AGREEMENT AND PLAN OF REORGANIZATION
DATED JULY 19, 2001
FOR THE ACQUISITION OF
KEYCOM, INC
(AND SUBSIDIARIES)
BY
EMERGENT FINANCIAL GROUP, INC.
AGREEMENT AND PLAN OF REORGANIZATION
Table of Contents
Page
Section 1: Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2: The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3: Representations of KeyCom. . . . . . . . . . . . . . . . . . 6
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Effect of Agreement. . . . . . . . . . . . . . . . . . . . 7
3.3 Capital Stock and Ownership . . . . . . . . . . . . . . . 7
3.4 Financial and Corporate Records . . . . . . . . . . . . . 8
3.5 Compliance with Law. . . . . . . . . . . . . . . . . . . . 8
3.6 Financial Statements. . . . . . . . . . . . . . . . . . . . 9
3.7 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Operations Since October 31, 2000. . . . . . . . . . . . 9
3.10 Accounts Receivable . . . . . . . . . . . . . . . . . . . . 10
3.11 Tangible Property . . . . . . . . . . . . . . . . . . . . . 10
3.12 Real Property . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Environmental. . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 Software and Other Intangibles. . . . . . . . . . . . . . 12
3.15 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.16 Employees and Independent Contractors . . . . . . . . . . 13
3.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . . 14
3.18 Customers, Prospects and Suppliers. . . . . . . . . . . . 15
3.19 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.20 Proceedings and Judgments. . . . . . . . . . . . . . . . . 16
3.21 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.22 Questionable Payments . . . . . . . . . . . . . . . . . . . 17
3.23 Related Party Transactions . . . . . . . . . . . . . . . . 17
3.24 Brokerage Fees. . . . . . . . . . . . . . . . . . . . . . . 17
3.26 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 18
Section 4: Representations of Emergent and Newco. . . . . . . . . . . 18
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Emergent's Stock. . . . . . . . . . . . . . . . . . . . . . 19
4.4 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 Authorization for Emergent Common Stock. . . . . . . . . 19
4.6 Investment Matters. . . . . . . . . . . . . . . . . . . . . 19
4.7 Brokerage Fees. . . . . . . . . . . . . . . . . . . . . . . 19
4.8 Compliance with Law. . . . . . . . . . . . . . . . . . . . 19
4.9 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 19
Section 5: Certain Obligations of KeyCom Pending Closing . . . . . . 20
5.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . 20
5.2 Emergent's Due Diligence Investigation. . . . . . . . . . 21
5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . 21
5.5 Advice of Changes. . . . . . . . . . . . . . . . . . . . . 22
5.6 Reasonable Best Efforts. . . . . . . . . . . . . . . . . . 22
Section 6: Certain Obligations of Emergent and Newco Pending Closing. . . 22
6.1 Corporate Status. . . . . . . . . . . . . . . . . . . . . . 22
6.2 KeyCom Due Diligence Investigation. . . . . . . . . . . . 22
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Advice of Changes. . . . . . . . . . . . . . . . . . . . . 23
6.6 Reasonable Best Efforts. . . . . . . . . . . . . . . . . . 23
6.7 Investments. . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7: Additional Covenants of the Parties. . . . . . . . . . . . 23
7.1 KeyComShareholder's Meeting . . . . . . . . . . . . . . . . 23
7.2 Tax Free Reorganization. . . . . . . . . . . . . . . . . . 25
Section 8: Conditions Precedent to KeyCom's Closing Obligations. . . 23
8.1 Approval of KeyCom Shareholders . . . . . . . . . . . . . 25
8.6 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . 24
Section 9: Conditions Precedent to Emergent's and Newco's Closing
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 Approval of the KeyCom Shareholders. . . . . . . . . . . 24
9.2 Dissenting and other KeyCom Shareholders . . . . . . . . 24
9.3 KeyCom's Representations. . . . . . . . . . . . . . . . . . 24
9.4 KeyCom's Performance. . . . . . . . . . . . . . . . . . . . 24
9.5 Absence of Proceedings . . . . . . . . . . . . . . . . . . 24
9.6 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . 25
9.7 Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10: Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.2 KeyCom's Obligations at Closing . . . . . . . . . . . . . 25
10.3 Emergent's and Newco's Obligations at Closing . . . . . 26
Section 11: Certain Obligations and Rights after Closing. . . . . . . 27
11.1 Cooperation with Emergent and the Surviving Corporation. . . 30
Section 12: Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 28
12.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 28
12.2 Indemnification Procedures. . . . . . . . . . . . . . . . . 33
12.3 Limits on Indemnification. . . . . . . . . . . . . . . . . 29
12.4 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 13: Other Provisions. . . . . . . . . . . . . . . . . . . . . . . 30
13.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . 30
13.2 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . 30
13.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.5 Survival of epresentations.andCovenants. . . . . . . . . . 33
13.6 Interpretation of Representations. . . . . . . . . . . . . 34
13.7 Reliance by Emergent and Newco . . . . . . . . . . . . . 34
13.8 Entire nderstanding . . . . . . . . . . . . . . . . . . . . 34
13.9 Parties in Interest. . . . . . . . . . . . . . . . . . . . 34
13.10 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . 34
13.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . .
