LMI
complied as of their respective dates in all material respects with the
applicable requirements of such laws and the rules and regulations adopted
thereunder.
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3.9 Absence of Certain Changes and Events. Except as set forth in Schedule 3.9,
since the date of the most current LMI Financial Statements delivered to Ebiz,
there has not been any change in the affairs, prospects, condition (financial or
otherwise, or arising as a result of any legislative or regulatory change),
operations, liabilities, earnings or business of LMI which has had or reasonably
could be expected to have, individually or in the aggregate with other changes,
a Material Adverse Effect on LMI.
3.10 No Breach of Statute, Decree or Order. Except as disclosed in Schedule
3.10, LMI is not in default under, or in violation in any material respect of,
any material applicable statute, law, ordinance, decree, order, rule or
regulation of any state or federal regulatory agency or any other governmental
body, and the consummation of this Agreement and the transactions contemplated
hereby will not constitute or result in any such default, breach or violation.
Except as set forth in Schedule 3.10, there is no known or suspected material
action or proceeding by any governmental body pending or threatened against LMI
relating to the conduct of its business, and, to the best of LMI's knowledge,
there is no basis for any such action or proceeding.
3.11 Litigation. Except as described in Schedule 3.11 or otherwise similarly
disclosed to Ebiz, there is no suit, claim, action, proceeding or governmental
investigation now pending or threatened, nor, to the best of LMI's knowledge, is
there any condition or set of facts which will give rise to any litigation,
against LMI before any court, administrative or regulatory body or any
governmental agency arising out of or relating to any aspect of the business, or
any part of the properties, of LMI, or concerning the transactions contemplated
by this Agreement. Except as disclosed in Schedule 3.11, there are no decrees,
injunctions or orders of any court or governmental department or agency
outstanding or threatened against LMI relating to any aspect of its business or
any part of its properties or that could prevent consummation of the
transactions contemplated by this Agreement.
3.12 Employee Benefit Plans; Employee Matters.
(a) Except for the plans and arrangements set forth on Schedule 3.12(a) (the
"LMI Plans"), neither LMI nor any member of the LMI Controlled Group (as
hereinafter defined) now maintains, has ever maintained or contributed to, or
has any plans or commitments for, any employee benefit plans (as such term is
defined in ss. 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) or any other retirement, pension, stock option, stock
appreciation right, profit sharing, incentive compensation, deferred
compensation, savings, thrift, vacation pay, severance pay, or other employee
compensation or benefit plan, agreement, practice, or arrangement, whether
written or unwritten, whether or not legally binding. For purposes of this
Agreement, "LMI Controlled Group" means a controlled or affiliated group within
the meaning of Code ss. 414(b), (c), (m), or (o) of which LMI is a member. LMI
has made available to Ebiz correct and complete copies of all LMI Plans
(including a detailed written description of any LMI Plan that is unwritten,
including a description of eligibility criteria, participation, vesting,
benefits, funding arrangements and assets and any other provisions relating to
LMI) and, with respect to each LMI Plan, a copy of each of the following: (i)
the most recent favorable determination letter issued by the Internal Revenue
Service, (ii) materials submitted to the Internal Revenue Service in support of
a pending determination letter request, (iii) the most recent letter issued by
the Internal Revenue Service recognizing tax exemption, (iv) each insurance
contract, trust agreement, or other funding vehicle, (v) the three most recently
filed Forms 5500 plus all schedules and attachments, and (vi) each summary plan
description or other general explanation or communication distributed or
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otherwise provided to employees with respect to each LMI Plan that describes the
terms of the LMI Plan.
(b) Each LMI Plan has at all times been in compliance, in form and in operation,
in all material respects with all applicable requirements of law and
regulations, including without limitation, ERISA.
(c) With respect to each LMI Plan, there are no actions, suits, grievances,
arbitrations or other manner of dispute, or claims with respect to any LMI Plan
(except for routine claims for benefits made in the ordinary course of plan
administration for which plan administrative procedures have not been exhausted)
pending, threatened or imminent against or with respect to any LMI Plan, any
plan sponsor, or any fiduciary (as such term is defined in ERISA ss. 3(21)) of
such LMI Plan, and LMI has no knowledge of any facts that could give rise to any
action, suit, grievance, arbitration or other manner of dispute, or claim.
(d) Neither LMI nor any member of the LMI Controlled Group has any liability for
post-retirement welfare benefits except for the continuation coverage required
by Code ss. 4980B.
(e) The consummation of the transactions contemplated by this Agreement will not
result in any "excess parachute payments" within the meaning of Code ss. 280G.
(f) No LMI Plan provides retiree medical or retiree life insurance benefits to
any person and LMI is not contractually or otherwise obligated (whether or not
in writing) to provide any person with life insurance or medical benefits upon
retirement or termination of employment, other than as required by the
provisions of Sections 601 through 608 of ERISA and Section 4980B of the Code.
(g) Schedule 3.12(g) sets forth a true and complete list of each of the
following agreements, arrangements and commitments to which LMI is a party or by
which it may be bound (the "LMI Employment Contracts"): (i) each employment,
consulting, agency or commission agreement not terminable without liability to
LMI upon 60 days' or less prior notice to the employee, consultant or agent and
involving compensation or remuneration of more than $50,000 per annum; (ii) each
labor union or collective bargaining agreement; (iii) each agreement with any
executive officer or other key employee of LMI the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving LMI of the nature contemplated by this Agreement; (iv)
each agreement with respect to any officer or other key employee of LMI
providing any term of employment or compensation guarantee extending for a
period longer than one year; and (v) each equity incentive plan and each other
agreement or plan any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement. True and complete copies of each LMI Employment Contract have
been made available to Ebiz.
3.13 Permits and Licenses. LMI has such permits, licenses and
authorities as required by any governmental authority with jurisdiction over LMI
with respect to its business as currently conducted and to own or lease, operate
and use its assets and properties, except where the failure to have such
permits, licenses or authorities has not had and could not reasonably be
expected to have a Material Adverse Effect on LMI. Except as may be expressly
permitted by the terms of this Agreement or otherwise disclosed in this
Agreement or any schedule hereto, the business of LMI as presently conducted in
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any jurisdiction complies in all material respects with all known and suspected
applicable legal requirements of such jurisdiction, all known and suspected
requisite governmental approvals have been duly obtained and are in full force
and effect, and there is no basis for any governmental body to deny or rescind
any approval for the conduct of the business of LMI.
3.14 Material Contracts. Attached hereto as Schedule 3.14 is a
list of all contracts of LMI ("LMI Material Contracts") (a) for an aggregate
payment by or to it of more than $10,000, (b) extending for a term beyond 12
months, (c) relating to the acquisition or disposition of any material asset or
any interest in any business enterprise, (d) containing a guaranty of
liabilities or obligations of others, (e) containing any covenant limiting the
freedom of LMI to engage in any line of business or to compete with any person
or entity or (f) for all policies of insurance in force as of the date hereof.
True and complete copies of all LMI Material Contracts have been made available
to Ebiz. LMI has fulfilled, or taken all actions necessary to enable it to
fulfill when due, its obligations under each of such contracts. All parties
thereto have complied in all material respects with the provisions thereof and
no party is in breach or violation of, or in default under such contracts.
3.15 Tax Matters.
(a) All Returns (as hereinafter defined) required to be filed by LMI have been
duly filed on a timely basis and all Returns filed by or on behalf of LMI
(including all attached statements and schedules) are true, complete and correct
in all respects, except for such failures to file and failures to be true,
complete and correct as would not, individually or in the aggregate, have a
Material Adverse Effect on LMI. No claim has been made or threatened in writing
by any jurisdiction where LMI does not file returns that LMI is or may be
subject to Taxes in that jurisdiction. All Taxes (as hereinafter defined) shown
to be payable on such Returns or on subsequent assessments with respect thereto
have been paid in full on a timely basis, except to the extent any nonpayment is
reflected as a liability on the LMI Financial Statements. No other Taxes are
payable by LMI with respect to items or periods covered by such Returns (whether
or not shown on or reportable on such Returns), except for such Taxes as would
not, individually or in the aggregate, have a Material Adverse Effect on LMI.
(b) LMI has withheld and paid over all Taxes required to have been withheld and
paid over (including any estimated taxes), and has complied with all information
reporting and backup withholding requirements, including maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party, except for such
failures to withhold or pay over and such failures to comply as would not,
individually or in the aggregate, have a Material Adverse Effect on LMI.
(c) No Return filed by or on behalf of LMI contains any position that is or
would be subject to penalties under section 6602 of the Code and the Regulations
thereunder (and any corresponding provision of state, local or foreign law).
(d) There are no liens on any of the assets of LMI with respect to Taxes, other
than liens for Taxes not yet due and payable or for Taxes that are being
contested in good faith through appropriate proceedings and for which
appropriate reserves have been established, except for such liens as would not,
individually or in the aggregate, have a Material Adverse Effect on LMI.
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(e) Except as disclosed on Schedule 3.15(e), LMI has never been included in an
affiliated group of corporations, within the meaning of section 1504 of the Code
and never been a member of any combined or unitary group.
(f) LMI has furnished Ebiz with true and complete copies of: (i) all Returns of
LMI for all periods since May 30, 1998, and (ii) all tax audit reports, work
papers, statements of deficiencies or closing or other agreements received by
LMI or on its behalf relating to Taxes.
(g) LMI does not do business in, or derive a material amount of income from, any
state, local, territorial or foreign taxing jurisdiction other than those for
which Returns have been furnished to Ebiz.
(h) Except for items disclosed on Schedule 3.15(h) attached hereto:
(i) None of the Returns of LMI has ever been audited by a governmental or taxing
authority and there are no audits, inquiries, investigations or examinations
relating to any such Returns pending or, to the knowledge of LMI, threatened in
writing.
(ii) No deficiencies exist or have been asserted in writing with respect to
Taxes of LMI and no written notice has been received by LMI with respect to the
failure to file any Return or pay any Taxes.
(iii) LMI is not a party to any action or proceeding for assessment or
collection of Taxes, nor has any such action or proceeding been asserted or, to
the knowledge of LMI, threatened in writing against it or any of its assets.
(iv) No extension of time to file any Return (which has not been filed) has been
requested by or granted to LMI. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of LMI.
(v) LMI is not (and has never been) a party to any tax sharing agreement, tax
indemnity agreement, tax allocation agreement, or similar arrangement with any
person.
(vi) No action has been taken that would have the effect of deferring any
significant liability for Taxes of LMI from a period prior to Closing to a
period after Closing.
(vii) LMI has never been an "S corporation" under the Code.
(viii) LMI's liability for unpaid Taxes for all periods ending on or before
May 31, 2000 determined according to generally accepted accounting principles
("GAAP") does not exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) on the LMI financial statements as of
that date, and the amount of LMI's liability for unpaid Taxes for all periods
ending on or before the Closing Date determined on a GAAP basis will not exceed
the amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals will be reflected on the balance sheet of LMI
as of the Closing Date, except to the extent any excess of such Taxes over the
relevant current liability accrual amount would not have a Material Adverse
Effect on LMI.
(i) Subject to the items disclosed on Schedule 3.15(h) attached hereto:
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(i) LMI is not required to treat any asset as owned by another person for
federal income tax purposes or as tax-exempt bond financed property or
tax-exempt use property within the meaning of Section 168 of the Code.
(ii) LMI has not entered into any agreement, contract, arrangement or plan that
has resulted or would result, separately or in the aggregate, in the payment of
any amount subject to the provisions of Section 280G or Section 4999 of the Code
or any similar provision of state, local or foreign tax law.
(iii) LMI has not made an election under Section 338 of the Code and no action
has been taken that would result in any income tax liability to LMI as a result
of a deemed election within the meaning of Section 338 of the Code.
(iv) No consent under Section 341(f) of the Code has been filed with respect to
LMI.
(v) LMI has not disposed of any property that is currently or was previously
being accounted for under the installment method.
(vi) Within the last five years, LMI has not agreed to make, and has not been
required to make, any adjustment under Code Section 481 by reason of a change in
accounting method or otherwise.
(vii) LMI is not a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code and Ebiz is not required to withhold
any amount on the acquisition of the shares of LMI.
