EXHIBIT 2(a)
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
by and among
XXXXXXX.XXX, INC.,
PEDIANET ACQUISITION CORP.,
and
XXXXXXXX.XXX, INC.
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Table of Contents
1. Definitions 1
2. The Merger 2
3. Conversion of the Company Shares 3
4. The Company's Obligations to the Company Shareholders 7
5. Representations and Warranties of the Company
Shareholders 7
6. Representations and Warranties of the Company 7
7. Representations and Warranties of the Parent
and Newco 18
8. Covenants, Representations, and Warranties
of the Principal Company Shareholders 30
9. Covenants of the Company 30
10. Covenants of the Parent 31
11. Mutual Covenants 32
12. Conditions to the Closing 36
13. The Closing 37
14. Indemnification 38
15. Survival of Provisions 43
16. Expenses 43
17. Miscellaneous 43
viii
Schedules:
Schedule 3(a)(3) Finder's Fees Persons
Schedule 6(a) Subsidiaries
Schedule 6(d) Company Compensatory Stock Options
Schedule 6(e) Company Shareholders
Schedule 6(g) Indebtedness of the Company
Schedule 6(h)(14) Company Leases
Schedule 6(h)(21) Company Payables
Schedule 6(k) Company Litigation
Schedule 6(o) Company Contracts
Schedule 6(s) Company Insurance
Schedule 6(u) Company Transactions with Affiliates
Schedule 6(y) Company Directors and Officers
Schedule 6(z) Company Intellectual Property
Schedule 7(e) Indebtedness of the Parent
Schedule 7(f)(2) Distributions
Schedule 7(f)(14) Parent Leases
Schedule 7(m) Parent Contracts
Schedule 7(q) Parent Insurance
Schedule 7(r) Parent Pending Transactions
Schedule 7(s) Parent Transactions with Affiliates
Schedule 7(w) Parent Directors and Officers, etc.
Schedule 7(x) Parent Intellectual Property
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Exhibits:
Exhibit 3(b) Escrow Agreement
Exhibit 3(e) Registration Rights Agreement
Exhibit 11(e)(1) Xxxxxx Employment Agreement
Exhibit 11(e)(2) Xxxxx Employment Agreement
Exhibit 11(f) CA Consulting Services Consulting Agreement
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This Agreement and Plan of Reorganization and Merger (this "Agreement")
is executed and delivered effective as of February 19, 2001 by and among
xxxxxxx.xxx, Inc., a Delaware corporation (the "Company"), PediaNet Acquisition
Corp., a Delaware corporation ("Newco"), and XxxxxXxx.xxx, Inc., a Georgia
corporation (the "Parent") (each of the foregoing individually a "Party,"
collectively the "Parties").
WHEREAS, the Parties desire to cause the merger of Newco into the
Company (the "Merger"); and
WHEREAS, the Parties desire that the Merger shall constitute a
"reorganization" within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the
Code (as the term "Code" is hereinafter defined);
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises, agreements, representations, warranties, and covenants hereinafter set
forth, the Parties hereby agree and covenant as follows:
1. DEFINITIONS
Certain of the capitalized terms used in this Agreement shall have the
following meanings unless the context otherwise specifically requires:
"Affiliate" means any of the Principal Company Shareholders (as the
term "Principal Company Shareholders" is hereinafter defined), and any parent,
grandparent, child, brother, sister, or spouse of any of the foregoing who
resides in the household of such Principal Company Shareholder, and any
corporation, partnership, trust, or other entity controlled by or under common
control with any such persons.
"Closing" means the completion of the delivery of the documents
contemplated by Section 13.
"Closing Date" means the date on which the Closing is completed.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Shareholders" means the persons named on the attached Schedule
6(e), and "Company Shareholder" means any one (1) of the Company Shareholders.
"Company Shares" means all of the issued and outstanding shares of
capital stock of the Company, the same being six million four hundred
seventy-two thousand three hundred (6,472,300) shares of $.001 par value common
stock, plus shares to be issued by the Company after the date of this Agreement
in connection with the cancellation, before the Closing Date, of
the compensatory stock options referred to in Section 6(d) (such shares in the
aggregate being the "Company Common Stock"), and two hundred thousand (200,000)
shares of $.001 par value Series A Convertible Preferred Stock (the "Company
Preferred Stock"), and "Company Share" means one (1) Company Share.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Parent Shares" means all fully paid and non-assessable shares of
common stock of the Parent, par value $.001 per share, now issued and
outstanding, and to be issued hereunder and otherwise, and "Parent Share" means
one (1) share of the Parent Shares.
"Principal Company Shareholders" means Xxxxx Xxxxxx, M.D. ("Xxxxxx"),
Xxxxxx Xxxxx ("Xxxxx"), Xxxx X. Xxxxx ("Xxxxx"), and Acorn Technology Fund, L.P.
("Acorn"), and "Principal Company Shareholder" means any one (1) of the
Principal Company Shareholders.
"Section" means, unless otherwise indicated, a Section of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax" or "Taxes" means all Federal, state, local, and foreign taxes and
tax assessments of any kind imposed on the Company for all periods through the
end of the taxable year in which the Closing occurs, including all interest,
penalties, and additions imposed with respect to such amounts.
2. THE MERGER
(a) The Merger. Upon the terms and subject to the conditions set forth
herein, at the Closing Date Newco shall be merged with and into the Company, the
separate existence and corporate organization of Newco shall cease, and
thereupon Newco and the Company shall be a single corporation, with the Company
as the surviving corporation (the "Surviving Corporation"). The name of the
Surviving Corporation shall be xxxxxxx.xxx, Inc. The Merger shall have the
effects set forth in Section 259(a) of the General Corporation Law of the State
of Delaware.
(b) Effective Date of the Merger. The Merger shall become effective on
or following the Closing Date upon a properly executed certificate of merger
being duly filed with the Secretary of State of the State of Delaware.
(c) Certificate of Incorporation and By-Laws. The Certificate of
Incorporation of the Company in effect on the Closing Date shall be the
Certificate of Incorporation of the Surviving Corporation. The By-Laws of the
Company in effect on the Closing Date shall be the By-Laws of the Surviving
Corporation.
(d) Directors and Officers of the Surviving Corporation. Upon the
effectiveness of the Merger, the number of directors of the Surviving
Corporation shall be seven (7), with the
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directors of Newco immediately before the Merger being six (6) of such seven (7)
directors, and such seven (7) directors shall hold office from the Closing Date
until their respective successors are duly elected or appointed and qualify in
the manner provided in the Certificate of Incorporation and the By-Laws of the
Surviving Corporation, or as otherwise provided by law. The officers of Newco
immediately prior to the Closing Date shall be the officers of the Surviving
Corporation, except that Xxxxx shall be the President of the Surviving
Corporation, and such officers and Xxxxx shall hold office from the Closing Date
until their respective successors are duly elected or appointed and qualify in
the manner provided in the Certificate of Incorporation and the By-Laws of the
Surviving Corporation, or as otherwise provided by law. On the Closing Date,
Xxxxx shall become an advisor to the Board of Directors of the Parent.
3. CONVERSION OF THE COMPANY SHARES
(a) Issuance of Parent Shares. At the Closing, eight million
(8,000,000) Parent Shares (subject to appropriate adjustment for any stock
splits, reverse stock splits, reclassifications, or other similar events after
the date of this Agreement) shall be issued by the Parent under this Agreement,
as follows:
(1) No less than two million eight hundred thousand
(2,800,000) Parent Shares and no more than four million six hundred thousand
(4,600,000) Parent Shares shall be issued to Acorn, the holder of all of the
Company Preferred Stock, such number of Parent Shares to be determined, subject
to the foregoing minimum number and maximum number of Parent Shares, by dividing
(A) the sum of (i) two million one hundred thousand dollars ($2,100,000), plus
(ii) all accrued but unpaid dividends on the Company Preferred Stock through the
Closing Date, by (B) the average closing price for the Parent Shares on the
primary exchange, quotation system, or electronic bulletin board on which the
Parent Shares are then trading for the ninety (90)-day period ending on the
first anniversary of the Closing Date;
(2) Nine hundred thousand (900,000) Parent Shares shall be
issued to Kidsdoc, Inc. ("Kidsdoc"), the holder of the Company's note payable to
Kidsdoc in the principal amount of three hundred thousand dollars ($300,000)
(the "Kidsdoc Note"), in complete satisfaction of the Company's obligation under
the Kidsdoc Note (including accrued interest thereon);
(3) Four hundred thousand (400,000) Parent Shares which would
otherwise be issued to the Company Shareholders other than Acorn shall, instead,
be issued to the persons whose names are set forth on the attached Schedule
3(a)(3) (the "Schedule 3(a)(3) Persons") as a finder's fee payable to the
Schedule 3(a)(3) Persons; and
(4) An amount equal to the excess of (a) eight million
(8,000,000) Parent Shares, over (b) the sum of (i) the number of Parent Shares
issued to Acorn pursuant to Section 3(a)(1), plus (ii) the number of Parent
Shares issued to Kidsdoc pursuant to Section 3(a)(2), plus (iii) the number of
Parent Shares issued to the Schedule 3(a)(3) Persons pursuant to Section
3(a)(3), shall be issued to the holders of the Company Common Stock, pro rata,
based on the number of shares
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of Company Common Stock owned by such holders. For purposes of this Section
3(a)(4), the number of shares of Company Common Stock owned by such holders
shall be determined as if all of the compensatory stock options referred to in
this Agreement were exercised by the holders of such compensatory stock options,
with the result that the holders of such compensatory stock options will be
treated as though they were the owners of the Company Common Stock to which they
would otherwise be entitled if they had exercised such compensatory stock
options prior to the Closing Date. Acorn shall not participate in the issuance
of the Parent Shares pursuant to this Section 3(a)(4).
(b) Escrow of the Parent Shares.
(1) Notwithstanding anything to the contrary contained in
Section 3(a), all of the Parent Shares to be issued pursuant to Section 3(a)(1),
Section 3(a)(2), and Section 3(a)(4) (but none of the Parent Shares to be issued
pursuant to Section 3(a)(3)) shall be placed in escrow, with Xxxxx & Xxxxxxx LLP
acting as the escrow agent (the "Escrow Agent") for such Parent Shares in
accordance with the terms of the Escrow Agreement attached as Exhibit 3(b),
until the end of the one (1)-year period following the Closing Date; provided,
however, that, in the event that, prior to the end of such one (1)-year period,
(A) any Tax authority informs the Parent or the Surviving Corporation, in
writing, that an examination of any Tax return of the Company will take place
with respect to any taxable year of the Company ending prior to the year in
which the Closing Date occurs, such number of the Parent Shares issued pursuant
to Section 3(a) (but only to the extent set forth in Section 3(b)(2)) will
remain in escrow, beyond such one (1)-year period, until the later of (i) such
time as such examination or examinations have terminated pursuant to written
notice of such authority, or (ii) any determination by any court of the
Company's liability for tax, interest, and/or penalty is final and conclusive,
and cannot be reviewed by any other court; and (B) any action is commenced
against the Parent or the Surviving Corporation with respect to, or arising out
of, environmental matters relating to the Company, for periods ending on the
Closing Date, affecting off-site properties (i.e., properties not owned or
leased by the Surviving Corporation), such number of the Parent Shares issued
pursuant to Section 3(a) (but only to the extent set forth in Section 3(b)(2))
will remain in escrow, beyond such one (1)-year period, until the later of (i)
such time that such action has terminated pursuant to written agreement of the
parties to such action, or (ii) any determination by any court of the liability,
if any, of the Parent or the Surviving Corporation is final and conclusive, and
cannot be reviewed by any other court. Notwithstanding the foregoing, the Parent
Shares issuable to Acorn shall not be subject to any escrow that remains beyond
such one (1)-year period.