13.13 Section Headings. . . . . . . . . . . . . . . . . . . . . .
13.14 References . . . . . . . . . . . . . . . . . . . . . . . . .
13.15 Controlling Law . . . . . . . . . . . . . . . . . . . . . .
13.16 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . 32
13.17 No Third-Party Beneficiaries . . . . . . . . . . . . . . .
13.18 Nature of Transactions . . . . . . . . . . . . . . . . . .
13.19 Bankruptcy and Equitable Qualifications . . . . . . . . . 33
13.20 Construction . . . . . . . . . . . . . . . . . . . . . . . .
AGREEMENT AND PLAN OF REORGANIZATION
Parties: KeyCom, Inc.
a Delaware Corporation
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX00000
Emergent Financial Group, Inc.
a Delaware corporation ("Emergent")
000-00000 Xxxxxx Xxxx
Xxxxxxxx, XX X0X0X0
KeyCom Holding Corporation
a Delaware corporation ("Newco")
232-10711 Xxxxxx Xxxx
Xxxxxxxx, XX X0X0X0
Date: July 19, 2001
RECITALS
WHEREAS, KeyCom is a technology-based financial services company that has
developed proprietary software systems necessary to permit standard credit card
merchant terminals to receive, record and dispatch transaction information
permitting the remittance of cash at the point of sale and the subsequent
transmittal of cash domestically or internationally principally using the
Internet;
WHEREAS, Emergent is a publicly traded specialty merchant banking company
which seeks investment in niche financial services companies;
WHEREAS, Emergent, or certain Emergent shareholders, have assisted in the
development of certain components of the systems of KeyCom including specialized
programming services and have provided KeyCom access to capital as described
herein;
WHEREAS, KeyCom has completed its market proof-of-concept and has launched
its services and now requires additional capital necessary for the introduction
of its technology and services to market and Emergent has agreed to provide or
arrange for such capital as detailed herein;
WHEREAS, Emergent or its affiliates have previously paid KeyCom one hundred
and fifty thousand dollars for a one-year option to acquire all of the capital
stock of KeyCom and the parties have determined to exercise such option through
the delivery of the preferred stock described herein and through such
combination the parties intend to finance and develop the KeyCom cash remittance
business model;
WHEREAS, the parties desire that KeyCom be merged with and into Newco (the
"Merger") on the terms and subject to the conditions set forth in this Agreement
and Plan of Reorganization (the "Agreement") and the Agreement and Plan of
Merger dated this date and designated as Exhibit A hereto (the "Plan").
WHEREAS, the Board of Directors of KeyCom has determined that the Merger
and the other transactions contemplated by this Agreement and the Plan
(collectively the "Transactions") are advisable and in the best interests of
KeyCom and its shareholders. The respective Boards of Directors of Emergent and
Newco, a newly formed, wholly owned subsidiary of Emergent, have determined that
the Transactions are advisable and in the best interests of Emergent and Newco
and their respective shareholders.
Intending to be legally bound, in consideration of the mutual agreements
contained herein and subject to the satisfaction of the terms and conditions set
forth herein, the parties hereto agree as follows:
Section 1: Defined Terms
Certain defined terms used in this Agreement and not specifically defined
in context are defined in this Section 1, as follows:
1.1 "Accounts Receivable" means (a) any right to payment for goods
sold, leased or licensed or for services rendered, whether or not it has been
earned by performance, whether billed or unbilled, and whether or not it is
evidenced by any Contract (as defined in Section 1.7); (b) any note receivable;
or (c) any other receivable or right to payment of any nature.
1.2 "Acquired Companies" means KeyCom and any subsidiaries of KeyCom
including KeyCom, Partners, a joint venture between KeyCom, Inc and certain
joint venturers
1.3 "Asset" means any real, personal, mixed, tangible or intangible
property of any nature, including Cash Assets (as defined in Section 1.4),
prepayments, deposits, escrows, Accounts Receivable, Tangible Property (as
defined in Section 1.31), Real Property (as defined in Section 1.28), Software
(as defined in Section 1.30), Contract Rights (as defined in Section 1.9),
Intangibles (as defined in Section 1.19) and goodwill, and claims, causes of
action and other legal rights and remedies.