(viii) LMI has not made and will not make a deemed dividend election under
Treas.
Xxx.xx. 1.1502-32(f)(2) or a consent dividend under Section 565 of the Code.
(ix) None of the assets or operations of LMI is subject to any joint venture,
partnership or other arrangement or contract that is treated as a partnership
for federal income tax purposes.
(x) LMI has not made any election comparable to those described in this section
under any state, local or foreign tax laws nor is it required to apply any rules
comparable to those described in this Section under any state, local or foreign
tax laws.
(xi) The transactions contemplated hereby are not subject to the tax withholding
provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the
Code, or of any other provision of law.
(j) Schedule 3.15(j) contains information that is accurate and complete in all
material respects with respect to: (A) all tax elections in effect with respect
to LMI; (B) the current tax basis of the assets of LMI broken out by asset
class; (C) the net operating losses of LMI by taxable year; (D) the net capital
losses of LMI by taxable year; and (E) the overall foreign losses of LMI under
Section 904(f) of the Code that are subject to recapture.
12
(k) There are no transfer taxes (exclusive of income taxes)that will become due
and payable as a result of the Merger under Colorado, Delaware or federal law.
(l) "Taxes" as used in this Agreement means all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any governmental authority, which taxes
shall include, without limiting the generality of the foregoing, all income or
profits taxes, payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, value added taxes, ad valorem taxes,
excise taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, escheat amounts, stamp
taxes, environmental taxes, severance taxes, production taxes, transfer taxes,
workers' compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing.
(m) "Returns" as used in this Agreement means all returns, declarations,
reports, forms, claims for refund, estimates, information returns and statements
and other documentation, including amendments, required to be maintained or
filed with or supplied to any governmental authority in connection with any
Taxes.
3.16 Title to Properties. Except as disclosed in Schedule 3.16, LMI has good and
marketable title, free and clear of any mortgage, pledge, lien, charge or other
encumbrance, to all of its real and/or personal property and other assets
whether reflected on the Current LMI Financial Statements or otherwise, or
acquired by it subsequent to the date thereof or used by it in the ordinary
course of its business, except for (a) liens or encumbrances on such property or
assets described in the Current LMI Financial Statements, (b) liens for current
taxes not yet due and payable, (c) such imperfections of title and encumbrances,
if any, as are not material in character, amount or extent and do not detract
from the value or interfere with the present or presently contemplated future
use of the properties subject thereto or affected thereby, and (d) acquisitions
and dispositions in the ordinary course of business. LMI enjoys peaceable and
undisturbed possession under all material leases under which it is operating,
and all of its premises which are leased, are in good condition and repair and
are suitable for the purposes for which such premises are being utilized. LMI
has not received any notice of violation of any applicable zoning ordinance or
other law, order, regulation or requirement relating to its operations or to its
owned or leased properties.
3.17. Environmental Matters. To the best knowledge of LMI, LMI has duly complied
with, and the operation of its business, equipment and other assets and the
facilities owned or leased by LMI are in compliance with the provisions of all
applicable federal, state and local environmental, health and safety laws,
statutes, ordinances, rules and regulations of any governmental or quasi
governmental authority relating to (i) errors or omissions, (ii) discharges to
the atmosphere, soils, surface water or ground water, (iii) solid or liquid
waste disposal, (iv) the use, storage, generation, handling, transport,
discharge, release or disposal of toxic or hazardous substances or waste, (v)
the emission of non-ionizing electromagnetic radiation or (vi) other
environmental, health or safety matters, including without limitation, all
maters set forth in the Comprehensive Environmental Response, Compensation and
Liability Act, as amended; the Occupational Safety and Health Act; the Resource
Conservation Recovery Act of 1976; the Federal Water Pollution Control Act of
1970; the Safe Drinking Water Act of 1974; the Toxic Substances Control Act of
1976; the Occupational Safety and the Clean Air Act, as amended (collectively,
"Environmental and Health Laws"). To the knowledge of the Company, there are no
investigations, administrative proceedings, judicial actions, orders, claims or
13
notices that are pending, anticipated or threatened against LMI relating to
violations of the Environmental and Health Laws. The Company has not received a
notice of, and does not know or have any reason to suspect, facts which
constitute a violation of any Environmental and Health Laws which relate to the
use, ownership or occupancy of any property or facilities used by LMI in
connection with the operation of its business or any activity of the business of
LMI which would result in a violation or threatened violation of any
Environmental or Health Laws.
3.18 Intellectual Property.
(a) LMI owns, or is licensed or otherwise possesses legally enforceable rights
to use, all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, trade dress, business names, product names, logos,
slogans, domain names, technology, processes, schematics, know-how, trade
secrets, computer software programs or applications (in both source code and
object code form), design and program documentation, analysis, data flow
diagrams, website content and all other tangible or intangible proprietary
information or material ("Intellectual Property") used in the business of LMI as
currently conducted, except to the extent that the failure to have such rights
has not and could not reasonably be expected to have a Material Adverse Effect
on LMI.
(b) Schedule 3.18 (b) lists: (i) all patents and patent applications and all
registered and unregistered trademarks, trade names and service marks,
registered domain names and registered and unregistered copyrights, which LMI
considers to be material to its business and included in the Intellectual
Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all material licenses,
sublicenses and other agreements as to which LMI is a party and pursuant to
which any person is authorized to use any Intellectual Property, and (iii) all
material licenses, sublicenses and other agreements as to which LMI is a party
and pursuant to which LMI is authorized to use any third party patents,
trademarks or copyrights, including software ("LMI Third Party Intellectual
Property Rights"), in each case which are incorporated in, are, or form a part
of any product or service of LMI.
(c) To the knowledge of LMI, there has not been and currently is no unauthorized
use, disclosure, infringement or misappropriation of any Intellectual Property
or any trade secret of LMI, or any LMI Third Party Intellectual Property Right,
by any third party, including any employee or former employee of LMI. LMI 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 purchase orders arising in the ordinary course of
business, or contained in license agreements relating to Intellectual Property
licensed to or by LMI in the ordinary course of business.
(d) LMI is not, and will not be as a result of the execution and delivery of
this Agreement or the performance of LMI's obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the
Intellectual Property or LMI Third Party Intellectual Property Rights, the
breach of which could have a Material Adverse Effect on LMI.
(e) All patents, registered trademarks, service marks, registered domain names
and copyrights held by LMI are valid and subsisting. LMI (i) has not been sued
in any suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, domain names, copyrights or violation of any
trade secret or other proprietary right of any third party and (ii) has not
14
brought any action, suit or proceeding for infringement of Intellectual Property
or breach of any license or agreement involving Intellectual Property against
any third party. To the knowledge of LMI, the manufacture, marketing, licensing
or sale of the products and services of LMI does not infringe any patent,
trademark, service xxxx, copyright, trade secret, domain name or other
proprietary right of any third party.
(f) LMI has secured valid written assignments from all consultants and employees
who contributed to the creation or development of Intellectual Property of the
rights to such contributions that LMI does not already own by operation of law.
3.19 Conditions and Sufficiency of Assets. All real property and equipment of
LMI are structurally sound and in good operating condition and repair and are
adequate for the uses thereof. None of the real property or equipment is in need
of maintenance or repairs except for ordinary, routine maintenance and repair
that are not material. The real property and equipment are sufficient for the
continued conduct of the business of LMI.
3.20 Accuracy of Statements. LMI has disclosed to Ebiz all facts required to be
disclosed by this Agreement and material to the liabilities, assets, business,
prospects, conditions, organization and operations (financial and otherwise) of
LMI. Neither this Agreement nor any exhibit or schedule hereto nor any
certificate, document, instrument or information furnished or to be furnished by
LMI to Ebiz in connection with this Agreement or any of the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omit or will omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they are made, not misleading.
3.21 Brokers' and Finders' Fees. Except for commissions or fees payable to Chase
Securities, Inc., LMI has not incurred, and will not incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF EBIZ
AND MERGER SUB
Ebiz and Merger Sub hereby represent and warrant to LMI as
follows:
4.1 (a) Organization and Authority of Ebiz. Ebiz has been duly organized and is
validly existing and in good standing under the laws of the State of Nevada and
has the full corporate power and authority to own its properties and to carry on
its business as now being conducted. Ebiz is duly qualified and in good standing
as a foreign corporation in the states set forth on Schedule 4.1(a) hereto and
is not required to qualify in any other state as a foreign corporation, where
the failure to do so would have a material adverse effect on its conduct of
business. Ebiz and Merger Sub have full corporate power and authority to enter
into this Agreement and to perform their respective obligations hereunder. The
execution, delivery and performance of this Agreement has been duly authorized
by the respective Boards of Directors of Ebiz and Merger Sub and no other
corporate proceedings on the part of Ebiz or Merger Sub are necessary to
authorize this Agreement and the transactions contemplated hereby.
15
(b) Ebiz Subsidiaries. Each wholly or partially owned subsidiary (singularly
"Subsidiary" and collectively, the "Subsidiaries") of Ebiz, including Merger
Sub, is set forth on Schedule 4.1(b) hereto. Each Subsidiary has been duly
organized and is validly existing and in good standing under the laws of its
state of organization as set forth in Schedule 4.1(b) and has the full corporate
power and authority to own its properties and to carry on its business as now
being conducted. Each Subsidiary is duly qualified as a foreign corporation in
the states set forth on Schedule 4.1(b) and is not required to qualify in any
other state as a foreign corporation, where the failure to do so would have a
material adverse effect on its conduct of business. Except as noted on Schedule
4.1(b), Ebiz owns 100% of the outstanding equity interest of each of the
Subsidiaries.
4.2 No Conflict, Breach or Default. The execution and delivery of this Agreement
and the performance by Ebiz and Merger Sub of its terms do not (a) conflict with
or result in a violation of the articles of incorporation or bylaws or other
organizational documents of Ebiz or any Subsidiary, (b) violate any order, writ,
judgment or decree to which Ebiz or any Subsidiary is a party or is subject, or
(c) conflict with or result in a violation of, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Ebiz or any Subsidiary under, any of the terms, conditions or
provisions of any note, bond mortgage, indenture, deed of trust, lease, license,
agreement or other instrument or obligation to which Ebiz or any Subsidiary is
bound or by which Ebiz or any Subsidiary or any of their properties or assets
may be bound, except, in the case of this clause (c), where such conflict,
violation, default, termination, cancellation or acceleration would not
individually or in the aggregate, have a Material Adverse Effect on Ebiz.
4.3 Approvals and Consents. Except as set forth on Schedule 4.3 hereto, no
approval, authorization, consent, exemption, filing, registration or other
action by or filing with any governmental authority is required in connection
with the execution and delivery by Ebiz and Merger Sub of this Agreement or the
transactions contemplated herein or therein.
4.4 Valid Obligation. This Agreement constitutes a legal, valid and binding
obligation of Ebiz and Merger Sub enforceable against each of them in accordance
with its terms, except that (a) the enforceability of the same may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting
enforcement of creditors' rights generally, and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
4.5 Validly Issued Shares; Securities Act Exemption; Blue Sky.
(a) Upon issuance, all Ebiz Common Stock to be issued to the shareholders of
LMI in exchange for the LMI Common Stock and LMI Preferred Stock will be duly
authorized, validly issued, fully paid and nonassessable outstanding shares of
the capital stock of Ebiz.
(b) The issuance of the Ebiz Common Stock to the shareholders of LMI pursuant to
the terms of this Agreement constitutes a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act").
16
(c) Ebiz has obtained all necessary Blue Sky law permits and qualifications, or
has available exemptions therefrom, for the issuance of the Ebiz Common Stock to
the shareholders of LMI pursuant to the terms of this Agreement.