(2) The maximum number of Parent Shares that are referred to
in Section 3(b)(1) that shall remain in escrow beyond the one (1)-year period
referred to in Section 3(b)(1)(A) and (B), and which Parent Shares while held in
escrow will serve as the exclusive source of recovery by the Parent from any
Company Shareholders (other than Acorn) under Section 14 (but excluding for this
purpose recovery, from such Company Shareholders other than Acorn, for Taxes
referred to in Section 15(b)) shall be equal to the quotient obtained by
dividing (A) two hundred fifty thousand dollars ($250,000) by (B) the average
closing price set forth for the Parent
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Shares on the primary exchange, quotation system, or electronic bulletin board
on which the Parent Shares are then trading for the ninety (90)-day period
ending on the Closing Date (taking into account, for purposes of determining
such average closing price, that the Parent has distributed during such ninety
(90)-day period a stock dividend of three shares for each share outstanding);
provided, however, that the Parent Shares that shall so remain in escrow shall
not include any Parent Shares to be issued to Acorn pursuant to Section 3(a)(1).
(3) Notwithstanding that the Parent Shares shall be held in
escrow pursuant to this Section 3(b), the Company Shareholders shall be entitled
to vote such Parent Shares, and to receive any distributions with respect to
such Parent Shares, while such Parent Shares are held in escrow; provided,
however, that such rights as they pertain to the Principal Company Shareholders
shall be as provided in the Stock Transfer Agreement executed in connection
herewith among Acorn, Engel, Elbirt, Xxxxx, the Parent, and the Escrow Agent
(the "Transfer Agreement").
(c) No Fractional Securities. No certificates or scrip representing
fractional Parent Shares shall be issued pursuant to this Section 3. Instead,
notwithstanding anything to the contrary contained in Section 3(a), any
fractional interests distributable to any person pursuant to Section 3(a) shall
be rounded up to the next whole number of a Parent Share.
(d) Transfer Taxes. If any certificates for any of the Parent Shares
are to be issued in a name other than that in which the certificate(s)
representing the Company Shares surrendered in exchange therefor is registered,
it shall be a condition of such exchange that the person requesting such
exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for such Parent Shares in a name other than that of the
registered holder of the certificate surrendered, or shall establish to the
satisfaction of the Parent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, no Party shall be liable to a Company Shareholder
for any Parent Shares or dividends thereon or proceeds of the sale of fractional
interests, delivered to a public official pursuant to applicable escheat laws.
(e) Registration Rights. The Parent Shares to be issued and distributed
hereunder shall be unregistered and subject to the restrictions of Rule 144 of
the Securities Act of 1933, as amended, but will have piggyback registration
rights beginning not earlier than one (1) year after the Closing Date, pursuant
to the terms of the Registration Rights Agreement attached as Exhibit 3(e). Such
registration rights shall be available only in connection with a firmly
underwritten offering by the Parent or in connection with a demand made by
another shareholder of the Parent, in either event which is filed following such
one (1)-year period, and will be on customary terms, including, without
limitation, underwriter cutback and consent provisions and priority of inclusion
in such registration statement.
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4. THE COMPANY'S OBLIGATIONS
TO THE COMPANY SHAREHOLDERS
Except as otherwise provided in this Agreement, neither the Parent nor
the Surviving Corporation shall be obligated to pay, perform, discharge, or
guarantee any liabilities or obligations (whether absolute or contingent,
disclosed or undisclosed) of the Company to any Company Shareholder or Affiliate
(including the Company's obligation to Kidsdoc under the Kidsdoc Note, and the
Company's obligation to the Section 3(a)(3) Persons).
5. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY SHAREHOLDERS
Each Company Shareholder will be separately representing and warranting
to the Parent and the Surviving Corporation that which is set forth on each such
Company Shareholder's Letter of Transmittal that will accompany the delivery of
such Company Shareholder's Company Shares to the Parent following the Merger.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company warrants to the Parent as follows:
(a) Organization and Standing. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and in good standing under the laws of any other State in which the
failure to be qualified or registered as a foreign corporation would have a
material adverse impact on its business, and has all requisite power and
authority to own its assets and carry on its business as presently conducted,
and to enter into and perform this Agreement. Except as shown on the attached
Schedule 6(a), the Company does not own any controlling interest in any
corporation, partnership, joint venture, or other business entity. Copies of the
Certificate of Incorporation and the By-Laws of the Company have been delivered
to the Parent, and such copies are true, complete, and correct, and in full
force and effect.
(b) Authorization; Binding Effect. Following the approval of this
Agreement by such number of the Company Shareholders as is required by the laws
of the State of Delaware and the Company's Certificate of Incorporation, the
execution, delivery, and performance of this Agreement will have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and, upon the
approval by such required number of the Company Shareholders, the execution and
delivery of this Agreement will constitute, the legal, valid, and binding
obligation of the Company, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, and other similar laws affecting
the enforceability of creditors' rights generally and the discretion of the
courts with respect to equitable remedies.
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(c) No Conflicts. Neither the execution and delivery of this Agreement
by the Company or any other document or instrument to be executed by the Company
pursuant to this Agreement or otherwise in connection herewith, nor the
consummation by the Company of the transactions contemplated hereby or thereby,
will result in any material breach of or constitute a material default (or, with
notice or lapse of time or both, would become a material default), or give to
others any rights of termination, acceleration, or cancellation, or result in
the creation of any lien, charge, or encumbrance upon any of the assets or
properties of the Company, under the Certificate of Incorporation or the By-Laws
of the Company, or the terms of any material contract, instrument, or other
agreement to which the Company is a party or is otherwise bound, or any
judgment, decree, order, statute, law, ordinance, rule, or regulation applicable
to the Company, which would have a material adverse effect on the business of
the Company.
(d) Capitalization of the Company. The Company's authorized capital
stock consists of ten million (10,000,000) shares of common stock, $.001 par
value each, of which six million four hundred seventy-two thousand three hundred
(6,472,300) shares are issued and outstanding, and one million (1,000,000)
shares of preferred stock, $.001 par value each, of which two hundred thousand
(200,000) shares have been designated as Series A Convertible Preferred Stock,
and are issued and outstanding, and all such issued and outstanding shares of
capital stock are owned by the Company Shareholders. All issued and outstanding
shares of capital stock of the Company have been duly authorized, are validly
issued and outstanding, are fully paid and non-assessable, and have not been
issued in violation of any preemptive rights. Except for the compensatory stock
options granted prior to the date of this Agreement and shown on the attached
Schedule 6(d) (which the Company intends to cancel prior to the Closing Date in
exchange for newly-issued shares of Company Common Stock, the names of the
holders of which newly-issued shares are included in Schedule 6(d)), the Company
is not a party to or bound by any option, warrant, contract, convertible or
exchangeable securities, or any other commitment of any character relating to
any capital stock or other security issued or to be issued by the Company. All
issued and outstanding Company Shares have been issued in connection with bona
fide transactions, and have been issued for not less than their par value.
(e) Ownership of Common Stock. The Company Shares constitute all of the
issued and outstanding shares of capital stock of the Company. Except as
provided in Section 6(d) with respect to the compensatory stock options, no
present or past holder of shares of capital stock of the Company, or their
predecessors, or any other person, has any right to receive or to otherwise have
issued to them any shares of capital stock or other securities of the Company
which have not heretofore been issued, nor is the Company obligated by contract,
operation of law, or otherwise to issue any additional shares of capital stock
or other security, and no third party has any right to receive from the Company,
or its predecessors in interest, any capital stock or other securities of the
Company.
(f) Financial Statements. The Parent has caused the Parent's
accountants, Wiener, Xxxxxxx & Company, P.C., to audit the Company's balance
sheet dated as of December 31, 1999, and the related statement of income and
retained earnings for the period then ended
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(collectively, the "Financial Statements"). To the knowledge of the Company, the
Financial Statements have been prepared from the books and records of the
Company, with appropriate adjustments, in accordance with generally accepted
accounting principles consistently applied, and present fairly in all material
respects the financial position and results of operations of the Company as of
the dates thereof and for the periods covered thereby.
(g) No Undisclosed Liabilities. Except as otherwise expressly reflected
or reserved against in the Company's December 31, 1999 balance sheet, or as
expressly set forth in the attached Schedule 6(g), the Company has no
indebtedness or liabilities or other obligations of any nature whatsoever
(whether direct or indirect, asserted or unasserted, known or unknown, accrued,
absolute, contingent, or otherwise), except accounts payable and other
liabilities incurred in the ordinary and customary course of business since
December 31, 1999, and except for legal fees incurred by the Company after the
signing of a letter of intent with the Parent dated December 13, 2000, and those
which, in the aggregate, would not have a material adverse effect on the
business of the Company.
(h) Absence of Adverse Changes or Events. Since December 31, 1999 the
Company has conducted its business only in the ordinary course, consistent in
all material respects with past practice, and there has not occurred any
material adverse change in the business, assets, liabilities, financial
condition, or results of operations of the Company, and since December 31, 1999
the Company has not:
(1) Amended its Certificate of Incorporation or its By-Laws;
(2) Declared or paid any dividend or made any distribution or
payment of any kind in respect of its capital stock;
(3) Amended or modified any collective bargaining agreement
(except as required by law);
(4) Entered into, or adopted, any employee benefit plan or any
employment contract, or increased the salaries or compensation of its officers
or other employees, or paid any bonuses to any of such officers or other
employees (other than bonuses in the ordinary course of the Company's business
consistent with the Company's past practice);
(5) Except for liabilities to the Parent and to the extent
shown on the attached Schedule 6(g), incurred any liability for borrowed money,
encumbered any of its assets, or entered into any agreements relating to
incurring additional debt, other than incurring accounts payable in the ordinary
course of business consistent in all material respects with past practice;
(6) Acquired or agreed to acquire by merging or consolidating
with, purchasing substantially all of the assets of, or otherwise, any business
corporation, partnership, association, or other entity or individual;
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(7) Sold or otherwise disposed of any real property or other
tangible assets, including capital or fixed assets, in excess of five thousand
dollars ($5,000) per item or twenty thousand dollars ($10,000) in the aggregate,
other than the sale of inventory in the ordinary course of business;
(8) Hired any new management employees;
(9) Made commitments or entered into any agreement or contract
outside the ordinary course of business which involves payments from the Company
in excess of fifty thousand dollars ($50,000) individually or one hundred
thousand dollars ($100,000) in the aggregate;
(10) Permitted or allowed any assets or properties to become
subject to any material mortgage, pledge, lien, encumbrance, restriction, or
charge of any kind except: (A) such as existed on December 31, 1999, (B) those
imposed by law, and (C) those incurred in the ordinary course of business for
obligations not yet due and payable to landlords, carriers, warehouses,
laborers, materialmen, and the like;
(11) Canceled any material indebtedness to the Company or
waived any claims or rights of the Company of substantial value;
(12) Entered into any material written contract, lease,
commitment, arrangement, or understanding with any Affiliate;
(13) Made any change in any method of accounting or
accounting practice or policy inconsistent with past practices;
(14) Except as shown on the attached Schedule 6(h)(14),
entered into any lease of real property or any other material lease involving
any other property, or amended, modified, terminated, or permitted to lapse any
lease of real property or any other material lease of personal property;
(15) Entered into any written agreement the terms of which
would be violated by the consummation of the transactions contemplated hereby,
and which would have a material adverse effect on the business of the Company;
(16) Changed its credit collection or billing procedures or
policies, which would have a material adverse effect on the business of the
Company;
(17) Made any material change to, or revoked any, tax
election, or entered into or amended any material agreement or settlement with
any taxing authority;
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(18) Entered into any agreement with any other party
concerning the a merger, a consolidation, or a sale of all or a substantial
portion of the assets of the Company, or any other similar transaction involving
the Company;
(19) Taken any action which would cause any representation or
warranty of the Company contained herein to become false or incorrect in any
material respect;
(20) Failed to use the Company's reasonable efforts consistent
in all material respects with past practice to preserve its business
organization intact, and to preserve the goodwill of its suppliers, customers,
dealers, distributors, contractors, and others doing business with it, if such
failure would have a material adverse effect on the business of the Company;
(21) Except as shown on the attached Schedule 6(h)(21), failed
to pay all trade payables and other amounts payable to creditors as they became
due in accordance, and in all material respects, with past practices (except to
the extent any such amounts were reasonably and in good faith disputed by the
Company), if such failure would have a material adverse effect on the business
of the Company;
(22) Failed to maintain all buildings, equipment, and other
tangible assets owned or used by the Company in substantially the same condition
and repair as existed as of December 31, 1999, ordinary wear and tear excepted;
or
(23) Agreed in writing to do any of the foregoing.