1.4 "Cash Asset" means any cash on hand, cash in bank or other
accounts, readily marketable securities, and other cash-equivalent liquid assets
of any nature.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Consent" means any consent, approval, order or authorization of,
or any declaration, filing or registration with, or any application, notice or
report to, or any waiver by, or any other action (whether similar or dissimilar
to any of the foregoing) of, by or with, any Person (as defined in Section1.26),
which is necessary in order to take a specified action or actions in a specified
manner and/or to achieve a specified result.
1.7 "Contract" means any written or oral contract, agreement,
instrument, order, arrangement, commitment or understanding of any nature,
including sales orders, purchase orders, leases, subleases, data processing
agreements, maintenance agreements, license agreements, sublicense agreements,
loan agreements, promissory notes, security agreements, pledge agreements,
deeds, mortgages, guaranties, indemnities, warranties, employment agreements,
consulting agreements, sales representative agreements, joint venture
agreements, buy-sell agreements, options or warrants.
1.8 "Contract Right" means any right, power or remedy of any nature
under any Contract, including rights to receive property or services or
otherwise derive benefits from the payment, satisfaction or performance of
another party's Obligations (as defined in Section 1.24), rights to demand that
another party accept property or services or take any other actions, and rights
to pursue or exercise remedies or options.
1.9 "Employee Benefit Plan" means any employee benefit plan as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any other plan, program, policy or arrangement for or
regarding bonuses, commissions, incentive compensation, severance, vacation,
deferred compensation, pensions, profit sharing, retirement, payroll savings,
stock options, stock purchases, stock awards, stock ownership, phantom stock,
stock appreciation rights, medical/dental expense payment or reimbursement,
disability income or protection, sick pay, group insurance, self insurance,
death benefits, employee welfare or fringe benefits of any nature; but not
including employment Contracts with individual employees.
1.10 "Encumbrance" means any lien, security interest, pledge, right of
first refusal, mortgage, easement, covenant, restriction, reservation,
conditional sale, prior assignment, or other encumbrance, claim, burden or
charge of any nature.
1.11 "Environmental Laws" means all applicable Laws (including consent
decrees and administrative orders) relating to pollution and the protection of
the environment, including those governing the use, generation, handling,
storage and disposal or cleanup of Hazardous Substances (as defined in Section
1.14), all as amended.
1.12 "Exchange Act" means the Federal Securities Exchange Act of 1934,
as amended.
1.13 "GAAP" means generally accepted accounting principles under
current United States accounting rules and regulations, consistently applied.
1.14 "Hazardous Substances" means any substance, waste, contaminant,
pollutant or material that has been determined by Law or any United States
federal government authority, or any state or local government authority having
jurisdiction over any Real Property owned, leased or used by the Acquired
Companies, to be capable of posing a risk of injury or damage to health, safety,
property or the environment, including (a) all substances, wastes, contaminants,
pollutants and materials defined, designated or regulated as hazardous,
dangerous or toxic pursuant to any Law of any state in which any Real Property
owned, leased or used by the Acquired Companies, is located or any United States
Law, and (b) asbestos, polychlorinated biphenyls ("PCB's"), petroleum, petroleum
products and urea formaldehyde.
1.15 "including" means including but not limited to.
1.16 "Emergent Common Stock" means shares of common stock, par value
$0.001 per share, of Emergent.
1.17 Emergent Preferred Stock means Series E Senior Preferred Stock
"Emergent Management" means those individuals set forth on Exhibit 1.17.
1.18 "Insurance Policy" means any public liability, product liability,
general liability, comprehensive, property damage, vehicle, life, hospital,
medical, dental, disability, worker's compensation, key man, fidelity bond,
theft, forgery, errors and omissions, directors' and officers' liability, or
other insurance policy of any nature.
1.19 "Intangible" means any name, corporate name, fictitious name,
brand name, product name, slogan, design, logo, formula, invention, product
right, technology or other intangible asset of any nature, whether in use, under
development or design, or inactive including without limitation all Intellectual
Property Rights. "Intellectual Property Rights" shall mean all rights and
interests (throughout the universe, in all media, now existing or created in the
future, and for the entire duration of such rights) arising under statutory or
common law, contract, or otherwise, and whether or not perfected, including,
without limitation all: (i) copyrights, and all registrations, applications for
registration and licenses therefore, together with ancillary rights thereto;
(ii) trademarks, trade names, service marks, service names, domain names,
published telephone numbers, logos, slogans and any abbreviations or variations
thereto, and all registrations, applications for registration and licenses
therefore, and any attendant goodwill together with all ancillary rights
thereto; (iii) issued or pending patents and all registrations, applications for
registration, reissues, divisions, continuations, continuations-in-part,
renewals and extensions thereof and licenses therefore, together with all
ancillary rights thereto; (iv) trade secrets and know-how, designs,
improvements, formulae, discoveries, inventions, concepts, ideas, scientific or
other technical information and procedures, legal, financial or business
affairs, markets, products, key personnel, suppliers, customers, prospective
customers, policies or operational methods, plans for future development, other
information possessed which is not readily available to the public, and all
copies of the foregoing, regardless of form; (v) the Software, except for third
party Software linked to or accessible through a website or located on third
party websites; and (vi) all contracts with government or commercial agencies
and all licenses, permits, filings, authorizations, approvals, or indicia of
authority issued by any government branch, department, commission, board,
bureau, agency or other instrumentality of the United States, any foreign
government or any state of political subdivision thereof.