4.6 Capital Stock of Ebiz and Merger Sub. The authorized capital stock of Ebiz
consists of 70,000,000 shares of common stock and 5,000,000 shares of preferred
stock of which 9,041,166 shares of common stock and 7,590 shares of preferred
stock designated as its Series A 10% Convertible Preferred are outstanding. An
additional 575,732 shares of common stock have been reserved for issuance upon
the exercise of outstanding warrants. Ebiz has awarded options to purchase
761,700 shares of common stock under its 1998 Equity Incentive Plan and has
additional options to purchase 850,000 shares of common stock outstanding. The
authorized capital stock of Merger Sub consists of 1000 shares of common stock,
100 of which are issued and outstanding. All of the issued and outstanding
shares of Merger Sub are owned by Ebiz. All the outstanding shares of common
stock of Ebiz and Merger Sub are duly and validly authorized and issued,
fully-paid and non-assessable, and there exist no preemptive rights of any
present or former stockholders of the common stock. Except as set forth in
Schedule 4.6, Ebiz has no other outstanding securities convertible into or
exercisable for its capital stock and no other agreements of any nature
whatsoever whereby Ebiz may, under any circumstances, be obligated to issue,
sell, repurchase or redeem shares of its capital stock. Ebiz has a sufficient
number of Ebiz Common Stock authorized to issue the Merger Consideration at the
Effective Time and to fulfill the obligations under the LMI Warrants and the LMI
Stock Options that are to be assumed by Ebiz at the Effective Time.
4.7 Ebiz Financial Statements.
(a) Schedule 4.7(a) hereto sets forth a listing of financial statements of Ebiz
delivered to LMI (collectively, the "Ebiz Financial Statements"). The Ebiz
Financial Statements are true, accurate and complete and present fairly the
consolidated financial position of Ebiz and its Subsidiaries as of the dates
stated and the results of the operations of Ebiz and its Subsidiaries for the
periods stated and have been prepared in accordance with GAAP, consistently
applied with all adjustments as mandated by any agency or other authority.
(b) Neither Ebiz nor its Subsidiaries have any liabilities or obligations of a
material nature (whether accrued, absolute, asserted, unasserted, known,
unknown, contingent or otherwise) except for those disclosed in the most current
Ebiz Financial Statements ("Current Ebiz Financial Statements") or in Schedule
4.7(b) hereto.
4.8 Books and Records. The books and records of Ebiz and of each Subsidiary are
complete and correct and have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including the maintenance of an
adequate system of internal controls. The books and records, financial and
otherwise, of Ebiz and each Subsidiary accurately set out and disclose the
financial position of Ebiz and of each Subsidiary, and all transactions of Ebiz
and of each Subsidiary have been accurately recorded in such books and records
in accordance with GAAP. The minute books of Ebiz and of each Subsidiary contain
accurate and complete records of all meetings held of, and all material
corporate actions taken by, the shareholders, Board of Directors or any
committee of the Board of Directors of Ebiz or such Subsidiaries.
4.9 Regulatory Filings. Ebiz and each Subsidiary has heretofore filed all
reports, registration statements and schedules as required pursuant to any
applicable law except where the failure to make such filings has not had and
17
could not be reasonably expected to have a Material Adverse Effect on Ebiz. All
such filings by Ebiz and each such Subsidiary complied as of their respective
dates in all material respects with the applicable requirements of such laws and
the rules and regulations adopted thereunder.
4.10 Absence of Certain Changes and Events. Except as set forth in Schedule
4.10, since the date of the most Current Ebiz Financial Statements delivered to
LMI, there has not been any change in the affairs, prospects, condition
(financial or otherwise, or arising as a result of any legislative or regulatory
change), operations, liabilities, earnings or business of Ebiz or any Subsidiary
which has had or reasonably could be expected to have, individually or in the
aggregate with other changes, a Material Adverse Effect on Ebiz.
4.11 No Breach of Statute, Decree or Order. Except as disclosed in Schedule
4.11, neither Ebiz nor any Subsidiary is in default under, or in violation in
any respect of, any material applicable statute, law, ordinance, decree, order,
rule or regulation of any state or federal regulatory agency or any other
governmental body, and the consummation of this Agreement and the transactions
contemplated hereby will not constitute or result in any such default, breach or
violation. Except as set forth in Schedule 4.11, there is no known or suspected
material action or proceeding by any governmental body, pending or threatened
against Ebiz or any Subsidiary relating to the conduct of its business, and to
the best of Ebiz's knowledge there is no basis for any such action or
proceeding.
4.12 Litigation. Except as disclosed in Schedule 4.12, there is no suit, claim,
action, proceeding or governmental investigation now pending or threatened, nor,
to the best of Ebiz's knowledge, is there any condition or set of facts which
will give rise to any litigation, against Ebiz or any Subsidiary before any
court, administrative or regulatory body or any governmental agency arising out
of or relating to any aspect of the business, or any part of the properties, of
Ebiz or any Subsidiary, or concerning the transactions contemplated by this
Agreement. Except as disclosed in Schedule 4.12, there are no decrees,
injunctions or orders of any court or governmental department or agency
outstanding or threatened against Ebiz or any Subsidiary relating to any aspect
of its business or any part of its properties or that could prevent consummation
of the transactions contemplated by this Agreement.
4.13 Employee Benefit Plans; Employee Matters.
(a) Except for the plans and arrangements set forth on Schedule 4.13(a) (the
"Ebiz Plans"), neither Ebiz nor any member of the Ebiz Controlled Group (as
hereinafter defined) now maintains, has ever maintained or contributed to, or
has any plans or commitments for, any employee benefit plans (as such term is
defined in ERISA ss. 3(3)) or any other retirement, pension, stock option, stock
appreciation right, profit sharing, incentive compensation, deferred
compensation, savings, thrift, vacation pay, severance pay, or other employee
compensation or benefit plan, agreement, practice, or arrangement, whether
written or unwritten, whether or not legally binding. For purposes of this
Agreement, "Ebiz Controlled Group" means a controlled or affiliated group within
the meaning of Code ss. 414(b), (c), (m), or (o) of which Ebiz is a member. Ebiz
has made available to LMI correct and complete copies of all Ebiz Plans
(including a detailed written description of any Ebiz Plan that is unwritten,
including a description of eligibility criteria, participation, vesting,
benefits, funding arrangements and assets and any other provisions relating to
Ebiz) and, with respect to each Ebiz Plan, a copy of each of the following: (i)
the most recent favorable determination letter issued by the Internal Revenue
Service, (ii) materials submitted to the Internal Revenue Service in support of
18
a pending determination letter request, (iii) the most recent letter issued by
the Internal Revenue Service recognizing tax exemption, (iv) each insurance
contract, trust agreement, or other funding vehicle, (v) the three most recently
filed Forms 5500 plus all schedules and attachments, and (vi) each summary plan
description or other general explanation or communication distributed or
otherwise provided to employees with respect to each Ebiz Plan that describes
the terms of the Ebiz Plan.
(b) Each Ebiz Plan has at all times been in compliance, in form and in
operation, in all material respects with all applicable requirements of law and
regulations, including without limitation, ERISA.
(c) With respect to each Ebiz Plan, there are no actions, suits, grievances,
arbitrations or other manner of dispute, or claim with respect to any Ebiz Plan
(except for routine claims for benefits made in the ordinary course of plan
administration for which plan administrative procedures have not been exhausted)
pending, threatened or imminent against or with respect to any Ebiz Plan, any
plan sponsor, or any fiduciary (as such term is defined in ERISA ss. 3(21)) of
such Ebiz Plan, and Ebiz has no knowledge of any facts that could give rise to
any action, suit, grievance, arbitration or other manner of dispute, or claim.
(d) Neither Ebiz nor any member of the Ebiz Controlled Group has any liability
for post-retirement welfare benefits except for the continuation coverage
required by Code ss. 4980B.
(e) The consummation of the transactions contemplated by this Agreement will not
result in any "excess parachute payments" within the meaning of Code ss. 280G.
(f) No Ebiz Plan provides retiree medical or retiree life insurance benefits to
any person and Ebiz is not contractually or otherwise obligated (whether or not
in writing) to provide any person with life insurance or medical benefits upon
retirement or termination of employment, other than as required by the
provisions of Sections 601 through 608 of ERISA and Section 4980B of the Code.
(g) Schedule 4.13(g) sets forth a true and complete list of each of the
following agreements, arrangements and commitments to which Ebiz or any
Subsidiary is a party or by which it may be bound (the "Ebiz Employment
Contracts"): (i) each employment, consulting, agency or commission agreement not
terminable without liability to Ebiz or any Subsidiary upon 60 days' or less
prior notice to the employee, consultant or agent and involving compensation or
remuneration of more than $50,000 per annum; (ii) each labor union or collective
bargaining agreement; (iii) each agreement with any executive officer or other
key employee of Ebiz or any Subsidiary the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Ebiz or any Subsidiary of the nature contemplated by this Agreement;
(iv) each agreement with respect to any officer or other key employee of Ebiz or
any Subsidiary providing any term of employment or compensation guarantee
extending for a period longer than one year; and (v) each equity incentive plan
and each other agreement or plan any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by the occurrence
of any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. True and complete copies of each Ebiz Employment
Contract have been made available to LMI.
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4.14 Permits and Licenses. Ebiz and each Subsidiary has such permits, licenses
and authorities as required by any governmental authority with jurisdiction over
Ebiz or any Subsidiary with respect to its business as currently conducted and
to own or lease, operate and use its assets and properties except where the
failure to have such permits, licenses or authorities has not had and could not
be reasonably expected to have a Material Adverse Effect on Ebiz. Except as may
be expressly permitted by the terms of this Agreement or otherwise disclosed in
this Agreement or any schedule hereto, the business of Ebiz and each Subsidiary
as presently conducted in any jurisdiction complies in all material respects
with all known and suspected applicable legal requirements of such jurisdiction,
all known and suspected requisite governmental approvals have been duly obtained
and are in full force and effect, and there is no basis for any governmental
body to deny or rescind any approval for the conduct of the business of Ebiz or
any Subsidiary.
4.15 Material Contracts. Attached hereto as Schedule 4.15 is a list of all
contracts of Ebiz and each of its Subsidiaries (the "Ebiz Material Contracts")
(a) for an aggregate payment by or to it of more than $10,000, (b) extending for
a term beyond 12 months, (c) relating to the disposition or acquisition of any
material asset or any interest in any business enterprise, (d) containing a
guaranty of liabilities or obligations of others, (e) containing any covenant
limiting the freedom of Ebiz or any Subsidiary to engage in any line of business
or compete with any person or entity, or (f) for all policies of insurance in
force as of the date hereof. True and complete copies of all Ebiz Material
Contracts have been delivered to LMI. Ebiz and each Subsidiary, as applicable,
has fulfilled, or taken all actions necessary to enable it to fulfill when due
its obligations under each of such contracts. All parties thereto have complied
in all material respects with the provisions thereof and no party is in breach
or violation of, or in default under such contracts.
4.16 Tax Matters.
(a) All Returns required to be filed by Ebiz or any Subsidiary have been duly
filed on a timely basis and all Returns filed by or on behalf of Ebiz or any
Subsidiary (including all attached statements and schedules) are true, complete
and correct in all respects, except for such failures to file and failures to be
true, complete and correct as would not, individually or in the aggregate, have
a Material Adverse Effect on Ebiz. No claim has been made or threatened in
writing by any jurisdiction where Ebiz or any Subsidiary does not file returns
that Ebiz or any Subsidiary is or may be subject to Taxes in that jurisdiction.
All Taxes shown to be payable on such Returns or on subsequent assessments with
respect thereto have been paid in full on a timely basis, except to the extent
any nonpayment is reflected as a liability on the Ebiz Financial Statements. No
other Taxes are payable by Ebiz or any Subsidiary with respect to items or
periods covered by such Returns (whether or not shown on or reportable on such
Returns), except for such Taxes as would not, individually or in the aggregate,
have a Material Adverse Effect on Ebiz.
(b) Ebiz and each Subsidiary has withheld and paid over all Taxes required to
have been withheld and paid over (including any estimated taxes), and has
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid or owing to any employee, creditor, independent contractor or
other third party, except for such failures to withhold or pay over and such
failures to comply as would not, individually or in the aggregate, have a
Material Adverse Effect on Ebiz.
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(c) No Return filed by or on behalf of Ebiz or any Subsidiary contains any
position that is or would be subject to penalties under section 6602 of the Code
and the Regulations thereunder (and any corresponding provision of state, local
or foreign law).
(d) There are no liens on any of the assets of Ebiz or any Subsidiary with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that are being contested in good faith through appropriate proceedings and
for which appropriate reserves have been established, except for such liens as
would not, individually or in the aggregate, have a Material Adverse Effect on
Ebiz.