(i) Accounts Receivable. The Company has no accounts receivable.
(j) Inventories. The Company has no inventories.
(k) Litigation. Except as shown on the attached Schedule 6(k), there is
no claim, action, suit, litigation, audit, investigation, or other proceeding
pending, or, to the knowledge of the management of the Company, threatened
against the Company or its assets, properties, or business, or the transactions
contemplated by this Agreement, and neither the Company nor its assets or
properties are subject to or bound by any order, writ, injunction, judgment, or
decree of any court or governmental regulatory agency, commission, board, or
administrative body.
(l) Compliance With Laws. The Company, the use and occupancy of its
material assets and properties, and the conduct of its business are, and at all
times on or prior to the date hereof have been, in substantial compliance with
all, and not in violation of any, Federal, State, and/or local laws, ordinances,
rules, regulations, orders, judgments, and decrees applicable to the Company and
its assets, properties, and business, except where the failure to be in such
compliance would be would not have a material adverse effect on the business of
the Company.
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(m) Governmental Licenses and Permits. The Company does not hold or
otherwise maintain any governmental licenses, permits, franchises, or other
authorizations in connection with the conduct of its business or the ownership
or possession of its assets and properties, other than nonmaterial local
licenses required of businesses generally.
(n) Labor Matters. None of the Company's employees are covered by a
collective bargaining agreement, and no organizational efforts with respect to
any employees of the Company are pending or, to the knowledge of the Company,
threatened. No formal or other labor dispute, strike, or work stoppage with
respect to any group of employees of the Company is pending or, to the knowledge
of the Company, is threatened. There are no existing employee claims (other than
nonmaterial workers' compensation claims in the ordinary and customary course of
business, which are fully covered by insurance), grievances, or unfair labor
practice complaints pending or outstanding against the Company, other than the
litigation shown on Schedule 6(k). The Company is, and at all times on or prior
to the date hereof has been, in compliance with, and not in violation of, the
Fair Labor Standards Act, as amended, the Age Discrimination in Employment Act,
as amended, the National Labor Relations Act, as amended, the Occupational
Safety and Health Act, as amended, the Vocational Rehabilitation Act of 1973, as
amended, and/or all applicable Federal and State civil rights laws, except where
the failure to be in such compliance would be would not have a material adverse
effect on the business of the Company.
(o) Contracts. Set forth on the attached Schedule 6(o) is a true,
correct, and complete list of: (1) each material written contract, lease,
agreement, or other commitment, understanding, or arrangement to which the
Company is a party or by which it or any of its assets or properties is
otherwise bound or subject (collectively, the "Contracts"); (2) any employment
contract not terminable at will by the Company without liability or penalty; (3)
any lease of real property; (4) any material lease of personal property; (5) any
material agreement for the purchase, sale, or other disposition of any
materials, equipment, supplies, or inventory, or the provision of any services,
outside the ordinary course of business; (6) any covenant not to compete or
other material contract containing any restrictions on the operations of the
Company; (7) any extraordinary purchase or sales orders; (8) any employee
collective bargaining agreement or other contract with any labor union; (9) any
contract with any Affiliate; (10) any material license or other material
agreement relating to the Company's intellectual property; and (11) any note,
bond, mortgage, indenture, loan agreement, security agreement, or deed of trust;
but in each case excluding from such Schedule any Contract in the ordinary
course of business which is not material to the Company and which does not have
an aggregate future liability to the Company of more than ten thousand dollars
($10,000). Each of the Contracts is valid, binding, and in full force and
effect, and is enforceable by the Company in accordance with its terms in a
manner that obtains for, or imposes upon, the Company the primary benefits and
obligations of such agreements, and the Company has not received any notice
terminating, revoking, or rescinding any of the Contracts, or expressing any
interest to do the same and, to the knowledge of the Company, no other party to
any of the Contracts has any intent to take any action to terminate, rescind, or
revoke any of such Contracts. The Company has performed in all material respects
all
-11-
material obligations, and complied in all material respects with all material
covenants, required to be performed and complied with by it to date under the
Contracts, and the Company is not (with or without lapse of time, the giving of
notice, or both) in material breach of or default under any material provision
of the Contracts and, to the knowledge of the Company, no other party to any of
the Contracts is (with or without the lapse of time, the giving of notice, or
both) in material breach of or default thereunder, which in any event would have
a material adverse effect on the business of the Company. True, correct, and
complete copies of the Contracts have been made available by the Company to the
Parent and Newco.
(p) Tax Matters. The Company has timely filed all Tax returns, reports,
and forms for all taxable years ending prior to the taxable year in which the
Closing Date occurs, which it was obligated to file under applicable law, rule,
or regulation with the appropriate governmental authorities. All such Tax
returns, reports, and forms were prepared substantially in accordance with all
applicable laws, rules, and regulations, and truly and accurately reflect in all
material respects the Tax liabilities of the Company for the periods covered
thereby. All Taxes shown to be due on such returns, reports, and forms, as well
as any and all other Taxes required by applicable law, rule, or regulation to be
paid by the Company, have been timely paid in full to the appropriate taxing
authority, or are being contested in good faith. No Tax liens have been filed
against the Company or any of its assets or properties, and no claims, audits,
investigations, or proceedings are pending, or to the knowledge of the Company,
threatened with respect to any Taxes. The Company is not presently bound by any
agreements extending the statute of limitations with respect to any Taxes, and
the Company has not made any election under Section 341(f) of the Code nor has
it agreed, or is it required, to make any adjustment under Section 481 of the
Code. The Company has properly withheld or otherwise collected all Taxes and
other amounts which it was required to withhold or collect under any applicable
law, including, without limitation, any amounts required to be withheld or
collected with respect to employee income tax withholding, social security,
unemployment compensation, sales or use taxes, and all such amounts have been
timely remitted to the proper authorities.
(q) Title to Assets and Properties. The Company has good, valid, and
marketable title (or in the case of licenses, leases, or other rights in any
agreements, the right to exercise its rights under such agreements) to all the
material assets and properties reflected on the Company's December 31, 1999
balance sheet or thereafter acquired or otherwise used by the Company in the
conduct of its business, except inventories and other nonmaterial assets sold
since such date in the ordinary course of business, in each case free and clear
of all liens, claims, encumbrances, security interests, restrictions, or adverse
rights or interests whatsoever, except: (1) liens and encumbrances with respect
to liabilities reflected on the Company's December 31, 1999 balance sheet or
otherwise expressly disclosed in this Agreement; (2) property taxes for the
current year which are not yet delinquent; (3) with respect to any real
property, liens imposed by law and incurred in the ordinary course of business
for obligations not yet due and payable to landlords, warehousemen, laborers,
materialmen, and the like; and (4) such utility easements and minor
imperfections of title as do not individually or in the aggregate materially
impair the continued use and operation of such property in the business of the
Company, which, in any event would have a material adverse effect on the
business of the Company. The Company owns no real
-12-
property. None of the real property leased by the Company is subject to any
pending or (to the knowledge of the Company) threatened condemnation proceeding
or proceedings to take all or any part thereof by eminent domain, and no part of
any real property leased by the Company is located within any area designated as
a flood plain by any governmental agency. To the knowledge of the Company, no
material part of any of the real property leased by the Company requires any
material structural repair necessary for the continued use of such property in
the manner in which such property has been historically used in the business of
the Company.
(r) Employee Benefit Plans. Except as stated in Section 6(r), the
Company does not now have, and has never had, any employee pension,
profit-sharing, deferred compensation, severance pay, stock option, stock
purchase, bonus, incentive, or any other form of compensation plan or retirement
plan, or any dental, vision, or other health plan, or any vacation, disability,
sick pay, accident insurance, or other welfare plan, or any fund, program,
policy, contract, or arrangement providing employee benefits, maintained or
contributed to by the Company, in which any employees or former employees of the
Company have participated or under which any such persons have accrued and
remain entitled to benefits, and no written policy, plan, practice, program,
arrangement, understanding, or agreement exists which could result in the
payment by the Company of money or any other property to any employee or former
employee of the Company solely as a result of the transactions contemplated
herein.
(s) Insurance. The attached Schedule 6(s) contains a true, correct, and
complete list of all general liability, product liability, fire and casualty,
motor vehicle, and other insurance maintained by the Company. Regarding such
insurance: (1) all such insurance is in full force and effect, all premiums due
thereunder have been timely and properly paid and the Company is in compliance
in all material respects with all requirements, terms, and provisions thereof;
(2) true and correct copies of all insurance policies relating to such coverage
have been made available by the Company to the Parent and Newco; (3) to the
Company's knowledge, none of the insurance policies maintained by the Company is
subject to any retroactive rate adjustment; (4) the Company has not received any
notice of cancellation or nonrenewal (or which expresses an intent to cancel or
not renew) of any insurance coverage maintained by the Company; and (5) the
Company has no knowledge of an intention on the part of any insurance carrier
providing insurance to the Company to cancel or otherwise not renew any such
insurance.
(t) No Pending Transactions. Except for the Merger, the Company is not
a party to, bound by, or the subject of any agreement, undertaking, or
commitment to: (1) merge or consolidate with, or acquire all or substantially
all of the property and assets of, any other corporation or person; or (2) sell,
lease, or exchange all or substantially all of its property and assets to any
other corporation or person.
(u) Transactions with Affiliates. Except as shown on the attached
Schedule 6(u), the Company is not a party to or bound by any material contract,
commitment, loan, lease, or other arrangement or understanding with any
Affiliate, and no Affiliate owns any interest in any
-13-
corporation, partnership, or other business or entity that is a party to any
business arrangements or relationships of any kind with the Company.
(v) Books and Records. The books and records of the Company made
available to the Parent and Newco are true, correct, and complete in all
material respects, and have not been altered in anticipation of the transactions
contemplated by this Agreement, and to the knowledge of the Company no corporate
minutes or written consents of the Company Shareholders or the Board of
Directors of the Company, or any other corporate records or instruments, have
been removed from the corporate records of the Company.
(w) Powers of Attorney. The Company does not presently have outstanding
any power of attorney authorizing any third party to act by or on behalf of the
Company.
(x) Guaranties. The Company has not guaranteed, co-signed, or otherwise
become obligated (contingently or otherwise) with respect to the indebtedness or
obligations of any other person.
(y) Officers and Directors. The attached Schedule 6(y) sets forth a
complete and accurate list of: (1) the names of all directors of the Company;
(2) the names of the president, executive vice president, secretary, and
treasurer of the Company; (3) all safes, vaults and safety deposit boxes
maintained by or on behalf of the Company or in which assets or properties of
the Company are held, and the names of all persons authorized to have access
thereto; and (4) all bank accounts of the Company and the names of all
authorized signatories with respect to such accounts.