1.20 "Judgment" means any order, writ, injunction, citation, award,
decree or other judgment of any nature of any foreign, federal, state or local
court, governmental body, administrative agency, regulatory authority or
arbitration tribunal.
1.21 "to the knowledge of KeyCom" means that none of the directors or
officers of any of the Acquired Companies has any actual knowledge, after due
inquiry, that the statement made is incorrect.
1.22 "Law" means any provision of any foreign, federal, state or local
law, statute, ordinance, charter, constitution, treaty, code, rule or regulation
(including those of self-regulatory organizations such as the NASD (as defined
in Section 1.23)).
1.23 "NASD" means the National Association of Securities Dealers, Inc.
1.24 "Obligation" means any debt, liability or obligation of any
nature, whether secured, unsecured, recourse, no recourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained,
known, unknown or otherwise.
1.25 "Permit" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature, granted, issued, approved or
allowed by any foreign, federal, state or local governmental body,
administrative agency or regulatory authority.
1.26 "Person" means any individual, sole proprietorship, joint venture,
partnership, corporation, limited liability company, partnership, association,
cooperative, trust, estate, governmental body, administrative agency, regulatory
authority or other entity of any nature.
1.27 "Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing or other proceeding of any
nature.
1.28 "Real Property" means any real estate, land, building,
condominium, town house, structure or other real property of any nature, all
shares of stock or other ownership interests in cooperative or condominium
associations or other forms of ownership interest through which interests in
real estate may be held, and all appurtenant and ancillary rights thereto,
including easements, covenants, water rights, sewer rights and utility rights.
1.29 "SEC" means the United States Securities and Exchange Commission.
1.30 "Software" means any computer program, operating system,
applications system, firmware or software of any nature, whether operational,
under development or inactive, including all HTML code, CGI scripts, Java
applets, digital content, programming, documentation, network configurations, a
reasonably detailed description of the process required to build such computer
software, any proprietary tools or files owned that are required to build such
computer software, as well as a description of all tools and files not owned
that are required to build such computer software and any modifications,
enhancements, improvements, updates, upgrades, new releases, revisions,
refinements or revisions thereto, whether in analog, digital, source code,
object code, or other form, in each case to the extent required for or used in
the performance of the business as conducted in the past or as currently
conducted, object code, source code, databases, technical manuals, user manuals
and other documentation therefor, whether in machine-readable form, programming
language or any other language or symbols, and whether stored, encoded, recorded
or written on disk, tape, film, memory device, paper or other media of any
nature.
1.31 "Tangible Property" means any furniture, fixtures, leasehold
improvements, vehicles, office equipment, computer equipment, other equipment,
machinery, tools, forms, supplies or other tangible personal property of any
nature.
1.32 "Tax" means (a) any foreign, federal, state or local income,
earnings, profits, gross receipts, franchise, capital stock, net worth, sales,
use, value added, occupancy, general property, real property, personal property,
intangible property, transfer, fuel, excise, payroll, withholding, unemployment
compensation, social security, retirement or other tax of any nature; (b) any
foreign, federal, state or local organization fee, qualification fee, annual
report fee, filing fee, occupation fee, assessment, sewer rent or other fee or
charge of any nature; or (c) any deficiency, interest or penalty imposed with
respect to any of the foregoing.
Section 2: The Merger
Subject to the terms and conditions of this Agreement and the Plan, KeyCom
shall be merged with and into Newco (the "Surviving Corporation") in accordance
with the provisions of this Agreement and the provisions of the Plan. The
closing of the Merger and the other Transactions shall take place on the Closing
Date (as defined in Section 10.1) and shall be effective on the Effective Date
(as defined in Section 10.1).
Section 3: Representations of KeyCom
Knowing that Emergent and Newco rely thereon and except as set forth in the
Schedules delivered by KeyCom to Emergent prior to the execution of the
Agreement (and subject to Section 5.6 hereof), KeyCom represents and warrants to
Emergent and Newco as of the date of this Agreement and the Closing Date, and
covenants with Emergent and Newco, as set forth below in each provision of this
Section 3.