(e) Except as disclosed on Schedule 4.16(e), neither Ebiz nor any Subsidiary has
been included in an affiliated group of corporations, within the meaning of
section 1504 of the Code or been a member of any combined or unitary group.
(f) Ebiz has furnished LMI with true and complete copies of: (i) all Returns of
Ebiz and each Subsidiary for all periods since June 30, 1997, and (ii) all tax
audit reports, work papers, statements of deficiencies or closing or other
agreements received by Ebiz, any Subsidiary or on any of their behalf relating
to Taxes.
(g) Neither Ebiz nor any Subsidiary does business in, or derives a material
amount of income from, any state, local, territorial or foreign taxing
jurisdiction other than those for which Returns have been furnished to LMI.
(h) Except for items disclosed on Schedule 4.16(h) attached hereto:
(i) None of the Returns of Ebiz or any Subsidiary has ever been audited by a
governmental or taxing authority and there are no audits, inquiries,
investigations or examinations relating to any such Returns pending or, to the
knowledge of Ebiz, threatened in writing.
(ii) No deficiencies exist or have been asserted in writing with respect to
Taxes of Ebiz or any Subsidiary and no written notice has been received by Ebiz
or any Subsidiary with respect to the failure to file any Return or pay any
Taxes.
(iii) Neither Ebiz nor any Subsidiary is a party to any action or proceeding for
assessment or collection of Taxes, nor has any such action or proceeding been
asserted or, to the knowledge of Ebiz, threatened in writing against Ebiz, any
Subsidiary or any of their respective assets.
(iv) No extension of time to file any Return (which has not been filed) has
been requested by or granted to Ebiz or any Subsidiary. No waiver or extension
of any statute of limitations is in effect with respect to Taxes or Returns of
Ebiz or any Subsidiary.
(v) Neither Ebiz nor any Subsidiary is (and has never been) a party to any tax
sharing agreement, tax indemnity agreement, tax allocation agreement, or similar
arrangement with any person.
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(vi) No action has been taken that would have the effect of deferring any
significant liability for Taxes of Ebiz or any Subsidiary from a period prior to
closing to a period after closing.
(vii) Neither Ebiz nor any Subsidiary has ever been an "S corporation" under the
Code.
(viii) The aggregate liability of Ebiz and the Subsidiaries for unpaid Taxes for
all periods ending on or before March 31,2000 determined on a GAAP basis does
not exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) on the Ebiz financial statements as of that date,
and the aggregate liability of Ebiz and the Subsidiaries for unpaid Taxes for
all periods ending on or before the Closing Date determined on a GAAP basis will
not exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as such accruals will be reflected on the balance
sheet of Ebiz as of the Closing Date, except to the extent any excess of such
Taxes over the relevant current liability accrual amount would not have a
Material Adverse Effect on Ebiz.
(i) Subject to the items disclosed on Schedule 4.16(h) attached hereto:
(i) Neither Ebiz nor any Subsidiary is required to treat any asset as owned by
another person for federal income tax purposes or as tax-exempt bond financed
property or tax-exempt use property within the meaning of Section 168 of the
Code.
(ii) Neither Ebiz nor any Subsidiary has entered into any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any amount subject to the provisions of Section
280G or Section 4999 of the Code or any similar provision of state, local or
foreign tax law.
(iii) Neither Ebiz nor any Subsidiary has made an election under
Section 338 of the Code and no action has been taken that would result in any
income tax liability to Ebiz or any Subsidiary as a result of a deemed election
within the meaning of Section 338 of the Code.
(iv) No consent under Section 341(f) of the Code has been filed with respect to
Ebiz or any Subsidiary.
(v) Neither Ebiz nor any Subsidiary has disposed of any property that is
currently or was previously being accounted for under the installment method.
(vi) Within the last five years, neither Ebiz nor any Subsidiary has agreed to
make, and has been required to make, any adjustment under Code Section 481 by
reason of a change in accounting method or otherwise.
(vii) Neither Ebiz nor any Subsidiary is a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code.
(viii) Neither Ebiz nor any Subsidiary has made or will make a deemed dividend
election under Treas. Xxx.xx. 1.1502-32(f)(2) or a consent dividend under
Section 565 of the Code.
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(ix) None of the assets or operations of Ebiz or any Subsidiary is subject to
any joint venture, partnership or other arrangement or contract that is treated
as a partnership for federal income tax purposes.
(x) Neither Ebiz nor any Subsidiary has made any elections comparable to those
described in this section under any state, local or foreign tax laws or is
required to apply any rules comparable to those described in this Section under
any state, local or foreign tax laws.
(xi) The transactions contemplated hereby are not subject to the tax withholding
provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the
Code, or of any other provision of law.
(j) Schedule 4.16(j) contains information that is accurate and complete in all
material respects with respect to: (A) all tax elections in effect with respect
to Ebiz and each Subsidiary; (B) the current tax basis of the assets of Ebiz and
each Subsidiary broken out by asset class; (C) the net operating losses of Ebiz
and each Subsidiary by taxable year; (D) the net capital losses of Ebiz and each
Subsidiary by taxable year; and (E) the overall foreign losses of Ebiz and each
Subsidiary under Section 904(f) of the Code that are subject to recapture.
(k) There are no transfer taxes (exclusive of income taxes) that will become due
and payable as a result of the Merger transaction under Arizona, Delaware,
Nevada or federal law.
4.17 Title to Properties. Except as disclosed in Schedule 4.17, Ebiz and each
Subsidiary has good and marketable title, free and clear of any mortgage,
pledge, lien, charge or other encumbrance, to all of its real and/or personal
property and other assets whether reflected on the Current Ebiz Financial
Statements or otherwise, or acquired by it subsequent to the date thereof or
used by it in the ordinary course of its business, except for (a) liens or
encumbrances on such property or assets described in the Current Ebiz Financial
Statements, (b) liens for current taxes not yet due and payable, (c) such
imperfections of title and encumbrances, if any, as are not material in
character, amount or extent and do not detract from the value or interfere with
the present or presently contemplated future use of the properties subject
thereto or affected thereby, and (d) acquisitions and dispositions in the
ordinary course of business. Ebiz and each Subsidiary enjoys peaceable and
undisturbed possession under all material leases under which it is operating,
and all of its premises which are leased, are in good condition and repair and
are suitable for the purposes for which such premises are being utilized.
Neither Ebiz nor any Subsidiary has received any notice of violation of any
applicable zoning ordinance or other law, order, regulation or requirement
relating to its operations or to its owned or leased properties.
4.18. Environmental Matters To the best knowledge of Ebiz, Ebiz and each
Subsidiary has duly complied with, and the operation of its business, equipment
and other assets and the facilities owned or leased by Ebiz or any Subsidiary
are in compliance with the provisions of all applicable federal, state and local
environmental, health and safety laws, statutes, ordinances, rules and
regulations of any governmental or quasi governmental authority relating to (i)
errors or omissions, (ii) discharges to the atmosphere, soils, surface water or
ground water, (iii) solid or liquid waste disposal, (iv) the use, storage,
generation, handling, transport, discharge, release or disposal of toxic or
hazardous substances or waste, (v) the emission of non-ionizing electromagnetic
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radiation or (vi) Environmental and Health Laws. To the knowledge of Ebiz, there
are no investigations, administrative proceedings, judicial actions, orders,
claims or notices that are pending, anticipated or threatened against Ebiz or
any Subsidiary relating to violations of the Environmental and Health Laws. Ebiz
has not received a notice of, and does not know or have any reason to suspect,
facts which constitute a violation of any Environmental and Health Laws which
relate to the use, ownership or occupancy of any property or facilities used by
Ebiz or any Subsidiary in connection with the operation of its business or any
activity of the business of Ebiz or any Subsidiary which would result in a
violation or threatened violation of any Environmental or Health Laws.
4.19 Intellectual Property.
(a) Ebiz owns, or is licensed or otherwise possesses legally enforceable rights
to use all Intellectual Property used in the business of Ebiz as currently
conducted, except to the extent that the failure to have such rights has not and
could not reasonably be expected to have a Material Adverse Effect on Ebiz.
(b) Schedule 4.19(b) lists: (i) all patents and patent applications and all
registered and unregistered trademarks, trade names and service marks,
registered domain names and registered and unregistered copyrights, which Ebiz
considers to be material to its business and included in the Intellectual
Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all material licenses,
sublicenses and other agreements as to which Ebiz is a party and pursuant to
which any person is authorized to use any Intellectual Property, and (iii) all
material licenses, sublicenses and other agreements as to which Ebiz is a party
and pursuant to which Ebiz is authorized to use any third party patents,
trademarks or copyrights, including software ("Ebiz Third Party Intellectual
Property Rights"), in each case which are incorporated in, are, or form a part
of any product or service of Ebiz.
(c) To the knowledge of Ebiz, there has not been and currently is no
unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property or any trade secret of Ebiz, or any Ebiz Third Party
Intellectual Property Right, by any third party, including any employee or
former employee of Ebiz. Ebiz 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 purchase orders
arising in the ordinary course of business, or contained in license agreements
relating to Intellectual Property licensed to or by Ebiz in the ordinary course
of business.
(d) Ebiz is not, and will not be as a result of the execution and delivery of
this Agreement or the performance of Ebiz's obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the
Intellectual Property or Ebiz Third Party Intellectual Property Rights, the
breach of which could have a Material Adverse Effect on Ebiz.
(e) All patents, registered trademarks, service marks, registered domain names
and copyrights held by Ebiz are valid and subsisting. Ebiz (i) has not been sued
in any suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, domain names, copyrights or violation of any
trade secret or other proprietary right of any third party and (ii) has not
brought any action, suit or proceeding for infringement of Intellectual Property
or breach of any license or agreement involving Intellectual Property against
any third party. To the knowledge of Ebiz, the manufacture, marketing, licensing
or sale of the products and services of Ebiz does not infringe any patent,
24
trademark, service xxxx, copyright, trade secret, domain name or other
proprietary right of any third party.
(f) Ebiz has secured valid written assignments from all consultants and
employees who contributed to the creation or development of Intellectual
Property of the rights to such contributions that Ebiz does not already own by
operation of law.
4.20 Conditions and Sufficiency of Assets. All real property and equipment of
Ebiz and each Subsidiary is structurally sound and in good operating condition
and repair and are adequate for the uses thereof. None of the real property or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repair that are not material. The real property and equipment
are sufficient for the continued conduct of the business of Ebiz and each
Subsidiary.
4.21 Ebiz Reports and Financial Statements. Ebiz has made available to LMI true
and complete copies of all reports, registration statements, definitive proxy
statements and other documents (in each case together with all amendments
thereto) filed by Ebiz or its predecessor with the Securities and Exchange
Commission (the "Commission") since October 1, 1999 (such reports, registration
statements, definitive proxy statements and other documents, together with any
amendments thereto, are sometimes collectively referred to as the "Ebiz
Commission Filings"). The Ebiz Commission Filings constitute all of the
documents (other than preliminary material) that Ebiz or its predecessor was
required to file with the Commission since such date. As of their respective
dates, each of the Ebiz Commission Filings complied in all material respects
with the applicable requirements of the Securities Act, the Exchange Act and the
rules and regulations under each such Act, and none of the Ebiz Commission
Filings contained as of such date any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. When filed with the Commission, the financial statements
included in the Ebiz Commission Filings complied as to form in all material
respects with the applicable rules and regulations of the Commission. Ebiz has
complied with all of the rules, regulations and requirements for trading of
Ebiz's common stock on the OTC Bulletin Board.
4.22 Accuracy of Statements. Ebiz has disclosed to LMI all
facts required to be disclosed by this Agreement and material to the
liabilities, assets, business, prospects, conditions, organization and
operations (financial and otherwise) of Ebiz and its Subsidiaries. Neither this
Agreement nor any exhibit or schedule hereto nor any certificate, documents,
instrument or information furnished or to be furnished by Ebiz or Merger Sub to
LMI in connection with this Agreement or any of the transactions contemplated
hereby, or will contain any untrue statement of a material fact or omits or will
omit to state a material fact necessary to make the statements contained herein
or therein, in light of the circumstances under which they are made, not
misleading.