(z) Intellectual Property. The attached Schedule 6(z) sets forth a
true, correct, and complete list of all United States and foreign patents,
patent applications, licenses, trademarks, trademark applications, copyrights,
trade names, service marks, service names, and other material proprietary rights
owned or otherwise used by the Company. To the knowledge of the Company: (1) the
Company possesses all necessary rights to utilize such property in the course of
its business; (2) the Company has not used any intellectual property of the
Company in violation of the rights or interests of any third party or any
contractual agreement with respect thereto; (3) none of the intellectual
property of the Company has been declared invalid, been limited in any respect
by any court or by agreement or otherwise, and no such property is subject to
any infringement, interference, or other similar proceeding or challenge; and
(4) the Company is not infringing, or otherwise acting adversely to, the right
of any person or entity under or in respect to any patent, patent application,
license, trademark, trademark application, copyright, trade name, service xxxx,
service name, or similar proprietary right, which, in any such event, would have
a material adverse effect on the business of the Company.
(aa) Brokers and Advisors. Except for the Schedule 3(a)(3) Persons (to
whom the Company is liable for the finder's fee that is referred to in Section
3(a)(3)), the Company has not engaged the services of any broker, finder, or
advisor, and has not taken any action which would
-14-
give rise to a valid claim against any Party for a brokerage commission,
finder's fee, or like payment.
(bb) No False Statements. No representation or warranty made by the
Company in this Agreement or in any statement, certificate, or other document
delivered to the Parent or Newco by the Company in connection herewith contains
or will contain any untrue statement of a material fact or omits to state any
material fact necessary to make the statements contained herein or therein not
misleading in any material respect.
(cc) Compliance with Securities Laws. All offerings and sales of
Company Shares and other securities of the Company made prior to the date of
this Agreement were made in all material respects in compliance with the
Securities Act and applicable "blue sky" securities laws, and no untrue
statement of a material fact was made, and no omission was made of a material
fact necessary to make the statements made therein not misleading, in connection
with any such offerings and sales.
7. REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND NEWCO
The Parent and Newco hereby represent and warrant to the Company and
the Company Shareholders as follows:
(a) Organization and Standing. The Parent and Newco are corporations
duly organized, validly existing, and in good standing under the laws of the
States of Georgia and Delaware, respectively, and any other State in which the
failure to be qualified or registered as a foreign corporation would have a
material adverse impact on its business, and has all requisite corporate power
and authority to own its assets and carry on its business as it is now being
conducted, and the business it will conduct after the Merger, and to enter into
and perform this Agreement.
(b) Authorization; Binding Effect. The execution, delivery, and
performance of this Agreement has been duly authorized by all necessary action
on the part of the Parent and Newco. This Agreement has been duly executed and
delivered by the Parent and Newco and constitutes, and upon execution and
delivery will constitute, the legal, valid, and binding obligations of the
Parent and Newco, enforceable against them in accordance with its terms, subject
to applicable bankruptcy, insolvency, and other similar laws affecting the
enforceability of creditors' rights generally and the discretion of the courts
with respect to equitable remedies.
(c) No Conflicts. Neither the execution and delivery by the Parent or
Newco of this Agreement, or any other document or instrument to be executed by
the Parent or Newco pursuant to this Agreement or otherwise in connection
herewith (collectively, the "Parent/Newco Documents"), nor the consummation by
the Parent or Newco of the transactions contemplated hereby or thereby, will
result in any material breach of or constitute a material default (or, with
notice or lapse of time or both, would become a material default), or give to
others any rights of
-15-
termination, acceleration, or cancellation, or result in the creation of any
lien, charge, or encumbrance upon any of their properties, under the Certificate
of Incorporation or the By-Laws of the Parent or Newco, or the terms of any
material contract, instrument, or other agreement to which the Parent or Newco
is a party or is otherwise bound, or any judgment, decree, order, statute, law,
ordinance, rule, or regulation applicable to the Parent or Newco, which would
have a material adverse effect on the business of the Parent or Newco.
(d) Capitalization of the Parent. The Parent's authorized capital stock
consists of fifty million (50,000,000) shares of common stock, $.001 par value
each, of which twenty-five million nine hundred ninety-three thousand seven
hundred eight (25,993,708) shares are issued and outstanding. After (1) the
issuance of the eight million (8,000,000) Parent Shares set forth in Section
3(a), (2) the conversion of certain funding notes representing six million five
hundred forty thousand (6,540,000) Parent Shares, (3) the exercise of two
million five hundred sixty thousand eight hundred (2,560,800) warrants for the
same number of Parent Shares, (4) the contractual commitment to issue eight
hundred thousand (800,000) Parent Shares to X.X. Xxxxxx Group, Inc., (5) the
contractual commitment to issue eight hundred thousand (800,000) Parent Shares
to the finders referred to in Section 7(y), (6) the conversion of certain
preferred stock representing one thousand six hundred seventy (1,670) Parent
Shares, and (7) the issuance of approximately three million five hundred
thousand (3,500,000) Parent Shares on exercise of certain compensatory stock
options, the total outstanding Parent Shares, assuming the conversion of all of
the funding notes and the preferred stock, and the exercise of all of the
warrants and the compensatory stock options, will be approximately forty-eight
million one hundred ninety-six thousand one hundred seventy-eight (48,196,178)
Parent Shares. In addition, the Parent has agreed to issue six million five
hundred forty thousand (6,540,000) warrants to purchase a like number of Parent
Shares to certain note holders holding four hundred eight thousand seven hundred
fifty dollars ($408,750) principal amount of convertible notes upon the holders'
conversion of those notes into Parent Shares subsequent to the time that the
Parent amends its Certificate of Incorporation to increase the number of
authorized number of Parent Shares to at least one hundred million (100,000,000)
shares. In addition, the terms of the Parent's merger agreement with EP will
result in the shareholders of EP holding twenty-five percent (25%) of the issued
and outstanding Parent Shares, which twenty-five percent (25%) will be
calculated after the issuance of the Parent Shares pursuant to Section 3(a), and
after taking into account the potential issuance of all of the other Parent
Shares referred to in this Section 7(d). Neither the transaction contemplated by
this Agreement nor the transaction with EP is contingent on the other. All
issued and outstanding shares of capital stock of the Company have been duly
authorized, are validly issued and outstanding, are fully paid and
non-assessable, and have not been issued in violation of any preemptive rights.
Except as set forth in this Section 7(d), the Parent is not a party to or bound
by any option, warrant, contract, convertible or exchangeable securities, or any
other commitment of any character relating to any capital stock or other
security issued or to be issued by the Parent. All issued and outstanding Parent
Shares have been issued in connection with bona fide transactions, and have been
issued for not less than their fair market value.
-16-
(e) No Undisclosed Liabilities. Except as otherwise expressly reflected
or reserved against in the Parent's September 30, 2000 balance sheet, or as
expressly set forth in the attached Schedule 7(e), neither the Parent nor Newco
has any indebtedness or liabilities or other obligations of any nature
whatsoever (whether direct or indirect, asserted or unasserted, known or
unknown, accrued, absolute, contingent, or otherwise), except accounts payable
and other liabilities incurred in the ordinary and customary course of business
since September 30, 2000, and except for legal fees incurred by the Parent after
the signing of a letter of intent with the Company dated December 13, 2000, and
those which, in the aggregate, would not have a material adverse effect on the
business of the Parent or Newco.
(f) Absence of Adverse Changes or Events. Since September 30, 2000 the
Parent and Newco have conducted their business only in the ordinary course,
consistent in all material respects with past practice, and there has not
occurred any material adverse change in the business, assets, liabilities,
financial condition, or results of operations of the Parent or Newco, and since
September 30, 2000 neither the Parent nor Newco has:
(1) Amended its Certificate of Incorporation or its By-Laws;
(2) Except as shown on the attached Schedule 7(f)(2), declared
or paid any dividend or made any distribution or payment of any kind in respect
of its capital stock;
(3) Amended or modified any collective bargaining agreement
(except as required by law);
(4) Entered into, or adopted, any employee benefit plan or any
employment contract, or increased the salaries or compensation of its officers
or other employees, or paid any bonuses to any of such officers or other
employees (other than bonuses in the ordinary course of the Parents's and
Newco's business consistent with the Company's and Newco's past practice);
(5) Except for liabilities to the extent shown on the attached
Schedule 7(e), incurred any liability for borrowed money, encumbered any of its
assets, or entered into any agreements relating to incurring additional debt,
other than incurring accounts payable in the ordinary course of business
consistent in all material respects with past practice;
(6) Except as set forth in Section 7(d), acquired or agreed to
acquire by merging or consolidating with, purchasing substantially all of the
assets of, or otherwise, any business corporation, partnership, association, or
other entity or individual;
(7) Sold or otherwise disposed of any real property or other
tangible assets, including capital or fixed assets, in excess of five thousand
dollars ($5,000) per item or twenty thousand dollars ($10,000) in the aggregate,
other than the sale of inventory in the ordinary course of business;
-17-
(8) Hired any new management employees;
(9) Made commitments or entered into any agreement or contract
outside the ordinary course of business which involves payments from the Parent
or Newco in excess of fifty thousand dollars ($50,000) individually or one
hundred thousand dollars ($100,000) in the aggregate;
(10) Permitted or allowed any assets or properties to become
subject to any material mortgage, pledge, lien, encumbrance, restriction, or
charge of any kind except: (A) such as existed on September 30, 2000, (B) those
imposed by law, and (C) those incurred in the ordinary course of business for
obligations not yet due and payable to landlords, carriers, warehouses,
laborers, materialmen, and the like;
(11) Canceled any material indebtedness to the Parent or
Newco, or waived any claims or rights of the Parent or Newco of substantial
value;
(12) Entered into any material written contract, lease,
commitment, arrangement, or understanding with any affiliate of the Company;
(13) Made any change in any method of accounting or accounting
practice or policy inconsistent with past practices;
(14) Except as shown on the attached Schedule 7(f)(14),
entered into any lease of real property or any other material lease involving
any other property, or amended, modified, terminated, or permitted to lapse any
lease of real property or any other material lease of personal property;
(15) Entered into any written agreement the terms of which
would be violated by the consummation of the transactions contemplated hereby,
and which would have a material adverse effect on the business of the Parent or
Newco;
(16) Changed its credit collection or billing procedures or
policies, which would have a material adverse effect on the business of the
Parent or Newco;
(17) Made any material change to, or revoked any, Tax
election, or entered into or amended any material agreement or settlement with
any taxing authority;
(18) Except as set forth in Section 7(d), entered into any
agreement with any other party concerning the sale or issuance of any stock of
the Company, a merger, a consolidation, or a sale of all or a substantial
portion of the assets of the Parent or Newco, or any other similar transaction
involving the Parent or Newco;
-18-
(19) Taken any action which would cause any representation or
warranty of the Parent or Newco contained herein to become false or incorrect in
any material respect;
(20) Failed to use the Parent's or Newco's reasonable efforts
consistent in all material respects with past practice to preserve their
business organizations intact, and to preserve the goodwill of their suppliers,
customers, dealers, distributors, contractors, and others doing business with
them, if such failure would have a material adverse effect on the business of
the Parent or Newco;
(21) Failed to pay all trade payables and other amounts
payable to creditors as they became due in accordance, and in all material
respects, with past practices (except to the extent any such amounts were
reasonably and in good faith disputed by the Parent or Newco), if such failure
would have a material adverse effect on the business of the Parent or Newco;
(22) Failed to maintain all buildings, equipment, and other
tangible assets owned or used by the Parent and Newco in substantially the same
condition and repair as existed as of September 30, 2000, ordinary wear and tear
excepted; or
(23) Agreed in writing to do any of the foregoing.
(g) Accounts Receivable. Neither the Parent nor Newco has any accounts
receivable.
(h) Inventories. Neither the Parent nor Newco has any inventories.
(i) Litigation. There is no claim, action, suit, litigation, audit,
investigation, or other proceeding pending, or, to the knowledge of the Parent
and Newco, threatened against the Parent or Newco or their assets, properties,
or business, or the transactions contemplated by this Agreement, and neither the
Parent, Newco, nor their assets or properties are subject to or bound by any
order, writ, injunction, judgment, or decree of any court or governmental
regulatory agency, commission, board, or administrative body.