3.1 Organization. Each of the Acquired Companies is a corporation duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its organization. KeyCom possesses the full corporate power and
authority to enter into and perform this Agreement. Each of the Acquired
Companies possesses the full corporate power and authority to own its Assets and
to conduct its business as and where presently conducted. Each of the Acquired
Companies is duly qualified or registered to do business in each jurisdiction
where such qualification or registration is required by applicable Law. Except
as set forth on Schedule 3.1, KeyCom has no subsidiaries. Except as set forth
on Schedule 3.1, none of the Acquired Companies owns any securities of any
corporation or any other interest in any Person. None of the Acquired Companies
has any predecessors except as otherwise set forth on Schedule 3.1. Schedule
3.1 states, for each of the Acquired Companies (a) its exact legal name; (b) its
corporate business form and jurisdiction of organization and date of formation;
(c) its federal employer identification number; (d) its headquarters address,
telephone number and facsimile number; (e) its directors and officers,
indicating all current title(s) of each such individual; (f) its registered
agent and/or office in its jurisdiction of organization (if applicable); (g) all
foreign jurisdictions in which it is qualified or registered to do business, the
date it so qualified or registered, and its registered agent and/or office in
each such jurisdiction (if applicable); (h) all fictitious, assumed or other
names of any type that are registered or used by it or under which it has done
business at any time since such company's date of incorporation; and (i) any
name changes, recapitalizations, mergers, reorganizations or similar events
since its date of formation. Accurate and complete copies of articles or
certificates of incorporation and bylaws, (or similar organizational documents),
each as amended to date, and all Contracts relating to the acquisition of each
of the Acquired Companies (or their affiliates or predecessors) have been made
available to Emergent and Newco.
3.2 Effect of Agreement. he The Transactions have been duly
authorized by all necessary corporate actions including its board of directors
and does not constitute a violation of or default under its articles of
incorporation, or bylaws (or similar organizational documents). Except as set
forth on Schedule 3.2, KeyCom's execution, delivery and performance of this
Agreement, and its consummation of the Transactions, (a) do not constitute a
default or breach (immediately or after the giving of notice, passage of time or
both) under any Contract to which any of the Acquired Companies is a party or by
which any of the Acquired Companies is bound, (b) do not constitute a violation
of any Law or Judgment that is applicable to any of the Acquired Companies, or
to the business or Assets of any of the Acquired Companies, or to the
Transactions, (c) do not accelerate or otherwise modify any Obligation of any of
the Acquired Companies, (d) do not result in the creation of any Encumbrance
upon, or give to any third party any interest in, any of the business or Assets,
or any of the capital stock of or interests in, any of the Acquired Companies,
and (e) do not require the Consent of any Person. This Agreement constitutes
the valid and legally binding agreement of KeyCom enforceable against it in
accordance with its terms. Except as stated on Schedule 3.2, there exists no
right of first refusal or other preemptive right with respect to any of the
Acquired Companies or the stock, business or Assets of any of the Acquired
Companies.
3.3 Capital Stock and Ownership. As of the date of this Agreement, the
authorized capital stock of KeyCom consists of: 48,000,000 shares of Common
Stock, par value $.001 per share ("KeyCom Stock"), and 1,000 shares of Class A
Preferred and 1,000 shares of Class B preferred. No preferred stock of any
class has been issued by KeyCom. KeyCom has issued 15,000,000 shares which are
outstanding as of the date of this Agreement. With respect to each of the
Acquired Companies, Schedule 3.3 is an accurate and complete list of (a) the
names of all shareholders, (b) the addresses of all shareholders (to the extent
known to KeyCom), (c) social security numbers or federal tax identification
numbers (to the extent known to KeyCom), and (d) the numbers of shares owned of
record by all shareholders and the certificate numbers of the stock certificates
representing such shares. KeyCom is the sole record and beneficial owner of all
of the shares of capital stock of each of its subsidiaries as indicated on
Schedule 3.3 and it has good and valid title to such shares, free and clear of
any Encumbrance. Except as indicated on Schedule 3.3, there are no other record,
or, to the knowledge of KeyCom, beneficial owners of any shares of KeyCom Stock
or any other securities of KeyCom. Except for the shares listed on Schedule 3.3
with respect to each of the Acquired Companies, there currently are no other
issued or outstanding shares of capital stock. Except as indicated on Schedule
3.3, all of the issued and outstanding shares of capital stock of each of the
Acquired Companies have been duly authorized and validly issued, and are fully
paid and nonassessable, with no liability or preemptive rights attaching to the
ownership thereof. Except as indicated on Schedule 3.3, all issuances and grants
of all outstanding options, warrants and all offerings, sales and issuances by
each of the Acquired Companies of any shares of capital stock were conducted in
compliance with all applicable federal and state securities Laws, all applicable
state corporation Laws and all requirements set forth in applicable Contracts.