4.23 Brokers and Finders' Fees. Ebiz has not incurred, and
will not incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar changes
in connection with this Agreement or any transaction contemplated hereby.
ARTICLE 5
COVENANTS OF LMI AND EBIZ
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5.1 Access to Information. LMI shall provide Ebiz, its counsel, accountants and
other representatives and Ebiz shall provide LMI, its counsel, accountants and
other representatives full access, from and after the date of this Agreement, to
all of their respective properties, books, contracts, commitments and records,
and each shall furnish to the other during such period all such information
concerning its affairs as the other may reasonably request. In addition, each
shall make its officers, personnel and vendors available to discuss with the
designated representatives of the other the substance of all documents,
financial statements and other information provided by the party to the other
and such other matters as either party shall deem pertinent to the transactions
contemplated by this Agreement.
5.2 Conduct of Business. Except as otherwise consented to in writing by the
other, from the effective date of execution of this Agreement until the Closing
Date or the date of termination of this Agreement, each of LMI and Ebiz shall:
(a) maintain and operate its properties in a manner consistent with the
efficient operation of its business and conduct its business only in the
ordinary course. It shall not be considered to be in the ordinary course of its
business to make any acquisition of direct or indirect ownership or control of
voting shares of any other corporation, or of any interest in any partnership,
joint venture, association or similar organization, other than shares acquired
in satisfaction of a security interest or of a debt previously contracted or in
a fiduciary or custodial capacity.
(b) punctually pay and discharge all Taxes, assessments and governmental charges
lawfully imposed upon it or any of its property, or upon the income and profits
thereof; provided, however, that nothing herein contained shall require a party
to pay or discharge any Tax assessment or governmental charge so long as the
validity thereof shall be contested in good faith and by appropriate proceedings
unless property essential to the conduct of its business will be lost, forfeited
or materially endangered.
(c) maintain its existence as a corporation in good standing under the laws of
its state of organization and comply in all material respects with all laws,
governmental regulations, rules and ordinances, and judicial orders, judgments
and decrees applicable to its business or its properties, except while
contesting the validity of any of the foregoing in good faith and by appropriate
proceedings.
(d) notify the other of the commencement of any material litigation against it
or of the existence of any adverse business conditions threatening its
continued, normal business operations or of any agreement, consent or order
involving its operations.
(e) at all times maintain, preserve and keep its properties in good repair,
working order and condition in all material respects so that the business
carried on in connection therewith may be properly and advantageously conducted.
(f) make every reasonable effort to fulfill its contractual obligations and to
maintain in effect its insurance as currently in effect.
(g) use its best efforts to preserve its business relations with its present
customers.
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(h) use its best efforts to assure, to the extent within its control, the
satisfaction of the conditions to the effectiveness of the transactions
contemplated in this Agreement.
5.3 Negative Covenants. Prior to the Closing Date or the termination of this
Agreement, neither LMI nor Ebiz shall, unless the other shall have otherwise
consented in writing:
(a) amend its Articles of Incorporation or Bylaws, except to the extent
necessary to effect the transactions contemplated by this Agreement, and, in the
case of LMI, as referenced in Section 1.3(b) of this Agreement;.
(b) issue, sell or otherwise dispose of any shares of its capital stock or any
of its securities convertible into or representing a right or option to purchase
any such shares or enter into other agreements to issue or sell any shares of
its capital stock or change the presently outstanding shares of such stock into
a greater or lesser number of shares either by way of a recapitalization,
reorganization, consolidation of shares or the like, or by way of a merger or
consolidation, other than (i) the sale by LMI of such shares of LMI Preferred
Stock and/or LMI Common Stock as are necessary in order to consummate the
proposed bridge financing and investment transaction with Canopy or similar
investor, or the proposed asset acquisition and investment transaction with
Caldera Systems, Inc. ("Caldera") or (ii) the issuance by Ebiz of such shares of
Ebiz Common Stock as are required to comply with the terms of the $7,100,000
Subordinated Convertible Debenture, dated August 25, 1999, issued by Ebiz in
favor of JEM Ventures EBIZ, LLC.
(c) purchase, redeem, retire or otherwise acquire or sell, hypothecate, pledge
or otherwise encumber, any shares of its capital stock.
(d) declare, set aside, make or pay stock or cash dividends on any share of its
capital stock or make any other distribution of assets to the holders of any
shares of its capital stock.
(e) institute a wage or salary adjustment increasing the base compensation rate
of any person whose annual base compensation rate on the date hereof exceeds
$25,000, pay a new employee an annual base compensation rate exceeding $50,000,
enter into any agreement, understanding or commitment, written or oral, which
obligates LMI, its successors or assigns, to pay, at any time, to a new employee
an annual base compensation rate exceeding $50,000, or institute or agree to
institute wage or salary adjustments which, taken either individually or in the
aggregate, increase by more than 10% the aggregate of the annual base
compensation rates paid by either on the date hereof to all of its employees.
(f) enter into or institute any employment contracts, including but not limited
to employee policy manual, deferred compensation, non-competition, bonus, stock
option, profit-sharing, pension, retirement, consultation after retirement,
payments upon retirement, severance agreement, incentive, extraordinary vacation
accrual, education payment or benefit, disability, medical, life or other
insurance plan or arrangement or, except as required by applicable law or
regulation, renew, amend, modify or terminate any such arrangement or plan now
in existence.
(g) enter into any agreement, understanding or commitment, written or oral, with
any other person which is in any manner inconsistent with its obligations
arising under this Agreement, other than those agreements, understandings and
commitments entered into by LMI in connection with the contemplated bridge
financing and investment transaction with Canopy or asset acquisition and
investment transaction with Caldera.
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(h) make any loan, advance or commitment to extend credit to any of its
directors, officers or any affiliated or related persons of such directors or
officers; renew any outstanding loan or any outstanding commitment to extend
credit to any of its directors, officers or any affiliated or related persons of
such directors or officers; increase any outstanding loan to any of its
directors, officers or any affiliated or related persons of such directors or
officers; or enter into any agreement, understanding or commitment, written or
oral, which obligates it, its successors or assigns, to make any loan or advance
or payment to any of its directors or officers or to any affiliated or related
persons of any such directors or officers.
(i) sell, lease or otherwise transfer or dispose of any property or asset, other
than in the ordinary course of business consistent with past practice.
(j) take, or agree to take, any other action that would make any of its
representations or warranties contained in this Agreement untrue.
5.4 Continued Relationships. LMI shall preserve intact the business of LMI and
Ebiz shall preserve intact the business of Ebiz and each of the Subsidiaries and
keep available the services of their respective officers and employees and
maintain good relationships with suppliers, customers and others having business
relationships with any of the parties, and shall not cause any change in the
business, condition or results of operations which may have an adverse effect on
any the assets, business, condition or prospects of the respective party.
5.5 Confidentiality.
(a) Except as contemplated by this Agreement, as required by law or otherwise
expressly consented to in writing by Ebiz and LMI, all information or documents
furnished hereunder by any party shall be kept strictly confidential by the
party or parties to whom furnished at all times prior to the Closing Date, and
in the event such transactions are not consummated, each shall return to the
other all documents furnished hereunder and copies thereof upon request and
shall continue to keep confidential all information furnished hereunder and
shall not thereafter use the same for its advantage. Notwithstanding the
foregoing, (i) Ebiz or LMI may, with the consent of the other, which consent
shall not be unreasonably withheld or delayed, issue or make a press release,
announcement or other disclosure regarding this Agreement and the transactions
contemplated hereby which it reasonably determines necessary or desirable under
applicable law, and (ii) Ebiz may, at any time after the date of this Agreement,
file with the Commission a form 8-K pursuant to the Exchange Act with respect to
the transactions contemplated by this Agreement, which Form 8-K may include,
among other things, financial statements and pro forma financial information
with respect to LMI. Prior to the Closing Date or termination of this Agreement,
LMI shall cooperate with Ebiz and provide such information and documents as may
be required in connection with any such filings.
(b) If the Closing is not consummated, each party hereto will hold, and Ebiz
shall cause its Subsidiaries to hold, in absolute confidence any information
obtained from another party except to the extent (i) such party is required to
disclose such information by law or regulation, (ii) disclosure of such
information is necessary in connection with the pursuit of a claim by such party
against another party, (iii) such information was known by such party prior to
such disclosure or was thereafter developed or obtained by such party
independent of such disclosure, or (iv) such information becomes generally
available to the public or is otherwise no longer confidential. Prior to any
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disclosure of information pursuant to the exception in clause (i) or (ii) of the
preceding sentence, the party intending to disclose the same shall so notify the
party which provided the same in order that such party may seek a protective
order or other appropriate remedy should it choose to do so. Notwithstanding the
foregoing, Ebiz or LMI may, with the consent of the other, which consent shall
not be unreasonably withheld or delayed, issue or make a press release,
announcement or other disclosure regarding the termination of this Agreement and
the transactions contemplated hereby which it reasonably determines necessary or
desirable under applicable law.
5.6 No Solicitation. LMI, Ebiz and those acting on behalf of either will not,
and LMI and Ebiz will use their best efforts to cause their officers, employees,
agents, and representatives (including any investment banker) to not, directly
or indirectly, solicit, encourage, or initiate any discussions with, or
negotiate or otherwise deal with, or provide any information to, any person or
entity other than the other and its officers, employees, and agents, concerning
any merger, other business combination, sale of substantial assets, or similar
transaction involving either or any sale of any of their capital stock or of the
capital stock or other securities or assets of either. Each will notify the
other immediately upon receipt of any inquiry, offer or proposal relating to any
of the foregoing. None of the foregoing shall prohibit (i) sale of equity stock
of Ebiz or conversion of debt of LMI as contemplated under this Agreement, (ii)
providing information to others in a manner in keeping with the ordinary conduct
of the parties' business, or providing information to government authorities or
(iii) pursuit of the transactions referenced in Section 5.3(b) of this Agreement
with respect to Canopy or Caldera.
5.7 Agreement of Affiliates. If the Merger will qualify for
pooling-of-interests accounting treatment, shares of Ebiz Common Stock issued to
affiliates of LMI in exchange for their shares of LMI Common Stock or LMI
Preferred Stock shall not be transferable until such time as the financial
results covering at least 30 days of combined operations of Ebiz and LMI have
been published within the meaning of Section 201.01 of the Commission's
Codification of Financial Reporting Policies. Ebiz shall be entitled to place a
restrictive legend on certificates issued to LMI affiliates to enforce the
provisions of this section.
5.8 Notification of Certain Matters. Between the date hereof and the Closing
date, each party will give prompt notice in writing to the other party of: (i)
any information that indicates that any of its representations or
warranties contained herein was not true and correct as of the date hereof
or will not be true and correct at and as of the Closing Date with the same
force and effect as if made at and as of the Closing Date (except for
changes permitted or contemplated by this Agreement), (ii) the occurrence
of any event which will result, or has a reasonable prospect of resulting,
in the failure of any condition specified in Article 6 hereof to be
satisfied or (iii) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement or that
such transactions otherwise may violate the rights of or confer remedies
upon such third party.
5.9 Actions by Merger Sub. In its capacity as the sole stockholder of Merger
Sub, Ebiz shall cause Merger Sub to approve and adopt the Merger and to take all
corporate action necessary on its part to consummate the Merger and the
transactions contemplated hereby. Merger Sub shall not conduct any other
business, and will have no other assets or liabilities.
5.10 Amendment of Stock Option Plan. Prior to the Closing Date, Ebiz shall amend
its 1998 Equity Incentive Plan to increase the number of shares authorized under
such plan to an amount sufficient to assume all outstanding LMI Stock Options
pursuant to Section 1.6(b) hereof.