(j) Compliance With Laws. The Parent and Newco, the use and occupancy
of their material assets and properties, and the conduct of their business are,
and at all times on or prior to the date hereof have been, in substantial
compliance with all, and not in violation of any, Federal, State, and/or local
laws, ordinances, rules, regulations, orders, judgments, and decrees applicable
to the Parent and Newco and their assets, properties, and business, including,
in the case of the Parent, all securities laws and all laws relating to the
issuance of the Parent Shares, except where the failure to be in such compliance
would be would not have a material adverse effect on the business of the Parent
and Newco.
(k) Governmental Licenses and Permits. Neither the Parent nor Newco
holds or otherwise maintains any governmental licenses, permits, franchises, or
other authorizations in connection with the conduct of its business or the
ownership or possession of its assets and properties, other than nonmaterial
local licenses required of businesses generally. All such
-19-
Licenses and Permits are in full force and effect, there are no existing
violations in connection therewith, and no proceeding is pending or, to the
knowledge of the Company, threatened with respect to the revocation or
limitation of the same.
(l) Labor Matters. None of the Parent's or Newco's employees are
covered by a collective bargaining agreement, and no organizational efforts with
respect to any employees of the Parent or Newco are pending or, to the knowledge
of the Parent or Newco, threatened. No formal or other labor dispute, strike, or
work stoppage with respect to any group of employees of the Parent or Newco is
pending or, to the knowledge of the Parent or Newco, is threatened. There are no
existing employee claims (other than nonmaterial workers' compensation claims in
the ordinary and customary course of business, which are fully covered by
insurance), grievances, or unfair labor practice complaints pending or
outstanding against the Parent or Newco. The Parent and Newco are, and at all
times on or prior to the date hereof have been, in compliance with, and not in
violation of, the Fair Labor Standards Act, as amended, the Age Discrimination
in Employment Act, as amended, the National Labor Relations Act, as amended, the
Occupational Safety and Health Act, as amended, the Vocational Rehabilitation
Act of 1973, as amended, and/or all applicable Federal and State civil rights
laws, except where the failure to be in such compliance would be would not have
a material adverse effect on the business of the Parent or Newco.
(m) Contracts. Set forth on the attached Schedule 7(m) is a true,
correct, and complete list of: (1) each material written contract, lease,
agreement, or other commitment, understanding, or arrangement to which the
Parent and/or Newco is a party or by which it or any of their assets or
properties is otherwise bound or subject (collectively, the "Contracts"); (2)
any employment contract not terminable at will by the Parent or Newco without
liability or penalty; (3) any lease of real property; (4) any material lease of
personal property; (5) any material agreement for the purchase, sale, or other
disposition of any materials, equipment, supplies, or inventory, or the
provision of any services, outside the ordinary course of business; (6) any
covenant not to compete or other material contract containing any restrictions
on the operations of the Parent or Newco; (7) any extraordinary purchase or
sales orders; (8) any employee collective bargaining agreement or other contract
with any labor union; (9) any contract with any affiliate of the Parent; (10)
any material license or other material agreement relating to any Parent or Newco
intellectual property; and (11) any note, bond, mortgage, indenture, loan
agreement, security agreement, or deed of trust; but in each case excluding from
such Schedule any Contract in the ordinary course of business which is not
material to the Parent or Newco and which does not have an aggregate future
liability to the Parent or Newco of more than ten thousand dollars ($10,000).
Each of the Contracts is valid, binding, and in full force and effect, and is
enforceable by the Parent or Newco in accordance with its terms in a manner that
obtains for, or imposes upon, the parties the primary benefits and obligations
of such agreements, and neither the Parent or Newco has received any notice
terminating, revoking, or rescinding any of the Contracts, or expressing any
interest to do the same and, to the knowledge of the Parent and Newco, no other
party to any of the Contracts has any intent to take any action to terminate,
rescind, or revoke any of such Contracts. The Parent and/or Newco has performed
in all material respects all material
-20-
obligations, and complied in all material respects with all material covenants,
required to be performed and complied with by it to date under the Contracts,
and they are not (with or without lapse of time, the giving of notice, or both)
in material breach of or default under any material provision of the Contracts
and, to the knowledge of the Parent and Newco, no other party to any of the
Contracts is (with or without the lapse of time, the giving of notice, or both)
in material breach of or default thereunder, which in any event would have a
material adverse effect on the business of the Parent or Newco. True, correct,
and complete copies of the Contracts have been made available by the Parent to
the Company.
(n) Tax Matters. The Parent has timely filed all Tax returns, reports,
and forms for all taxable years ending prior to the taxable year in which the
Closing Date occurs, which it was obligated to file under applicable law, rule,
or regulation with the appropriate governmental authorities. All such Tax
returns, reports, and forms were prepared substantially in accordance with all
applicable laws, rules, and regulations, and truly and accurately reflect in all
material respects the Tax liabilities of the Parent for the periods covered
thereby. All Taxes shown to be due on such returns, reports, and forms, as well
as any and all other Taxes required by applicable law, rule, or regulation to be
paid by the Parent, have been timely paid in full to the appropriate taxing
authority, or are being contested in good faith. No Tax liens have been filed
against the Parent or any of its assets or properties, and no claims, audits,
investigations, or proceedings are pending, or to the knowledge of the Parent,
threatened with respect to any Taxes. The Parent is not presently bound by any
agreements extending the statute of limitations with respect to any Taxes, and
the Parent has not made any election under Section 341(f) of the Code nor has it
agreed, or is it required, to make any adjustment under Section 481 of the Code.
The Parent has properly withheld or otherwise collected all Taxes and other
amounts which it was required to withhold or collect under any applicable law,
including, without limitation, any amounts required to be withheld or collected
with respect to employee income tax withholding, social security, unemployment
compensation, sales or use taxes, and all such amounts have been timely remitted
to the proper authorities.
(o) Title to Assets and Properties. The Parent and Newco have good,
valid, and marketable title (or in the case of licenses, leases, or other rights
in any agreements, the right to exercise its rights under such agreements) to
all the material assets and properties reflected on the Parent's September 30,
2000 balance sheet or thereafter acquired or otherwise used by the Parent and
Newco in the conduct of their business, except inventories and other nonmaterial
assets sold since such date in the ordinary course of business, in each case
free and clear of all liens, claims, encumbrances, security interests,
restrictions, or adverse rights or interests whatsoever, except: (1) liens and
encumbrances with respect to liabilities reflected on the Parent's September 30,
2000 balance sheet or otherwise expressly disclosed in this Agreement; (2)
property taxes for the current year which are not yet delinquent; (3) with
respect to any real property, liens imposed by law and incurred in the ordinary
course of business for obligations not yet due and payable to landlords,
warehousemen, laborers, materialmen, and the like; and (4) such utility
easements and minor imperfections of title as do not individually or in the
aggregate materially impair the continued use and operation of such property in
the business of the Parent and Newco, which, in any event would have a material
adverse effect on the business of the Parent and Newco. The
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Parent and Newco own no real property. None of the real property leased by the
Parent and Newco is subject to any pending or (to the knowledge of the Parent
and Newco) threatened condemnation proceeding or proceedings to take all or any
part thereof by eminent domain, and no part of any real property leased by the
Parent and Newco is located within any area designated as a flood plain by any
governmental agency. To the knowledge of the Parent and Newco, no material part
of any of the real property leased by the Parent and Newco requires any material
structural repair necessary for the continued use of such property in the manner
in which such property has been historically used in the business of the Parent
and Newco.
(p) Employee Benefit Plans. Except as stated in Section 7(p), neither
the Parent nor Newco now has, and neither has ever had, any employee pension,
profit-sharing, deferred compensation, severance pay, stock option, stock
purchase, bonus, incentive, or any other form of compensation plan or retirement
plan, or any dental, vision, or other health plan, or any vacation, disability,
sick pay, accident insurance, or other welfare plan, or any fund, program,
policy, contract, or arrangement providing employee benefits, maintained or
contributed to by the Parent or Newco, in which any employees or former
employees of the Parent or Newco have participated or under which any such
persons have accrued and remain entitled to benefits, and no policy, plan,
practice, program, arrangement, understanding, or agreement exists which could
result in the payment by the Parent or Newco of money or any other property to
any employee or former employee of the Parent or Newco solely as a result of the
transactions contemplated herein.
(q) Insurance. The attached Schedule 7(q) contains a true, correct, and
complete list of all general liability, product liability, fire and casualty,
motor vehicle, and other insurance maintained by the Parent and Newco. Regarding
such insurance: (1) all such insurance is in full force and effect, all premiums
due thereunder have been timely and properly paid and the Company is in
compliance in all material respects with all requirements, terms, and provisions
thereof; (2) true and correct copies of all insurance policies relating to such
coverage have been made available by the Parent and Newco to the Company; (3) to
the Parent's and Newco's knowledge, none of the insurance policies maintained by
the Parent and Newco is subject to any retroactive rate adjustment; (4) neither
the Parent nor Newco has received any notice of cancellation or nonrenewal (or
which expresses an intent to cancel or not renew) of any insurance coverage
maintained by the Parent and Newco; and (5) neither the Parent nor Newco has any
knowledge of an intention on the part of any insurance carrier providing
insurance to the Parent and Newco to cancel or otherwise not renew any such
insurance.
(r) No Pending Transactions. Except for the Merger and as shown on the
attached Schedule 7(r), neither the Parent nor Newco is a party to, bound by, or
the subject of any agreement, undertaking, or commitment to: (1) merge or
consolidate with, or acquire all or substantially all of the property and assets
of, any other corporation or person; or (2) sell, lease, or exchange all or
substantially all of its property and assets to any other corporation or person.
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(s) Transactions with Affiliates. Except as shown on the attached
Schedule 7(s), neither the Parent nor Newco is a party to or bound by any
material contract, commitment, loan, lease, or other arrangement or
understanding with any affiliate of the Parent, and no affiliate of the Parent
owns any interest in any corporation, partnership, or other business or entity
that is a party to any business arrangements or relationships of any kind with
the Parent or Newco.
(t) Books and Records. The books and records of the Parent and Newco
made available to the Company are true, correct, and complete in all material
respects, and have not been altered in anticipation of the transactions
contemplated by this Agreement, and to the knowledge of the Parent and Newco no
corporate minutes or written consents of the shareholders or the Board of
Directors of the Parent, or of the Board of Directors of Newco or the Parent as
the sole shareholder of Newco, or any other corporate records or instruments,
have been removed from the corporate records of the Parent or Newco.
(u) Powers of Attorney. Neither the Parent nor Newco presently has
outstanding any power of attorney authorizing any third party to act by or on
behalf of the Parent or Newco.
(v) Guaranties. Neither the Parent nor Newco has guaranteed, co-signed,
or otherwise become obligated (contingently or otherwise) with respect to the
indebtedness or obligations of any other person.
(w) Officers and Directors. The attached Schedule 7(w) sets forth a
complete and accurate list of: (1) the names of all directors of the Parent and
Newco; (2) the names of the president, executive vice president, secretary, and
treasurer of each of the Parent and Newco; (3) all safes, vaults and safety
deposit boxes maintained by or on behalf of the Parent and Newco or in which
assets or properties of the Parent and Newco are held, and the names of all
persons authorized to have access thereto; and (4) all bank accounts of the
Parent and Newco and the names of all authorized signatories with respect to
such accounts.
(x) Intellectual Property. The attached Schedule 7(x) sets forth a
true, correct, and complete list of all United States and foreign patents,
patent applications, licenses, trademarks, trademark applications, copyrights,
trade names, service marks, service names, and other material proprietary rights
owned or otherwise used by the Parent and/or Newco. To the knowledge of the
Parent and Newco: (1) the Parent and/or Newco possess all necessary rights to
utilize such property in the course of their business; (2) neither the Parent
nor Newco has used any intellectual property of the Parent or Newco in violation
of the rights or interests of any third party or any contractual agreement with
respect thereto; (3) none of the intellectual property of the Parent or Newco
has been declared invalid, been limited in any respect by any court or by
agreement or otherwise, and no such property is subject to any infringement,
interference, or other similar proceeding or challenge; and (4) neither the
Parent nor Newco is infringing, or otherwise acting adversely to, the right of
any person or entity under or in respect to any patent, patent application,
license, trademark, trademark application, copyright, trade name, service
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xxxx, service name, or similar proprietary right, which, in any such event,
would have a material adverse effect on the business of the Parent or Newco.