Except as provided on Schedule 3.3, there are no outstanding options, puts,
calls, warrants, subscriptions, stock appreciation rights, phantom stock, or
other Contracts or Contract Rights relating to the offering, sale, issuance,
redemption or disposition of any shares of capital stock, or other securities
of, any of the Acquired Companies.
3.4 Financial and Corporate Records. The books and records of each of
the Acquired Companies are and have been properly prepared and maintained in
form and substance adequate for preparing audited financial statements in
accordance with GAAP, and such books and records fairly and accurately reflect
in all material respects all of the Assets and Obligations of each of the
Acquired Companies and all Contracts and other transactions to which each of the
Acquired Companies is or was a party or by which each of the Acquired Companies
or the business or Assets of each of the Acquired Companies is or was affected.
Accurate and complete copies of the contents of the minute books and stock books
of each of the Acquired Companies have been made available to Emergent and
Newco. Such minute books and stock books include (a) minutes of all meetings of
the shareholders, board of directors and any committees of the board of
directors at which any material action was taken, which minutes accurately
record all material actions taken at such meetings, (b) accurate and complete
written statements of all actions taken by the shareholders, board of directors
and any committees of the board of directors without a meeting, and (c) accurate
and complete records of the subscription, issuance, transfer and cancellation of
all shares of capital stock, and all other securities since the date of
incorporation or formation. None of the shareholders, board of directors or any
committee of the board or members has taken any material action required by Law
to be reflected in the records in clauses (a) and (b) of the preceding sentence
other than those actions reflected in the records referenced in clauses (a) and
(b) of the preceding sentence. Schedule 3.4 is an accurate and complete list of
all bank accounts, other accounts, certificates of deposit, marketable
securities, other investments, safe deposit boxes, lock boxes and safes of each
of the Acquired Companies, and the names of all officers, employees or other
individuals who have access thereto or are authorized to make withdrawals
therefrom or dispositions thereof.
3.5 Compliance with Law. Except as set forth on Schedule 3.5, the
operations of each of the Acquired Companies, the conduct of the business of
each of the Acquired Companies, as and where such business has been or presently
is conducted, and the ownership, possession and use of the Assets of each of the
Acquired Companies have complied and currently do comply in all material
respects with all applicable Laws other than Environmental Laws which are
addressed in Section 3.13 hereof. Except as set forth on Schedule 3.5, each of
the Acquired Companies has obtained and holds all Permits required for the
lawful operation of its business as and where such business is presently
conducted. All Permits held by the Acquired Companies are listed on Schedule
3.5, and copies of such Permits have been made available to Emergent and Newco.
3.6 Financial Statements. Schedule 3.6 lists the fiscal year end for
each of the Acquired Companies. Schedule 3.6 includes accurate and complete
copies of the following unaudited and audited consolidated financial statements
("Unaudited/Audited Financial Statements") of the Acquired Companies: (a) a
balance sheet as of the end of each of the two most recent fiscal years; (b)
statements of income, statements of shareholders' equity, and statements of cash
flows for each of the two most recent fiscal years, and notes thereto and (c)
the audited balance sheet as of October 31, 2000KeyCom (the "Latest Balance
Sheet"). All of the Unaudited/Audited Financial Statements were (x) prepared in
accordance with GAAP and (y) fairly present in all material respects the
financial condition and results of operations of KeyCom as of the dates and for
the periods indicated.
3.7 Assets. Schedule 3.7 includes detailed lists of all Assets of each
of the Acquired Companies which are reflected on the October 31 Latest Balance
Sheet, including (a) Cash Assets, itemized by bank or other account, showing
cost and market value if different from cost; (b) Accounts Receivable, showing
customer names, individual invoice dates, individual invoice amounts and
allowances for doubtful accounts, or, in the case of earned but not billed
receivables, customer names and individual dates on which the receivables are
billable; (c) other current Assets, itemized by category and with appropriate
explanation; (d) Tangible Property, grouped as to type, showing cost,
accumulated depreciation and net book value; and (e) Software and Intangibles,
showing cost or amount capitalized, accumulated amortization and net book value.
Each of the Acquired Companies has good and valid title to all of its respective
Assets which are owned by it and has the right to transfer all rights, title and
interest in such Assets, free and clear of any Encumbrance. Except for the
Assets listed on Schedule 3.7, no other Assets are necessary to operate, or have
been material to the operation of, the KeyCom Business, as currently operated.