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5.11 Conversion of Ebiz Preferred Stock. Prior to the Closing Date, Ebiz shall
cause any and all outstanding shares of its preferred stock to be converted into
shares of Ebiz Common Stock.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to the Obligation of Ebiz to Close. The obligation of Ebiz to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
(a) during the period from the date of the Current LMI Financial Statements to
the Closing Date, there shall not have occurred any material adverse change,
other than as set forth on any schedule or exhibit hereto, in the financial
condition, business or operation of LMI taken as a whole, and Ebiz shall have
received at the Closing a certificate dated as of the Closing Date, signed by
the Chief Executive Officer and Chief Financial Officer of LMI to that effect;
(b) each of the representations and warranties of LMI contained in this
Agreement shall, in all material respects, be true when made and as of the
Closing Date, with the same effect as though such representations and warranties
had been made on and as of such date; each of the covenants and agreements of
LMI to be performed on or prior to the Closing Date shall have been duly
performed in all material respects; and Ebiz shall have received at the Closing
a certificate to that effect dated as of the Closing Date and executed by the
Chief Executive Officer and Chief Financial Officer of LMI;
(c) Ebiz shall have received an opinion from Holme Xxxxxxx & Xxxx, LLP, counsel
to LMI, substantially in the form of Exhibit F attached hereto;
(d) Ebiz shall have received an opinion from Southwest Securities, Inc. or
similarly qualified firm, as determined by Ebiz, to the effect that the Merger
is fair to its shareholders;
(e) all outstanding debentures of LMI issued before March 1, 2000 and the
Designated Portion of the value of each outstanding debenture of LMI issued
after March 1, 2000 shall have been converted into LMI Preferred Stock or other
equity of LMI, or shall have been converted automatically in accordance with the
terms of such debentures or upon the consummation of the Merger, and all
outstanding Canopy Notes shall have been repaid or converted into LMI Common
Stock;
(f) there shall not have been issued or be in effect any order of any court,
agency or other tribunal of competent jurisdiction which has the effect of
prohibiting or prohibits the performance of the Agreement and the transactions
contemplated thereby or imposes limitations on the ability of LMI to exercise
and possess all of its rights, privileges, immunities and franchises or to
otherwise conduct its business (with limitations applicable only to all similar
entities engaged in similar business) as of the Closing Date;
(g) all proceedings, corporate or otherwise, to be taken in connection with the
transactions contemplated by this Agreement, including the shareholder approvals
of the transactions contemplated by this Agreement, shall have occurred and all
30
appropriate documents incident thereto as Ebiz may reasonably request shall have
been delivered to it, including, without limitation, the receipt of appropriate
consents from any third parties which may be necessary to effect the
transactions contemplated hereby;
(h) no action, suit or proceeding before any court or any governmental or
regulatory authority shall have been commenced or threatened, and no
investigation by any governmental or regulatory authority shall have been
commenced against the parties hereto or any of the affiliates, associates,
officers or directors, or any of them, seeking to restrain, prevent or change
the transactions contemplated hereby, or questioning the validity or legality of
any such transactions contemplated hereby, or questioning the validity or
legality of any such transactions, or seeking damages in connection with any of
such transactions;
(i) LMI shall have received any requisite approvals to this Agreement from all
third parties having, under the terms of its respective loan, lease and other
agreements, the right to approve or reject this Agreement or to cancel its
agreement with LMI on or before the Closing Date; LMI hereby represents that all
such third parties will have been disclosed to Ebiz as of the Closing Date;
(j) LMI shall have received confirmation, in form and substance mutually
agreeable to Ebiz and LMI, of at least $2,000,000 in new funding;
(k) Xxxx Xxxxxxx shall have transferred to LMI such number of shares of LMI
Common Stock as would, if converted in the Merger, be converted into at least
200,000 shares of Ebiz Common Stock pursuant to the conversion ratio set forth
in Section 1.3(a) of this Agreement; and
(l) LMI shall execute and deliver or cause to be executed and delivered to Ebiz
such documents as are required at the Closing, pursuant to Article 7.
6.2 Conditions to the Obligation of LMI to Close. The obligation of LMI to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
(a) during the period from the date of the Current Ebiz Financial Statements to
the Closing Date, there shall not have occurred any material adverse change,
other than as set forth on any schedule or exhibit hereto, in the financial
condition, business or operation of Ebiz taken as a whole, and LMI shall have
received at the Closing a certificate dated as of the Closing Date, signed by
the Chief Executive Officer and Chief Financial Officer of Ebiz to that effect;
(b) each of the representations and warranties of Ebiz and Merger Sub contained
in this Agreement shall, in all material respects, be true when made and as of
the Closing Date, with the same effect as though such representations and
warranties had been made on and as of such date; each of the covenants and
agreements of Ebiz and Merger Sub to be performed on or prior to the Closing
Date shall have been duly performed in all material respects; and LMI shall have
received at the Closing a certificate to that effect dated as of the Closing
Date and executed by the Chief Executive Officer and Chief Financial Officer of
Ebiz;
(c) LMI shall have received an opinion from Xxxxx and Xxxx, LLP, counsel to
Ebiz, substantially in the form attached as Exhibit G hereto;
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(d) LMI's stockholders shall have approved the Merger pursuant to the
requirements of the DGCL, a majority of the holders of each class of outstanding
debentures of LMI shall have approved the Merger and LMI shall have received all
other approvals reasonably necessary, in the opinion of LMI, to consummate the
Merger, including, without limitation, the consents and waivers described in the
Information Statement relating to the Merger, dated on or about the date hereof,
furnished to holders of securities of LMI;
(e) there shall not have been issued or be in effect any order of any court,
agency or other tribunal of competent jurisdiction which has the effect of
prohibiting or prohibits the performance of the Agreement and the transactions
contemplated thereby or imposes limitations on the ability of Ebiz to exercise
and possess all of its rights, privileges, immunities and franchises or to
otherwise conduct its business (with limitations applicable only to all similar
entities engaged in similar business) as of the Closing Date;
(f) all proceedings, corporate or otherwise, to be taken in connection with the
transactions contemplated by this Agreement, including the shareholder approvals
of the transactions contemplated by this Agreement, shall have occurred and all
appropriate documents incident thereto as LMI may reasonably request shall have
been delivered to it, including, without limitation, the receipt of appropriate
consents from any third parties which may be necessary to effect the
transactions contemplated hereby;
(g) no action, suit or proceeding before any court or any governmental or
regulatory authority shall have been commenced or threatened, and no
investigation by any governmental or regulatory authority shall have been
commenced against the parties hereto or any of the affiliates, associates,
officers or directors, or any of them, seeking to restrain, prevent or change
the transactions contemplated hereby, or questioning the validity or legality of
any such transactions contemplated hereby, or questioning the validity or
legality of any such transactions, or seeking damages in connection with any of
such transactions; and
(h) Ebiz and each Subsidiary shall have received any requisite approvals to this
Agreement from all third parties having, under the terms of its respective loan,
lease and other agreements, the right to approve or reject this Agreement or to
cancel its agreement with Ebiz on or before the Closing; Ebiz hereby represents
that all such third parties will have been disclosed to LMI as of the Closing
Date; and
(i) Ebiz shall execute and deliver or cause to be executed and delivered to LMI
such documents as are required at the Closing, pursuant to Article 7.
ARTICLE 7
CLOSING
7.1 Documents to be Delivered by Ebiz. At the Closing, Ebiz will deliver the
following to LMI:
(a) Share Certificates. Certificates representing the shares of Ebiz Common
Stock constituting the Merger Consideration other than such certificates to be
issued after Closing with respect to the Assumed LMI Debentures pursuant to
Section 1.3(b) of this Agreement;
32
(b) Certified Resolutions. Certified resolutions of each of the Board of
Directors of Ebiz and Merger Sub approving the execution, delivery and
performance of this Agreement and authorizing the consummation of the
transactions contemplated hereby;
(c) Officer's Certificate. A certificate, dated as of the Closing Date, signed
by the Chief Executive Officer and Chief Financial Officer of Ebiz, as required
pursuant to Section 6.2;.
(d) Opinion. A written opinion of Xxxxx and Roca, LLP, counsel to Ebiz addressed
to LMI, dated as of the Closing Date, in substantially the form attached as
Exhibit G;
(e) Good Standing Certificates. Governmental certificates showing that Ebiz is
duly incorporated, validly existing and in good standing in the State of Nevada
and qualified to do business as a foreign corporation in each state listed in
Schedule 4.1(a), certified as of a date not more than ten (10) days before the
Closing Date;
(f) Warrants. Warrants exercisable for shares of Ebiz Common Stock, approved by
the Board of Directors of Ebiz and issued to the holders of outstanding LMI
Warrants pursuant to the terms and conditions set forth in Section 1.6(a);
(g) Stock Options. Notices of grant or equivalent documentation approved by the
Board of Directors of Ebiz and issued to each holder of LMI Stock Options,
evidencing the assumption of the LMI Stock Options listed in Schedule 3.5
pursuant to the terms and conditions set forth in Section 1.6(b);
(h) Lock Up Agreements. Lock Up Agreements executed by each of Xxxxxxx Xxxxxx
and Xxxxxxx Xxxxxx as required pursuant to Section 2.4(b) and in substantially
the form attached as Exhibit E;
(i) Compensation Agreement. A Compensation Agreement substantially in the form
attached as Exhibit H; and
(j) Other Documents. Such additional certificates, instruments, documents,
information and materials as LMI may reasonably request.
7.2 Documents to be Delivered by LMI. At the Closing, LMI will deliver the
following to Ebiz:
(a) Share Certificates. Certificates representing the shares of the outstanding
LMI Common Stock and LMI Preferred Stock;
(b) Certified Resolutions. Certified resolutions of the Board of Directors of
LMI approving the execution, delivery and performance of this Agreement and
authorizing the consummation of the transactions contemplated hereby;
(c) Officer's Certificate. A certificate, dated as of the Closing Date, signed
by the Chief Executive Officer and Chief Financial Officer of LMI, as required
pursuant to Section 6.1;
33
(d) Opinion. A written opinion of Holme Xxxxxxx & Xxxx LLP, counsel to LMI
addressed to Ebiz, dated as of the Closing Date, in substantially the form
attached as Exhibit F;
(e) Good Standing Certificates. Governmental certificates showing that LMI is
duly organized, validly existing and in good standing in the State of Delaware
and qualified to do business as a foreign corporation in each state listed in
Schedule 3.1(a), certified as of a date not more than ten (10) days before the
Closing Date; and
(f) Other Documents. Such additional certificates, instruments, documents,
information and materials as Ebiz may reasonably request.
7.3 Mutual Deliveries. At the Closing, each of Ebiz and LMI, as applicable,
shall execute and deliver or cause to be executed and delivered:
(a) A Certificate of Merger substantially in the form attached as Exhibit A;
(b) Employment Agreements as required pursuant to Section 2.1 in substantially
the form attached as Exhibit B;
(c) A Shareholder Voting Agreement and Proxy, as required pursuant to Section
2.2 and in substantially the form attached hereto as Exhibit C; and
(d) A Registration Rights Agreement as required pursuant to Section 2.4(a) and
in substantially the form attached hereto as Exhibit D.
ARTICLE 8
AMENDMENT AND WAIVER
8.1 Amendment and Modification. This Agreement may only be amended or modified
in a writing signed by Ebiz and LMI at any time prior to the Closing Date.
8.2 Waiver. At any time prior to the Closing Date, the parties hereto may by
mutual agreement extend the time for the performance of any of the obligations
or other acts of any other party hereto. Any party may waive any inaccuracies in
the representations and warranties of any other party contained herein or in any
schedule or document delivered pursuant hereto and waive compliance by any other
party with any of the covenants, agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the parties
hereto.
ARTICLE 9
TERMINATION
9.1 Termination by Parties. This Agreement may be terminated prior to the
Closing Date:
(a) (i) At the option of Ebiz, upon written notice to the other parties, if in
the good faith opinion of the Board of Directors of Ebiz, LMI has breached any
of the representations and warranties or other covenants of this Agreement or
any condition precedent set forth in Section 6.1 has failed to occur, or (ii) at
the option of LMI, upon written notice to the other parties, if in the good
34
faith opinion of the Board of Directors of LMI, either Ebiz or Merger Sub has
breached any of the representations and warranties or other covenants of this
Agreement or any condition precedent set forth in Section 6.2 has failed to
occur;
(b) by mutual agreement of Ebiz and LMI; and
(c) at the option of the respective Board of Directors of Ebiz or LMI, if any
litigation is instituted against LMI or Ebiz, the object of which is to enjoin
any party from proceeding with the transactions contemplated under this
Agreement or to seek damages against any party hereto or any officer, director
or agent of any party as a result of the transactions proposed under this
Agreement.