(y) Brokers and Advisors. Except for a finder's fee payable to the
Schedule 3(a)(3) Persons (which is separate and apart from the finder's fee
payable to the Schedule 3(a)(3) Persons by the Company that is referred to in
Section 3(a)(3)), neither the Parent nor Newco has engaged the services of any
broker, finder, or advisor, and has not taken any action which would give rise
to a valid claim against any Party for a brokerage commission, finder's fee, or
like payment.
(z) Access to Information. The Parent and Newco each acknowledges that
it has been provided with access to the Financial Statements and other
information concerning the Company Shares, the Company, and this transaction
which the Parent and Newco deemed necessary in order to make an informed
investment decision. The Parent and Newco have had a reasonable opportunity to
ask questions of, and receive answers from, the Company and its officers,
agents, and advisors in connection with this transaction.
(aa) No False Statements. No representation or warranty made by the
Parent and Newco in this Agreement or in any statement, certificate, or other
document delivered to the Company by the Parent and Newco in connection herewith
contains or will contain any untrue statement of a material fact or omits to
state any material fact necessary to make the statements contained herein or
therein not misleading in any material respect.
(bb) Compliance with Securities Laws. All offerings and sales of Parent
Shares and other securities of the Parent made prior to the date of this
Agreement were made in all material respects in compliance with the Securities
Act and applicable "blue sky" securities laws, and no untrue statement of a
material fact was made, and no omission was made of a material fact necessary to
make the statements made therein not misleading, in connection with any such
offerings and sales.
(cc) SEC Filings. The Parent is subject to the reporting requirements
of Section 13 of the Exchange Act, and is current in respect to all required
filings under the Act. All of such filings, including financial statements and
the notes thereto, are true and correct, and do not omit to state any material
fact necessary to make the statements contained therein not misleading.
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8. COVENANTS, REPRESENTATIONS,
AND WARRANTIES OF THE
PRINCIPAL COMPANY SHAREHOLDERS
Each Principal Company Shareholder covenants, as to such Principal
Company Shareholder, to the Parent that which follows in Section 8(a) and
Section 8(b), each Principal Company Shareholder represents and warrants, as to
such Principal Company Shareholder, that which follows in Section 8(c), and each
Principal Company Shareholder other than Acorn represents and warrants, as to
such Principal Company Shareholder, that which follows in Section 8(d):
(a) Approval of the Merger. Such Principal Company Shareholder will
vote its Company Shares in favor of the Merger.
(b) Mutual Releases. At the Closing, mutual releases will be executed
by the Company, Acorn, the Company's directors (including Acorn's designees on
the Company's Board of Directors), and the Company's executive officers,
covering all of such parties and their officers, directors, subsidiaries, and
Affiliates, and any and all matters which arose prior to the Closing Date out of
the operation of the Company's business and Acorn's investment in the Company.
(c) Accredited Investor. Such Principal Company Shareholder is an
Accredited Investor (as the term "Accredited Investor" is defined in Section
2(15) of the Securities Act, and Rule 501 of Regulation D promulgated
thereunder).
(d) Access to Information. Such Principal Company Shareholder has been
provided with access to all financial and other information concerning the
Parent Shares, the Parent, Newco, and this transaction which such Principal
Company Shareholder deemed necessary, and has had a reasonable opportunity to
ask questions of, and receive answers from, the Parent and Newco and the
officers, agents, and advisors of the Parent and Newco in connection with this
transaction.
9. COVENANTS OF THE COMPANY
The Company covenants to the Parent and Newco as follows:
(a) Disclosure. The Company will inform the Parent promptly of anything
that comes to the Company's attention after the date of this Agreement
(including any litigation by or against the Company, or any other material
development) which would make any representation or warranty of the Company made
herein untrue or misleading in any material respect, or which would constitute a
material breach of any covenant of the Company contained herein.
(b) Indebtedness. On the Closing Date, the Company will not have any
liabilities other than those set forth on the attached Schedule 9(b), and
liabilities for legal fees incurred by the Company in connection with the
Merger.
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(c) Retention of Employees. The Company will use its reasonable best
efforts to persuade the Company's employees to remain employed after the Closing
Date.
(d) Compensatory Stock Options. The Company will use its best efforts
to cause all compensatory stock options granted prior to the date of this
Agreement, and still unexercised and outstanding as of the Closing Date, all of
which unexercised and outstanding options are shown on the attached Schedule
6(d), to be cancelled by the Company effective with the Merger, and to be null
and void, and no longer outstanding at the Closing Date; provided, however, that
even if all of such compensatory stock options are not in fact cancelled by the
Company as of the Merger, all unexercised and outstanding compensatory stock
options shall be treated as if they were exercised by the holders of such
options, and not outstanding, for purposes of Section 3(a)(4).
(e) Issuance of Stock. The Company shall not issue any stock through
the Closing Date other than Parent Shares to be issued pursuant to Section 3, or
other than the stock to be issued in place of the compensatory stock options
that are referred to in this Agreement.
10. COVENANTS OF THE PARENT
The Parent covenants to the Company and the Company Shareholders as
follows:
(a) Disclosure. The Parent will inform the Company promptly of anything
that comes to the Parent's attention after the date of this Agreement (including
any litigation by or against the Parent or Newco, or any other material
development) which would make any representation or warranty of the Parent or
Newco made herein untrue or misleading, or which would constitute a breach of
any covenant of the Parent contained herein.
(b) Indebtedness. On the Closing Date, neither the Parent nor Newco
will have any liabilities other than those set forth on the attached Schedule
7(e), and liabilities for legal fees and transfer agent expenses incurred by the
Parent in connection with the Merger.
(c) Avoidance of Certain Actions. Neither the Parent nor Newco will
take any action on or after the Closing Date that would jeopardize the status of
the Merger as a "reorganization" within the meaning of Section 368(a)(1)(A) and
(a)(2)(E) of the Code, including but not limited to any action that would
violate the rules of U.S. Treasury Regulation ss.1.368-1(d) or (e) (relating to
continuity of business enterprise and continuity of interest).
(d) Issuance of Stock. The Parent shall not issue any stock through the
Closing Date other than the stock contemplated by Section 3(a), and other than
as set forth in Section 7(d), and, if necessary, the Parent will amend its
Certificate of Incorporation to increase the amount of its authorized shares of
stock to cover all such issuances.
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(e) Approval of Merger. The Parent, as the sole shareholder of Newco,
will vote stock in Newco in favor of the Merger.
(f) Directors and Officers Insurance. The Parent shall cause the
Surviving Corporation to procure directors and officers liability insurance for
the benefit of Xxxxx for as long as Xxxxx is an officer and director of either
the Parent or the Surviving Corporation.
11. MUTUAL COVENANTS
(a) Efforts, Cooperation and Third Party Consents. Subject to the terms
and conditions of this Agreement, each Party will use its reasonable best
efforts to cooperate with the others so as to cause the Closing to occur as
provided herein and to obtain any third-party consents that may be required to
consummate the transactions contemplated by this Agreement.
(b) Confidentiality. The Parties agree that, except to the extent
required by law or by valid legal process: (1) each Party will treat all
proprietary information provided by another Party hereunder ("Confidential
Information") as permanently confidential; (2) no Party will use any
Confidential Information it receives from another Party hereunder other than in
connection with performing its obligations under this Agreement; and (3) no
Party will disclose any Confidential Information to any third party without
prior written consent of the disclosing Party. However, notwithstanding the
preceding sentence, a Party may disclose Confidential Information to those of
its representatives who need to know such Confidential Information for purposes
of assisting such party with the transactions contemplated by this Agreement and
who agree or are otherwise legally bound to hold such Confidential Information
in confidence. All Confidential Information is and will remain the property of
the disclosing Party. Each Party covenants and agrees that following the
execution of this Agreement it shall not disclose to any person, individual, or
entity any of the terms, conditions, or matters contained in this Agreement, and
to keep the same confidential. However, the foregoing obligations of
confidentiality shall not apply to any information that: (4) is already known to
the receiving person, free of any restrictions at the time it is obtained by the
receiving person; (5) is or becomes publicly known through no wrongful act of
the receiving person; (6) is rightfully received by the receiving person from a
third party without restriction; (7) is independently developed without breach
of any agreements or use of confidential, proprietary, trade secret and/or
sensitive information disclosed to or obtained by the receiving person from the
disclosing Party; or (8) is disclosed pursuant to the lawful requirement of a
governmental agency or is required by operation of law.
(c) Publicity. The Parent, Newco, and the Company each agrees that no
public release or announcement concerning the transactions contemplated hereby
shall be issued by any of them without the prior written consent of the others,
except for releases and announcements as are required to be made by applicable
law, in which case the Party required to make the release or announcement shall
allow the other Parties reasonable time to comment on such release or
announcement in advance of its issuance.
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(d) Taxes. The Principal Company Shareholders, which for purposes of
this Section 11(d) excludes Acorn, shall be responsible, at their expense, for
preparing and timely filing, or causing an independent certified accounting firm
to prepare and timely file, all returns and reports, if and to the extent not
yet filed, for the Company's Federal and State income Taxes for the taxable
periods ending prior to the taxable period in which the Closing Date occurs,
including any returns with respect to the carryback of net operating losses
generated during such taxable periods. With respect to the Principal Company
Shareholders' preparation of such returns of Taxes for the foregoing taxable
periods, the Principal Company Shareholders shall not, or shall cause such
independent certified accounting firm not to, deviate from the manner in which
any item of income or expense of the Company was reported in prior taxable
periods, except as otherwise required by law. Such Tax returns or reports
prepared by the Principal Company Shareholders shall be submitted to the Parent
for review at least fifteen (15) business days prior to the filing date for any
such return or report (without regard to extensions). Within fifteen (15) days
following the date on which such Tax returns are submitted to the Parent, the
Parent shall provide to the Principal Company Shareholders a written statement
of any objections to such Tax returns. During such time period, the Principal
Company Shareholders' accountant shall provide Parent and its representatives
with access to the accountant's tax work-papers and the methods utilized for
purposes of preparing such Tax returns, and shall make members of the Principal
Company Shareholders' accounting firm reasonably available for discussion with
the Parent's accountants. In the event the Parties have not reached agreement on
the Tax returns prior to the due date thereof, such Tax returns shall be
extended and the disputed issues will be submitted to an independent third party
certified public accounting firm mutually acceptable to the Parties for
resolution (the "Independent Firm"). The determination of the Independent Firm
shall be binding upon the Parties absent manifest error. The cost of the
Independent Firm shall be borne equally by the Parent on the one hand and the
Principal Company Shareholders on the other hand. Once the form of the Tax
returns is agreed upon or otherwise determined as provided in this Section
10(d), such returns will be filed by the Principal Company Shareholders. The
Parent shall be responsible, at its own expense, for preparing and timely
filing, or causing an independent certified accounting firm to prepare and
timely file, all returns and reports for the Surviving Corporation's Federal and
State income Taxes for the taxable periods beginning with the taxable period in
which the Closing Date occurs.
(e) Access to Books and Records. Pending the Closing Date, the Parent
and the Company shall give each other or their designated representatives, full
access to their books of original entry, legers, bank statements, minute books,
shareholder lists, contracts, patents, trademarks, and all other documents
maintained by them in connection with their business operations.