3.8 Obligations. Schedule 3.8 includes detailed lists of all
Obligations of each of the Acquired Companies which are reflected on the October
31 Latest Balance Sheet, itemized by balance sheet account, and with aggregate
net balances equal to the balances on the October 31 Latest Balance Sheet,
including (a) accounts payable, (b) accrued expenses and reserves, itemized by
category and with appropriate explanation, (c) deferred revenues, itemized by
customer and time periods, and (d) other current and long-term liabilities.
None of the Acquired Companies has any Obligations other than (i) Obligations
reflected on the October 31 Latest Balance Sheet, (ii) Obligations set forth in
Schedule 3.8, (iii) Obligations under Contracts of the type listed or not
required to be listed on Schedule 3.15, provided that as of October 31, no such
Obligation consisted of or resulted from a default under or violation of any
such Contract, and (iv) Obligations incurred since, October 31, in the ordinary
course, consistent with past practices, and not in breach of any of the
representations and warranties made in Section 3.9. Except as described on
Schedule 3.8, none of the Obligations of any of the Acquired Companies are
guaranteed by any Person.
3.9 Operations Since October 31 2000Except as set forth on Schedule
3.9, from October 31 2001 to the date of this Agreement:
(a) Except in the ordinary course of their respective businesses
consistent with its past practices, none of the Acquired Companies has (i)
created or assumed any Encumbrance upon any of its business or Assets, (ii)
incurred any Obligation, (iii) made any loan or advance to any Person; (iv)
assumed, guaranteed or otherwise become liable for any Obligation of any Person;
(v) committed for any capital expenditure; (vi) purchased, leased, sold,
abandoned or otherwise acquired or disposed of any business or Assets; (vii)
waived any right or canceled any debt or claim; (viii) assumed or entered into
any Contract other than this Agreement; or (ix) increased, or authorized an
increase in, the compensation or benefits paid or provided to any of their
directors, officers, employees, salesmen, agents or representatives.
(b) Even in the ordinary course of their respective businesses
consistent with their respective past practices, none of the Acquired Companies
has made any loan to any Person, acquired or disposed of any material business
or material Assets or entered into any material Contract (other than customer
contracts) or other material transaction.
(c) There has been no material adverse change or material casualty
loss affecting any of the Acquired Companies or their business, Assets or
financial condition, and there has been no material adverse change in the
financial performance of any of the Acquired Companies.
(d) None of the Acquired Companies has (i) incurred any
outstanding bank debt or notes payable; (ii) except in connection with the
Agreement and the Transactions contemplated hereby, incurred any outstanding
indebtedness to any current or former shareholder, director or officer of any of
the Acquired Companies (excluding compensation, benefits and expense
reimbursements due to such Persons in their capacities as employees, officers or
directors of any of the Acquired Companies) or to any affiliate (as such term is
defined for purposes of the Exchange Act) of any of the Acquired Companies or
any of such company's shareholders, directors or officers; (iii) paid any
dividend or made any other distribution of Cash Assets or other Assets to or on
behalf of any of the shareholders of any of the Acquired Companies (excluding
compensation, benefits and expense reimbursements due to such Persons in their
capacities as employees, officers or directors of any of the Acquired
Companies); or (iv) accrued any deferred bonuses or compensation due to any
shareholder, director, employee or agent of any of the Acquired Companies, or
paid any such deferred bonuses or compensation except to the extent such
deferred bonuses or compensation was accrued on the October 31 Latest Balance
Sheet.
3.10 Accounts Receivable. All Accounts Receivable listed in Schedule
3.7 arose in the ordinary course of business, are proper and valid accounts
receivable. There are no refunds, discounts, rights of setoff or assignment
affecting any such Accounts Receivable. Proper amounts of deferred revenues
appear on the books and records of each of the Acquired Companies, in accordance
with GAAP, with respect to all of the Acquired Companies' (a) billed but
unearned Accounts Receivable; (b) previously billed and collected Accounts
Receivable still unearned; and (c) unearned customer deposits.
3.11 Tangible Property. Each of the Acquired Companies has good and
valid title to all of its Tangible Property, free and clear of any Encumbrances
except as set forth in the October 31 Latest Balance Sheet or Schedule 3.8.
Except as set forth on Schedule 3.11, all of the Tangible Property of each of
the Acquired Companies is located at the offices or facilities of the Acquired
Companies, and, except for automobiles and trucks, mobile telephones and other
similar property, each of the Acquired Companies has the full and unqualified
right to require the immediate return of any of its Tangible Property which is
not located at its offices or facilities. All Tangible Property of each of the
Acquired Companies, wherever located, is in good condition, ordinary wear and
tear excepted, and is sufficient for the operations and business of each of the
Acquired Companies as presently conducted.