9.2 Effect of Termination. In the event this Agreement is terminated as provided
in Sections 9.1(b) or 9.1(c) or as provided in Section 9.1(a) to the extent such
termination is a result of a condition precedent having failed to occur, this
Agreement shall be void and of no further force and effect, and, except as set
forth herein and Section 5.5 above, there shall be no further liability on the
part of Ebiz or LMI or any of their respective directors, officers or
stockholders as a result of this Agreement. Section 5.5 shall survive any
termination of this Agreement.
ARTICLE 10
INDEMNIFICATION
10.1 Definitions. Capitalized terms used in this Article 10 and not defined
elsewhere in this Agreement shall have the meanings ascribed to them below:
"Applicable Stock Percentage" shall mean, with respect to each LMI Stockholder,
the percentage that corresponds to a fraction, the numerator of which is an
amount equal to the total number of shares (on a fully diluted basis) of LMI
Common Stock or securities convertible into LMI Common Stock held by such LMI
Stockholder immediately prior to the Effective Time and the denominator of which
is an amount equal to the total number of shares (on a fully diluted basis) of
LMI Common Stock or securities convertible into LMI Common Stock outstanding as
of immediately prior to the Effective Time.
"Damages" shall mean any loss, liability, obligation, debt, claim, damage or
expense (including costs of investigation and defense and reasonable attorneys'
fees).
"Due Date" shall mean the date that is 30 days after the Indemnification
Determination Date.
"Ebiz Average Trading Price" shall mean, with respect to any trading day, the
average of the high and low bid prices for Ebiz Common Stock as reported by the
OTC Bulletin Board for such day.
"Ebiz Designated Representative" shall mean Xxxxxxx Xxxxxx; provided, however,
if Ebiz designates any person to succeed Xxxxxxx Xxxxxx as the Ebiz Designated
Representative by a writing executed by an authorized officer of Ebiz, then the
Ebiz Designated Representative shall mean such successor.
35
"Ebiz Indemnification Amount" shall mean the total amount of all Damages,
without any offset with respect to the LMI Indemnification Amount, due and
payable to Ebiz pursuant to Section 10.3(b), as determined by Final Decision.
"Ebiz Share Value" shall mean the per share Ebiz Average Trading Price as of the
fifth trading day prior to the Due Date.
"Escrow Agent" shall mean Colonial Trust, or such other escrow agent as may be
agreed upon in writing by the Ebiz Designated Representative and the LMI
Designated Representative.
"Escrowed Shares" shall mean 5 percent of (i) the shares of Ebiz Common Stock to
be delivered to the LMI Stockholders pursuant to Section 1.3 of this Agreement
and (ii) the shares of Ebiz Common Stock issued upon conversion of the Assumed
LMI Debentures pursuant to Section 1.3(b) of this Agreement, all such shares
referenced in the immediately preceding clauses (i) or (ii) to be deposited into
an escrow account to be held by the Escrow Agent.
"Final Decision" shall mean a final, binding written agreement executed by the
Ebiz Designated Representative and the LMI Designated Representative, pursuant
to which such Representatives agree as to the Ebiz Indemnification Amount and
the LMI Indemnification Amount; provided, however, if such Representatives
cannot agree upon such Amounts, then Final Decision shall mean a final,
non-appealable decision of the arbitrator pursuant to Section 10.5, or if such
decision is appealed to a court of law, a final, non-appealable judgement or
order issued by a court of competent jurisdiction, setting forth such Amounts.
"Indemnification Cap" shall mean $1,000,000.00.
"Indemnification Claim" shall mean a claim asserted by the LMI Designated
Representative pursuant to Section 10.3(a) or a claim asserted by the Ebiz
Designated Representative pursuant to Section 10.3(b), in each case, by
providing written notice of such claim to other Representative in accordance
with Section 10.4(a) below.
"Indemnification Determination Date" shall mean the date upon which all
Indemnification Claims are resolved by Final Decision.
"LMI Designated Representative" shall mean Xxxxx Xxxx, provided, however, if the
LMI Stockholders designate any person to succeed Xxxxx Xxxx as the LMI
Designated Representative by a written consent executed by LMI Stockholders
holding not less that a majority of all shares of LMI Common Stock held by the
LMI Stockholders at the time the LMI Stockholders are determined, then the LMI
Designated Representative shall mean such successor.
"LMI Indemnification Amount" shall mean the total amount of all Damages,
without any offset with respect to the Ebiz Indemnification Amount, owed by Ebiz
to the LMI Stockholders pursuant to Section 10.3(a), as determined by Final
Decision.
"LMI Stockholders" shall mean (i) holders of LMI Common Stock or LMI Preferred
Stock immediately prior to the Effective Time, whose shares of stock are
converted in the Merger into the right to receive the Merger Consideration and
(ii) holders of Assumed LMI Debentures at the Effective Time, who, upon the
conversion of such debentures, are entitled to receive the Merger Consideration
as provided by Section 1.3 of this Agreement.
36
"Net Indemnification Amount" shall mean the difference between (i) the LMI
Indemnification Amount and (ii) the Ebiz Indemnification Amount.
10.2 Survival; Right to Indemnification Not Affected by Knowledge. All
representations, warranties, covenants and obligations in this Agreement or in
the certificates delivered pursuant to Sections 6.1(a), 6.1(b), 6.2(a) and
6.2(b) or any other certificate delivered pursuant to this Agreement (other than
the Certificate of Merger) will survive until the expiration of all periods
during which a "Notice of Claim" may be submitted as provided in Section
10.4(a); provided, however, if any Notice of Claim is submitted within the time
period provided for the submission thereof pursuant to Section 10.4(a), the
non-survival of any such representation, warranty, covenant or obligation shall
not affect, terminate or prejudice any Indemnified Claim as to which such Notice
of Claim is timely submitted. The right to indemnification, payment of Damages,
or other remedy based on the representations, warranties, covenants and
obligations in this Agreement will not be affected by any investigation
conducted with respect to, or any knowledge acquired or capable of being
acquired, whether before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy of or compliance with any such
representation or warranty, or the performance of or compliance with any such
covenant or obligation.
10.3 Indemnification after Effective Time. If the Merger is consummated pursuant
to this Agreement, the indemnification provisions of this Article 10 shall be
effective immediately after the Effective Time:
(a) Indemnification of LMI Stockholders. In accordance with the procedures and
subject to the limitations set forth in Sections 10.4 and 10.5 below, Ebiz shall
defend, indemnify and hold harmless the LMI Stockholders from and against any
Damages arising, directly or indirectly, from and in connection with (a) any
inaccuracy or breach of any representation or warranty made by Ebiz in this
Agreement or in any certificate delivered by Ebiz pursuant to this Agreement
(except the Certificate of Merger), or (b) any failure by Ebiz to perform or
comply with any covenant or obligation of Ebiz in this Agreement.
(b) Indemnification of Ebiz. In accordance with the procedures and subject to
the limitations set forth in Sections 10.4 and 10.5 below, the LMI Stockholders
shall defend, indemnify and hold harmless Ebiz from and against any Damages
arising, directly or indirectly, from and in connection with (a) any inaccuracy
or breach of any representation or warranty made by LMI in this Agreement or in
any certificate delivered by LMI pursuant to this Agreement (except the
Certificate of Merger), or (b) any failure by LMI to perform or comply with any
covenant or obligation of LMI in this Agreement.
(c) Intended Third Party Beneficiaries. The provisions contained in this Article
10 are intended to benefit the LMI Stockholders, provided the rights and
remedies of the LMI Stockholders under this Article 10 may only be exercised by
or on their behalves by the LMI Designated Representative, and are subject to
the limitations and conditions set forth in this Article 10. The Ebiz
shareholders shall not constitute third party beneficiaries under this Agreement
and shall have no right to enforce any right or remedy hereunder.
37
(d) Exclusive Remedies. After the Effective Time, the remedies provided in this
Article 10 shall be the sole and exclusive remedies available to LMI, the LMI
Stockholders and Ebiz with respect to the matters described in Sections 10.3(a)
or 10.3(b) of this Agreement.
10.4 Limitations on Indemnification Obligations.
(a) Time Limit to Assert Claim. All Indemnification Claims held by the LMI
Stockholders or Ebiz shall expire and be of no force or effect unless: (i) in
the case of the LMI Stockholders, the LMI Designated Representative submits to
the Ebiz Designated Representative a Notice of Claim meeting the requirements
set forth in this subsection (a) within 9 months after the Effective Time, or,
if later, within 30 days after the Ebiz Designated Representative submits a
Notice of Claim to the LMI Designated Representative; and (ii) in the case of
Ebiz, the Ebiz Designated Representative submits to the LMI Designated
Representative a Notice of Claim meeting the requirements set forth in this
subsection (a) within 9 months after the Effective Time, or, if later, within 30
days after the LMI Designated Representative submits a Notice of Claim to the
Ebiz Designated Representative. To be effective, a Notice of Claim shall be in
writing, signed by the Designated Representative submitting the Indemnification
Claim, delivered in accordance with Section 11.6 of this Agreement, and specify,
in general terms, the basis for the claim and the amount of Damages being
claimed.
(b) De minimus Claim. If it is determined by Final Decision that the Net
Indemnification Amount is less than $250,000.00, then no person shall have any
obligation to any other person under Section 10.3, and the Escrowed Shares shall
be transferred to the LMI Stockholders pursuant to Section 10.4(f) of this
Agreement. If the Net Indemnification Amount is greater than $250,000.00, then
the party prevailing under any Final Decision shall be entitled to recover its
full Indemnification Amount, subject to any other limitations set forth in this
Article 10, including, without limitation, Sections 10.4(c) and (e) hereof, it
being intended that such Indemnification Amount shall be payable from the first
dollar.
(c) Offset of Claims. If it is determined by Final Decision that the Ebiz
Indemnification Amount is greater than the LMI Indemnification Amount, then the
LMI Indemnification Amount shall be offset against the Ebiz Indemnification
Amount, the LMI Stockholders shall not be entitled to any recovery whatsoever
with respect to their Indemnification Claims, and Ebiz shall only be entitled to
recover with respect to its Indemnification Claims an amount equal to the excess
of the Ebiz Indemnification Amount over the LMI Indemnification Amount. If it is
determined by Final Decision that the LMI Indemnification Amount is greater than
the Ebiz Indemnification Amount, then the Ebiz Indemnification Amount shall be
offset against the LMI Indemnification Amount, Ebiz shall not be entitled to any
recovery whatsoever with respect to its Indemnification Claims, and the LMI
Stockholders shall only be entitled to recover with respect to their
Indemnification Claims an amount equal to the excess of the LMI Indemnification
Amount over the Ebiz Indemnification Amount.
(d) Due Date. All amounts which become payable pursuant to this Article 10 shall
be due and payable on the Due Date.
(e) Indemnification Cap. Notwithstanding anything in this Section 10 to the
contrary, neither the LMI Stockholders, as a group, nor Ebiz, shall be entitled
to any recovery in excess of the Indemnification Cap.