(f) Indebtedness. Pending the Closing Date, neither the Parent, Newco,
nor the Company will incur any indebtedness other than in the ordinary course of
business, and will not commit itself to any material undertakings, programs, or
projects, other than pursuant to existing agreements, which would have a
material negative impact on its balance sheet, without the prior written consent
of the other Parties.
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(g) Conservation of Assets. Other than paying current liabilities, the
Parent, Newco, and the Company will operate their businesses in a manner
consistent with the conservation of their assets, including their cash reserves.
(h) Preservation of and Access to Records. The Parent shall use
reasonably commercial efforts to preserve and keep material records of the
Company until the later of: (1) December 31, 2004; (2) any longer period as may
be required by any governmental agency or ongoing litigation; or (3) in the case
of records relating to the proper assessment or the payment of Taxes, until the
expiration of the applicable statute of limitations (including waivers and
extensions). The Parent shall allow the Principal Company Shareholders, at the
Principal Company Shareholders' cost, to inspect and copy such records during
normal business hours and upon reasonable written notice as may be reasonably
required in connection with any legal proceedings against, or governmental
investigations of, the Company or in connection with any Tax examination of the
Company; provided, however, that the Principal Company Shareholders will have
potential liability with respect to such matters only as provided pursuant to
the terms of this Agreement. If the Principal Company Shareholders request
assistance hereunder, they shall reimburse the Parent for the Parent's
reasonable out-of-pocket expenses incurred in providing such assistance
(excluding the Parent's expenses for making space and records available to the
Principal Company Shareholders at the principal office of the Parent). In the
event the Parent wishes to destroy such records after the time periods specified
above, it shall first give ninety (90) days' prior written notice to the
Principal Company Shareholders, and the Principal Company Shareholders shall
have the right at their option to object to such destruction by prior written
notice given to the Parent within such ninety (90)-day period, in which case the
Parent at its option will either continue to retain possession of such records
or it will hand over such records to the Principal Company Shareholders within
one hundred eighty (180) days after the date of the Principal Company
Shareholders' notice to the Parent hereunder. If written objection is not
received by the Parent within such ninety (90)-day period, the Parent shall be
free to dispose of such records as it chooses. In the event such records are
delivered to the Principal Company Shareholders as aforesaid, the Principal
Company Shareholders shall maintain the confidentiality thereof, and shall not
disclose to any third party or otherwise make public any information therein,
except as required by applicable law, and the Principal Company Shareholders
shall execute and deliver to the Parent, on behalf of themselves and the Company
Shareholders, a reasonable confidentiality agreement in this regard containing
provisions similar to those provisions contained in the Confidentiality
Agreement.
(i) Certificates of Incorporation and By-Laws. Neither the Parent,
Newco, nor the Company will amend its Certificate of Incorporation or its
By-Laws at any time either on or prior to the Closing Date.
(j) Distributions to Shareholders. Neither the Parent, Newco, nor the
Company will make any distributions to its shareholders with respect to its
capital stock at any time either on or prior to the Closing Date.
12. CONDITIONS TO THE CLOSING
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The Merger shall be conditioned on:
(a) Parent Approval. The approval of the Merger by the Board of
Directors of the Parent;
(b) Newco Approval. The approval of the Merger by the Board of
Directors of Newco and the Parent as Newco's shareholder;
(c) Company Approval. The approval of the Merger by the Board of
Directors of the Company and the Company Shareholders;
(d) Due Diligence. The satisfactory completion of a "due diligence"
investigation by the Parent and the Company;
(e) Employment Agreements. The entering into of an employment
agreement, prior to the Closing Date, to become effective only if the Merger is
consummated, between each of Xxxxxx and Xxxxx and Newco (with the Parent
guaranteeing Newco's obligations thereunder) in substantially the form of the
attached Exhibit 11(e)(1) and Exhibit 11(e)(2), respectively.
(f) Consulting Agreement. The entering into of a consulting agreement,
prior to the Closing Date, to become effective only if the Merger is
consummated, between CA Consulting Services, Inc. and Newco (with the Parent
guaranteeing Newco's obligations thereunder) in substantially the form of the
attached Exhibit 11(f).
(g) Cancellation of Compensation in Arrears. The Company's submission
to the Parent, prior to the Closing, of (1) a document signed by the Company and
Xxxxx pursuant to which the Company and Xxxxx agree that all unpaid salary
otherwise due and payable by the Company to Xxxxx is cancelled and forgiven, and
(2) a document signed by the Company and Kidsdoc pursuant to which the Company
and Kidsdoc agree that all unpaid consulting fees otherwise due and payable by
the Company to Kidsdoc are cancelled and forgiven.
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13. THE CLOSING
(a) Time and Place. The Closing of the transactions contemplated by
this Agreement shall take place at the offices Xxxxx & Xxxxxxx LLP, 0 Xxxx 00xx
Xxxxxx, Xxx Xxxx, XX 00000, at 9:30 a.m. Eastern time on March 13, 2001, or at
such other place and time mutually agreeable to the Parties. The Closing shall
be deemed effective as of the close of business on the Closing Date.
(b) Deliveries at the Closing by the Company. The Company shall cause
the following to be delivered to the Parent at the Closing:
(1) An opinion of counsel to the Company, Moses & Singer, LLP,
reasonably satisfactory to the Parent and its counsel;
(2) A certificate of good standing dated within thirty (30)
days of the Closing Date from the Delaware Secretary of State on behalf of the
Company;
(3) A certified copy of the resolutions adopted by the Board
of Directors of the Company authorizing the execution, delivery, and performance
of this Agreement; and
(4) Such other documents and instruments required by the terms
of this Agreement to be delivered by the Company or the Company Shareholders at
the Closing or otherwise reasonably necessary to consummate the transactions
contemplated hereby (except to the extent unable to do so for reasons outside
their reasonable control, such as for example such items are to be provided by
third parties).
(c) Deliveries at the Closing by the Parent. The Parent shall cause the
following to be delivered to the Company at the Closing:
(1) Instructions to the Parent's transfer agent for the
issuance of the certificates for the Parent Shares as provided in Section 3(a);
(2) An opinion of counsel to the Parent and Newco, Xxxxx &
Xxxxxxx LLP, reasonably satisfactory to the Company and its counsel;
(3) A certified copy of the resolutions adopted by the Board
of Directors of the Parent as the sole shareholder of Newco, and of the Board of
Directors of Newco, authorizing the execution, delivery, and performance of this
Agreement; and
(4) Such other documents and instruments required by the terms
of this Agreement to be delivered by the Parent at the Closing or otherwise
reasonably necessary to consummate the transactions contemplated hereby (except
to the extent unable to do so for reasons outside its reasonable control, such
as for example such items are to be provided by third parties).
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14. INDEMNIFICATION
(a) Indemnification by the Company Shareholders. Except as hereinafter
set forth, each Company Shareholder (except Acorn), by signing and delivering to
the Parent a letter of transmittal (the "Letter of Transmittal") that refers to
this Section 14, shall jointly and severally:
(1) Indemnify and hold harmless the Parent from and against
any loss, liability, claim, cost, damage, or expense (including reasonable legal
fees and expenses) (collectively, a "Loss") arising out of or resulting from,
any breach of any representation, warranty, covenant, or other agreement on the
part of such Company Shareholder and the Company contained in this Agreement or
in any certificate, instrument, or other document delivered by the Company
Shareholders or the Company pursuant hereto, or any covenant or agreement by or
on behalf of such Company Shareholder or the Company set forth in this Agreement
which is breached by such Company Shareholder or the Company, but not by all
Company Shareholders; and
(2) Indemnify and hold harmless the Parent from and against
any Loss arising out of or resulting from: (A) any Tax liabilities of the
Company with respect to all taxable periods ending prior to taxable period in
which the Closing occurs; or (B) the fees and commissions of any broker or
advisor engaged by any Company Shareholder or the Company in connection with
this transaction (except to the extent that the obligation therefor is directly
the obligation of the Parent or Newco).
(b) Indemnification by the Principal Company Shareholders. Except as
hereinafter set forth, each Principal Company Shareholder (except Acorn) shall
jointly and severally indemnify and hold harmless the Parent, with respect to
the offer and sale, prior to the Closing Date, of the Company Shares or other
stock or securities of the Company, from and against any Loss arising out of or
resulting from (A) any untrue statement or alleged untrue statement of a
material fact contained in any offering documents issued by the Company prior to
the Closing Date (the "Documents"); or (B) the omission or alleged omission by
the Company in any Documents issued prior to the Closing Date of 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 under the
Securities Act or otherwise.
(c) Indemnification by Acorn. Except as hereinafter set forth, Acorn
shall indemnify and hold harmless the Parent from any Loss arising out of or
resulting from any breach of any representation or warranty of Acorn set forth
in its Letter of Transmittal.
(d) Indemnification by the Parent and the Surviving Corporation. The
Parent and the Surviving Corporation shall indemnify and hold harmless the
Company Shareholders:
(1) From and against any Loss arising out of or resulting from
any breach of any representation, warranty, covenant, or other agreement on the
part of the Parent contained in this Agreement or in any certificate,
instrument, or other document delivered by the Parent to the
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Company Shareholders or the Company pursuant hereto, or any covenant or
agreement by or on behalf of the Parent or Newco set forth in this Agreement
which is breached by the Parent or Newco, including the covenant contained in
Section 9(b), and in the case of a breach of such covenant, the Loss shall
include the interest and any penalty due by the Company Shareholders with
respect to any tax deficiency due by them by virtue of such breach (but not the
amount the tax deficiency), arising by virtue of the fact that the Merger failed
to qualify as a "reorganization" within the meaning of Section 368(a)(1)(A) and
(a)(2)(E) of the Code;
(2) From and against any Loss arising out of or resulting from
the fees and commissions of any broker or advisor engaged by the Parent or Newco
in connection with this transaction; and
(3) From and against any Loss arising out of or resulting from
with respect to the offer and sale of the Parent Shares issuable hereunder and,
prior to the Closing Date, of the Parent Shares or other stock or securities of
the Parent, from and against any Loss arising out of or resulting from (A) any
untrue statement or alleged untrue statement of a material fact contained in any
reports filed by the Parent prior to the Closing Date (the "Reports") with the
Securities and Exchange Commission, pursuant to the Exchange Act; or (B) the
omission or alleged omission by the Parent in any offering documents and/or
Reports filed prior to the Closing Date pursuant to the Exchange Act, of 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 under the Securities Act or otherwise.
(e) Notice and Defense. The obligations of the Principal Company
Shareholders and the Parent hereunder with respect to their respective
indemnities pursuant to this Section 14, resulting from any claim or other
assertion of liability by third parties (hereinafter collectively, "Third Party
Claim(s)"), shall be subject to the following terms and conditions:
(1) The Party seeking indemnification hereunder (the
"Indemnified Party") shall give written notice (a "Claim Notice") of any such
Third Party Claim(s) to the Party from whom indemnification is sought hereunder
(the "Indemnifying Party") within a reasonable time after the Indemnified Party
receives notice thereof; provided, however, that the failure to give notice
timely shall not affect the Indemnifying Party's obligations hereunder except to
the extent that such failure prejudices the Indemnifying Party or its ability to
defend such Third Party Claim(s);
(2) The Indemnifying Party shall have the right to undertake,
with counsel or other representatives of its own choosing and reasonably
acceptable to the Indemnified Party, the defense or settlement of any such Third
Party Claim(s);
(3) In the event that the Indemnifying Party shall fail to
notify the Indemnified Party within twenty (20) days of receipt of the Claim
Notice that it has elected to undertake such defense or settlement, or if at any
time the Indemnifying Party shall otherwise fail to diligently defend or pursue
settlement of such claim, then the Indemnified Party shall have the right to
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undertake the defense, compromise, or settlement of such claim, with counsel
reasonably acceptable to the Indemnifying Party; and
(4) No Party shall settle any Third Party Claim(s) without the
prior written consent of the Parties, which consent shall not be unreasonably
withheld or delayed. In the event the Indemnifying Party submits to the
Indemnified Party a bona fide settlement offer from the third party claimant of
any Third Party Claim(s) (which settlement offer shall include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party a release from all liability in respect of such claim) and the
Indemnified Party refuses to consent to such settlement, then thereafter the
Indemnifying Party's liability to the Indemnified Party for indemnification
hereunder with respect to such Third Party Claim(s) shall not exceed the
settlement amount included in such bona fide settlement offer, and the
Indemnified Party shall either assume the defense of such Third Party Claim(s)
or pay the Indemnifying Party's reasonable attorneys fees and other out of
pocket costs incurred thereafter in continuing the defense of such claim.