38
(f) Escrow. The Escrowed Shares, when initially issued, shall be issued to the
Escrow Agent as nominee of the LMI Stockholders, such shares to be deposited in
an escrow account. The Escrowed Shares shall be allocated against the number of
shares of Ebiz Common Stock to which each LMI Stockholder is entitled on a pro
rata basis in accordance with the relative Applicable Stock Percentage of each
LMI Stockholder. The Escrowed Shares shall be held by the Escrow Agent in
escrow, and shall be transferred or released by the Escrow Agent only as
follows. If no Notice of Claim is submitted by the Ebiz Designated
Representative to the LMI Designated Representative within the applicable time
period provided in Section 10.4(a), then the Escrow Agent shall promptly
transfer all of the Escrowed Shares to the LMI Stockholders on a pro rata basis
in accordance with the relative Applicable Stock Percentage of each LMI
Stockholder. If a Notice of Claim is submitted by the Ebiz Designated
Representative to the LMI Designated Representative within the applicable time
period provided in Section 10.4(a), then the Escrow Agent shall hold the
Escrowed Shares until the first to occur of the issuance of a Final Decision or
the waiver and release by Ebiz of the Indemnification Claims to which the Notice
of Claim relates. If the Final Decision results in Ebiz being entitled to no
payment pursuant to this Article 10 or if Ebiz waives and releases its
Indemnification Claims, then the Escrow Agent shall promptly transfer all of the
Escrowed Shares to the LMI Stockholders on a pro rata basis in accordance with
the relative Applicable Stock Percentage of each LMI Stockholder. If, however,
pursuant to the Final Decision it is determined that Ebiz is entitled pursuant
to this Article 10 to receive payment with respect to its Indemnification
Claims, then the Escrow Agent shall transfer to Ebiz on the Due Date such number
of Escrowed Shares as have an aggregate Ebiz Share Value equal to the amount of
such payment and shall transfer all of the remaining Escrowed Shares to the LMI
Stockholders on a pro rata basis in accordance with the relative Applicable
Stock Percentage of each LMI Stockholder. Any LMI Stockholder may, but shall not
be required, to redeem any Escrowed Shares allocable to him that are required to
be transferred to Ebiz pursuant to this subsection (f) by paying to the Escrow
Agent, prior to the transfer thereof to Ebiz, the Ebiz Share Value of such
Escrowed Shares. Any Escrowed Shares that are so redeemed shall be transferred
to the redeeming LMI Stockholder and the cash paid to redeem such Escrowed
Shares shall be paid, in lieu of such shares, to Ebiz.
(g) Non-Recourse Obligations. Ebiz's sole recourse with respect to any amount to
which it is entitled to receive from the LMI Stockholders pursuant to this
Article 10 shall be to the Escrowed Shares. No LMI Stockholder shall have any
personal liability to Ebiz whatsoever under this Article 10.
(h) Payment to LMI Stockholders. Any amount which Ebiz is obligated to pay to
the LMI Stockholders pursuant to this Article 10 shall be payable to the LMI
Stockholders on a pro rata basis in accordance with the relative Applicable
Stock Percentage of each LMI Stockholder. At the option of the Board of Ebiz,
each LMI Stockholder shall receive any amount to which it is entitled under this
Article 10 either in cash or in Ebiz Common Stock, valued at the Ebiz Share
Value.
10.5 Dispute Resolution Procedure. Within the 10 days after the the first date
upon which each Designated Representative has submitted a Notice of Claim to the
other, or, if only one Designated Representative submits a Notice of Claim,
within 10 days after the expiration of the last deadline for the submission of a
Notice of Claim pursuant to Section 10.4(a) (such 10th day is referred to herein
as the "Base Date"), the Ebiz Designated Representative and the LMI Designated
Representative shall meet and engage in good faith negotiations to resolve any
pending Indemnification Claims. If the Designated Representatives cannot resolve
the dispute within 30 days after the Base Date, the Designated Representatives
39
shall mediate the dispute in accordance with the Commercial Mediation Rules of
the American Arbitration Association ("AAA"), but the mediation proceeding may
not revoke or revise any provision of this Agreement. If within 60 days after
the Base Date the matter has not been resolved to the satisfaction of the
Designated Representatives, either Designated Representative may submit the
matter to arbitration in accordance with the Commercial Arbitration Rules of the
AAA, by a sole arbitrator, but the arbitration proceeding may not revoke or
revise any provision of this Agreement. The arbitrator selected shall be an
independent third party and shall have knowledge and experience in the matters
addressed by the claim. Arbitration shall be the sole and exclusive remedy of
the LMI Stockholders and Ebiz with respect to any Indemnification Claim;
provided, that the arbitrator shall not have the power or authority to award
consequential, incidental or punitive damages. Unless all the parties to an
arbitration otherwise consent in writing, the location of the arbitration
hearings and the place of entry of the award shall be in Phoenix, Arizona. The
parties consent to exclusive jurisdiction of, and agree that sole venue will lie
in, the state and federal courts in Arizona or the state of the otherwise agreed
location for any allowable judicial proceeding relating to any arbitration under
this Agreement, including entry of a judgment on the award. The arbitration
award shall be final and binding and shall not be reviewable in any court on any
grounds except corruption, fraud or undue means of a party or for evident
partiality or corruption of the arbitrator. The parties intend to eliminate all
other court review of the award and the arbitration proceedings. Except for a
proceeding to enforce or confirm an award or except for a proceeding brought by
all parties to the dispute to vacate or modify an award, the initiation of any
suit relating to an Indemnification Claim that is arbitrable under this
Agreement shall constitute a material breach of this Agreement.
10.6 Exercise of Rights with Respect to Escrowed Shares. During the period the
Escrowed Shares are held in escrow pursuant to Section 10.4(f), the LMI
Stockholders shall be entitled to exercise the voting rights with respect to
such shares in proportion to their relative Applicable Stock Percentages. The
LMI Stockholders shall also be entitled to any dividends or other distributions
with respect to the Escrowed Shares in such proportions.
ARTICLE 11
MISCELLANEOUS
11.1 Entire Agreement. This Agreement, and the exhibits and schedules attached
hereto, and the agreements contemplated by this Agreement contain the entire
agreement among the parties and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof. There are nor written or
oral agreements, understandings, representations or warranties between the
parties other than those set forth or referred to in this Agreement.
11.2 Expenses. All legal and other costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses. Notwithstanding the foregoing, if
this Agreement is terminated by a party (the "Non-breaching Party") as a result
of a material breach by the other party (the "Breaching Party") of its covenants
or agreements contained herein or the representations and warranties made by it
herein, the Breaching Party shall reimburse the Non-breaching Party for all
reasonable out-of-pocket fees and expenses (including, without limitation, fees
and expenses of counsel and accountants) incurred in connection with the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby. Such payment shall be made by the Breaching Party within 5
business days of receipt of documentation from the Non-breaching Party in
reasonable detail supporting the amount of such costs and expenses. The remedies
set forth in this Section 11.2 shall be in addition to any other rights and
remedies allowed by law.
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11.3 Attorneys Fees. Notwithstanding Section 11.2 above, in the event of any
proceeding to enforce this Agreement, the prevailing party shall be entitled to
receive from the losing party all reasonable costs and expenses, including the
reasonable fees of attorneys, accountants and other experts, incurred by the
prevailing party in investigating and prosecuting (or defending) such action at
trial or upon any appeal.
11.4 Section Headings. The section headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.5 Assignment. This Agreement shall not be assigned by any party without the
written consent of the other parties and any attempted assignment without such
written consent shall be null and void and without legal effect.
11.6 Notices. All notices hereunder shall be deemed given if in writing and
delivered personally or sent by telex, telegram, telecopier, registered mail or
certified mail (return receipt requested) to the parties at the addresses below
(or at such other addresses as shall be specified by like notice). Any notice,
however given, shall be effective five days after it is sent.
If to Ebiz: Ebiz Enterprises, Inc.
00000 Xxxxx 00xx Xxx
Xxxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Fax: 000-000-0000
With a copy to: Xxxxxx X. Xxxxxx
Xxxxx and Xxxx LLP
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Fax: 000-000-0000
If to LMI: XxxxxXxxx.xxx, Inc.
00000 Xxxx Xxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxx Xxxx
Fax: 000-000-0000
With a copy to: Xxxxx X. Xxxxxx
Holme Xxxxxxx & Xxxx LLP
0000 Xxxxxxx Xx., Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Fax: 000-000-0000
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona without regard to conflict of
law principles.
41
11.8 Equitable Remedies. The parties acknowledge that the remedies at law may be
inadequate to protect against any default hereunder, and consent to the granting
of injunctive relief or other forms of equitable relief by a court of competent
jurisdiction or a similar judicial body, whether temporary, preliminary or
final, whether or not actual damages can be shown.
11.9 Number of Days. In computing the number of days for purposes of this
Agreement, all days will be counted, including Saturdays, Sundays and holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or day that is a legal holiday in the State of Arizona, then the final
day will be deemed to be the next day that is not a Saturday, Sunday or day that
is a legal holiday in the State of Arizona.
11.10 Provisions Severable. The provisions of this Agreement are independent of
and severable from each other, and no provision will be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part. Further, if
a court of competent jurisdiction determines that any provision of this
Agreement is invalid or unenforceable as written, the court may interpret,
construe, rewrite or revise such provision, to the fullest extent allowed by
law, so as to make it valid and enforceable, consistent with the intent of the
parties hereto.
11.11 Construction. The parties hereto hereby acknowledge and agree that each
party has participated in the drafting of this Agreement and that this Agreement
has been, to the extent it was felt necessary, reviewed by the respective legal
counsel for the parties hereto and that the rule of construction to the effect
that any ambiguities are to be resolved against the drafting party will not be
applied to the interpretation of this Agreement. No inference in favor of, or
against, any party will be drawn from the fact that one party has drafted any
portion hereof.
11.12 Headings. The headings contained in this Agreement are for convenience
only and will not affect the meaning or interpretation of this Agreement.
11.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original as against any
party whose signature appears thereon, and all of which will together constitute
one and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, bears the signatures of all
of the parties reflected hereon as the signatories. Any photocopy or
telefacsimilie of this Agreement, with all signatures reproduced on one or more
sets of signature pages, will be considered for all purposes as if it were an
executed counterpart of this Agreement.
11.14 Recitals, Schedules and Exhibits. The recitals, schedules and exhibits
referred to in this Agreement shall be construed with and are an integral part
of this Agreement and are incorporated herein by this reference.
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IN WITNESS WHEREOF, this Agreement has been executed by each
of the parties as of the day and year first above written.
EBIZ:
EBIZ ENTERPRISES, INC.
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
Chief Executive Officer
MERGER SUB:
By: /s/
LMI:
XXXXXXXXX.XXX, INC.
By: /s/ Xxxxx Xxxx
Xxxxx Xxxx
Chief Executive Officer
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EXHIBIT AND SCHEDULE LIST
Exhibit A Form of Certificate of Merger
Exhibit B Form of Employment Agreement
Exhibit C Form of Shareholder Voting Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Lock-Up Agreement
Exhibit F Form of Opinion of Holme Xxxxxxx & Xxxx LLP
Exhibit G Form of Opinion of Xxxxx and Roca LLP
Exhibit H Form of Compensation Agreement
Schedule 3.1(a) LMI Jurisdictions of Qualification
Schedule 3.1(b) LMI Interests in Other Business Entities
Schedule 3.3 LMI Approvals and Consents
Schedule 3.5 LMI Options, Warrants and Convertible Securities
Schedule 3.6(a) LMI Financial Statements
Schedule 3.6(b) LMI Additional Liabilities
Schedule 3.9 LMI Adverse Changes and Events
Schedule 3.10 LMI Defaults
Schedule 3.11 LMI Litigation
Schedule 3.12(a) LMI Plans
Schedule 3.12(g) LMI Employee Contracts, Etc.
Schedule 3.14 LMI Material Contracts and Insurance Policies
Schedule 3.15(e) LMI Taxes
Schedule 3.15(h LMI Certain Tax Exceptions
Schedule 3.15(j) LMI Certain Tax Elections, Etc.
44
Schedule 3.16 LMI Title Defects
Schedule 3.18(b) LMI Intellectual Property
Schedule 4.1(a) Ebiz Jurisdictions of Qualification
Schedule 4.1(b) Ebiz Subsidiaries
Schedule 4.3 Ebiz Approvals and Consents
Schedule 4.6 Ebiz Options, Warrants and Convertibles
Schedule 4.7(a) Ebiz Financial Statements
Schedule 4.7(b) Ebiz Additional Liabilities
Schedule 4.10 Ebiz Adverse Changes and Events
Schedule 4.11 Ebiz Defaults
Schedule 4.12 Ebiz Litigation
Schedule 4.13(a) Ebiz Plans
Schedule 4.13(g) Ebiz Employee Contracts
Schedule 4.15 Ebiz Material Contracts and Insurance Policies
Schedule 4.16(e) Ebiz Taxes due or unfiled or extended
Schedule 4.16(h) Ebiz Certain Tax Exceptions
Schedule 4.16(j) Ebiz Certain Tax Elections, Etc.
Schedule 4.17 Ebiz Encumbrances
Schedule 4.19(b) Ebiz Intellectual Property
45