Regardless of which Party is conducting the defense of any such Third Party
Claim(s), the other Parties, with counsel or other representatives of its own
choosing and at their sole cost and expense, shall have the right to consult
with the Party conducting the defense of such claim and its counsel or other
representatives concerning such claim and the Indemnified Party and their
respective counsel or other representatives shall cooperate with respect to such
claim, and the Party conducting the defense of any such claim and its counsel
shall in any case keep the other Parties and their counsel (if any) fully
informed as to the status of any claim and any matters relating thereto. Each
Party shall provide to the other Parties such records, books, documents, and
other materials as shall reasonably be necessary for such Parties to conduct or
evaluate the defense of any Third Party Claim(s) and will generally cooperate
with respect to any matters relating thereto.
(f) Limitations on Indemnification. The foregoing indemnification
obligations shall be subject to the following limitations:
(1) The amount of any indemnified Loss hereunder shall be
reduced by the amount, if any, of the recovery actually received by the
Indemnified Party with respect to such indemnified Loss (net of any
out-of-pocket collection costs) under applicable insurance policies or from
persons or entities not parties to this Agreement (not including any successor
in interest or assign of any Party). In the event such a recovery is received by
the Indemnified Party after it receives payment or other credit under this
Agreement with respect to an indemnified Loss, then the Indemnified Party shall
promptly pay to the Indemnifying Party the lesser of (A) the amount of the
recovery actually received; or (B) the amount of the indemnity payment made by
the Indemnifying Party to the Indemnified Party with respect to such indemnified
Loss. Notwithstanding anything herein to the contrary, the terms of this Section
14(f)(1) shall not apply to the extent such provisions would operate to
invalidate or otherwise prejudice any claim for insurance or against any third
party.
(2) The amount of any indemnified Loss arising under this
Agreement shall be fairly and equitably reduced to the extent that such
indemnified Loss arose by reason of, and is
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directly attributable to, the negligent or intentional wrongful acts or
omissions of the Indemnified Party.
(3) The amount of any indemnified Loss hereunder shall be
fairly and equitably reduced (or increased) by the amount of the actual
reduction (or increase) in income Tax liability of the Indemnified Party after
giving effect to incurring by the Indemnified Party of the liability giving rise
to the claim for indemnification, the payment by the Indemnified Party of such
claim, and the receipt by the Indemnified Party of any indemnity payment with
respect to such claim.
(g) Setoff. Subject to compliance with Section 14(e) and Section 14(f),
the Parent shall have the right to indemnification under this Section 14 solely
from, and may set off its indemnified Loss only against, the Parent Shares held
in escrow pursuant to Section 3(b)(1), and subject in all events to the
limitation set forth in Section 3(b)(2); provided, however, that any set-off
relating to an indemnification obligation of the Principal Company Shareholders
other than Acorn shall be limited to the Minimum Number of Shares (as the term
"Minimum Number of Shares" is defined in the Transfer Agreement), and then
following release to Acorn of the Transfer Shares (as the term "Transfer Shares"
is defined in the Transfer Agreement), if any, to any other Parent Shares to
which the Principal Company Shareholders other than Acorn are entitled; and
provided further that any set-off relating to any breach of any representation
or warranty of Acorn set forth in Acorn's Letter of Transmittal may be applied
to the Parent Shares which Acorn is entitled to receive under Section 3(a)(1).
(h) Dollar Floor. Notwithstanding anything in this Section 14 to the
contrary, the foregoing indemnification obligations shall be inapplicable in
respect of any Loss unless such Loss, plus all other Losses, exceed an aggregate
of fifty thousand dollars ($50,000), in which event the full amount of all
Losses shall be indemnified under this Section 14; provided, however, that (1)
such fifty thousand dollars ($50,000) floor shall not apply to any
indemnification obligations relating to Taxes, and (2) the Parent shall not be
entitled to any indemnification under this Section 14 in excess of the number of
Parent Shares that are referred to in Section 3(b)(2), except that, in the case
of any indemnification obligation relating to either of the events referred to
in Section 3(b)(1)(A) and (B), or relating to any breach of the representations
referred to in Section 15(a), the Parent shall be entitled to indemnification in
an amount of up to two hundred fifty thousand dollars ($250,000) regardless of
whether or not any of the Parent Shares are still held in escrow at the time
that (3) any Tax authority informs the Parent or the Surviving Corporation
pursuant to Section 3(b)(1)(A), (4) any action is commenced against the Parent
or the Surviving Corporation pursuant to Section 3(b)(1)(B), or (5) the Parent
becomes aware of such breach.
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15. SURVIVAL OF PROVISIONS
The representations, warranties, and covenants contained in this
Agreement shall survive the Closing for a period of one (1) year, except that
the representations and warranties contained in:
(a) Ownership of Stock and Capitalization. The Letter of Transmittal,
Section 6(d), and Section 7(d) shall be perpetual; and
(b) Taxes. Section 6(p) and Section 10(c) shall survive for a period of
thirty (30) days following the day on which the longest applicable statute of
limitations expires relating to such matters.
16. EXPENSES
Except as otherwise specifically provided herein, each of the Principal
Company Shareholders and the Company on the one hand, and each of the Parent and
Newco on the other hand shall pay all of its respective expenses relating to
this transaction, including fees and disbursements of its respective counsel,
accountants, brokers, investment bankers, and financial advisors, if the
transactions contemplated hereunder are abandoned.
17. MISCELLANEOUS
(a) Assignment. This Agreement shall not be assignable or otherwise
transferable by the Parent, Newco, or the Company without the prior written
consent of the non-assigning Parties, and shall be binding upon, and shall inure
to the benefit of, the Parties and their respective legal representatives,
heirs, devisees, legatees, beneficiaries, and successors and permitted assigns.
(b) Fees of Legal Counsel. In the event any Party shall employ legal
counsel to protect its rights hereunder or to enforce any term or provision
hereof, the Party prevailing in any such action shall have the right to recover
from its adverse Parties all of its reasonable attorneys' fees and expenses
incurred in relation to such claims, as approved by the court on the basis of
customary fees charged by attorneys in the State of New York.
(c) Further Assurances. The Parties shall from time to time hereafter,
upon request, execute, acknowledge, and deliver such other instruments and
documents, and take such further action as may be reasonably necessary to carry
out the intent of this Agreement.
(d) Modification. No provision contained herein may be modified,
amended, or waived except by written agreement or consent signed by the Party to
be bound thereby.
(e) Headings and Captions. Subject headings and captions are included
for convenience purposes only, and shall not affect the interpretation of this
Agreement.
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(f) Notices. All notices, requests, demands, and other communications
permitted or required hereunder shall be in writing, and either (1) delivered in
person; (2) sent by express mail or other overnight delivery service providing
receipt of delivery; (3) mailed by certified mail, postage prepaid, return
receipt requested; or (4) sent by telecopy or other facsimile transmission, with
proof of transmission thereof retained by the transmitter, as follows:
If to the Parent:
XxxxxXxx.xxx, Inc.
00 Xxxx Xxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx, President
Tel: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Xxxxx & Xxxxxxx LLP
0 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Company:
xxxxxxx.xxx, Inc.
00 Xxxx Xxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Xxxxx, President
Tel: (000) 000-0000
Fax: (000) 000-0000
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With a copy to:
Moses & Singer, LLP
0000 Xxxxxx xx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Company Shareholders:
Xxxxxx Xxxxx
xxxxxxx.xxx, Inc.
00 Xxxx Xxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Moses & Singer, LLP
0000 Xxxxxx xx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
Acorn Technology Fund, L.P.
0 Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention:
Tel: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Xxxxx Xxxxxxxx Xxxx Xxxxx & Xxxxxxx
000 Xxxxxxx Xxxx Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
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or to such other address as any Party or Company Shareholder may designate by
notice. Any such notice or communication, if given or made by prepaid, certified
mail or by recorded express delivery, shall be deemed to have been made when
actually received, but not later than three (3) business days after the same was
posted or given to such express delivery service and if made properly by
telecopy or other facsimile transmission such notice or communication shall be
deemed to have been made at the time of dispatch.
(g) Severability. If any portion of this Agreement is held invalid,
illegal, or unenforceable, such determination shall not impair the
enforceability of the remaining terms and provisions herein.
(h) Waiver. No waiver of a breach or violation of any provision of this
Agreement shall operate or be construed as a waiver of any subsequent breach, or
limit or restrict any right or remedy otherwise available.
(i) Rights and Remedies Cumulative. The rights and remedies expressed
herein are cumulative and not exclusive of any rights and remedies otherwise
available.
(j) Entire Agreement. This Agreement (together with the Schedules,
Exhibits, and attachments hereto) constitutes the entire agreement of the
Parties and supersedes any and all other prior agreements, oral or written, with
respect to the subject matter contained herein. There are no representations,
warranties, covenants, or agreements between the Parties with respect to this
matter except those expressly set forth herein.
(k) Governing Law; Jurisdiction. This Agreement shall be subject to and
governed by the laws of the State of New York without regard to conflict of laws
principles of such State. The Parties consent to jurisdiction of any Federal or
State court located in New York, NY for resolution of disputes relating to this
Agreement.
(l) Incorporation by Reference. All Schedules, Exhibits, and
attachments hereto, and other documents referred to in this Agreement, shall be
deemed incorporated herein by any reference thereto as if fully set out.
(m) Counterparts. This Agreement may be executed in one (1) or more
counterparts (all counterparts together reflecting the signatures of all the
Parties), each of which shall be deemed to be an original, and all of which
together shall constitute one (1) and the same instrument.
(n) Third Party Beneficiaries. Except with regard to issuance of Parent
Shares to the Company Shareholders, Kidsdoc, and Xxxx as provided in Section
3(a), and except as provided in Section 16(a), this Agreement is not intended to
create any right of enforcement by or in any third party.
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(o) Authority. Each individual signing this Agreement in a
representative capacity acknowledges and represents that he is duly authorized
to execute this Agreement in such capacity in the name of, and on behalf of, the
designated corporation, partnership, trust, or other entity.
(p) Gender, etc. When used in this Agreement, the masculine shall
include the feminine and the neuter and vice versa, and the plural shall include
the singular and vice versa.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective
as of the day and year first above written.
Xxxxxxxx.xxx, Inc.
By: /s/Xxxxxx Xxxxxxx
-------------------------
Xxxxxx Xxxxxxx, President
Pedianet Acquisition Corp.
By: /s/Xxxxxx Xxxxxxx
-------------------------
Xxxxxx Xxxxxxx, President
xxxxxxx.xxx, Inc.
By: /s/Xxxxxx Xxxxx
-------------------------
Xxxxxx Xxxxx, President
Principal Company Shareholders
(as to Sections 5, 8, 11, and 14 only)
/s/Xxxxxx Xxxxx
-----------------
Xxxxxx Xxxxx
/s/Xxxxx Xxxxxx, M.D.
---------------------
Xxxxx Xxxxxx, M.D.
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/s/Xxxx X. Xxxxx
-------------------
Xxxx X. Xxxxx
Acorn Technology Fund, L.P.
By: Acorn Technology Partners, L.L.C.,
Its General Partner
By: /s/Xxxx Xxxxxxxxx
------------------------
Name: Xxxx Xxxxxxxxx
Title: Manager