3.12 Real Property. None of the Acquired Companies owns any Real
Property. Schedule 3.12 is a list of all Real Property leased by any of the
Acquired Companies ("KeyCom Real Property"), showing location and, as
applicable, rental cost and landlord. To the knowledge of KeyCom, all of the
KeyCom Real Property is structurally sound and in good condition, ordinary wear
and tear excepted, and is sufficient for the current operations of the Acquired
Companies. To the knowledge of KeyCom, none of the KeyCom Real Property, nor
the ownership, possession, occupancy, maintenance or use thereof, is in
violation of, or breach or default under, any Contract or Law to which KeyCom is
subject, and no notice or threat from any lessor, governmental body or other
Person has been received by any of the Acquired Companies or served upon KeyCom
with respect to the KeyCom Real Property claiming any violation of, or breach,
default or liability under, any Contract or Law, or requiring or calling
attention to the need for any work, repairs, construction, alteration or
installations. To the knowledge of KeyCom, no Proceedings are pending which
would affect the zoning or use of any of the KeyCom Real Property. To the
knowledge of KeyCom, no portion of any KeyCom Real Property is within an
identified flood plain or other designated flood hazard area as established
under any Law or otherwise by any governmental authority. To the knowledge of
KeyCom, all of the KeyCom Real Property has direct legal access to, abuts, and
is served by a publicly dedicated and maintained road, which road does and shall
provide a valid means of ingress and egress thereto and therefrom, without
additional expense. To the knowledge of KeyCom, all utilities, including water,
gas, telephone, electricity, sanitary and storm sewers, are currently available
to all of the KeyCom Real Property at normal and customary rates, and are
adequate to serve such KeyCom Real Property for each of the Acquired Companies'
current use thereof.
3.13 Environmental.
Except as set forth in Schedule 3.13:
(i) (A) The Acquired Companies have not caused or permitted any
Hazardous Substances to be manufactured, refined, treated, discharged, disposed
of, deposited or otherwise released in, on, under or from any of the KeyCom Real
Property or any Real Property previously owned, leased, occupied, operated,
managed, possessed or otherwise held by any of the Acquired Companies other than
in compliance in all material respects with applicable Environmental Laws
("Former KeyCom Real Property"); and
(B) To the knowledge of KeyCom, before its lease of any of the
KeyCom Real Property or Former KeyCom Real Property, no Hazardous Substances
have been manufactured, refined, treated, discharged, disposed of, deposited or
otherwise released therein, thereon or therefrom other than in compliance in all
material respects with applicable Environmental Laws.
(ii) None of the Acquired Companies has received any notice that any
part of the KeyCom Real Property or the Former KeyCom Real Property or the
operations of the Acquired Companies is the subject of any Proceeding or
Judgment relating to Environmental Matters, and, to the knowledge of KeyCom, no
part of the KeyCom Real Property or the Former KeyCom Real Property or the
operations of the Acquired Companies is the subject of any Proceeding or
Judgment relating to Environmental Matters. None of the Acquired Companies has
received any notice from any governmental authority or other Person regarding
any potential claim or liability relating to environmental matters.
(iii) Each of the Acquired Companies has provided Emergent and Newco
with copies of any and all applications, correspondence, affidavits, reports,
forms, maps, plans, studies and other documents relating to environmental
matters in their possession, custody or control. These shall include any
environmental engineering studies, any tests or testing performed on the KeyCom
Real Property or the Former KeyCom Real Property, and copies of any reports
issued by any government authority regarding such KeyCom Real Property or Former
KeyCom Real Property.
3.14 Software and Other Intangibles. Except for shrinkwrap and other
commercially available Software, set forth on Schedule 3.14 is an accurate and
complete list and description of all Software and Intangibles owned, marketed,
licensed, supported, maintained, used or under development by the Acquired
Companies, and, in the case of Software, a product description, the language in
which it is written and the type of hardware platform(s) on which it runs.
Except for shrinkwrap and other commercially available Software, no other
Software or Intangibles is necessary to operate the business of each of the
Acquired Companies as currently operated. Except as explained on Schedule 3.14,
each of the Acquired Companies has good and valid title to, and has the full
right to use, all of the Software and Intangibles listed on Schedule 3.14, free
and clear of any Encumbrance (except for use restrictions contained in licensed
commercially available Software). All shrinkwrap and other commercially
available Software has been properly licensed and all related fees paid. With
respect to the Software listed on Schedule 3.14, (a) the Acquired Companies
maintain machine-readable master-reproducible copies, source code listings,
technical documentation and user manuals for the most current releases or
versions thereof and for all earlier releases or versions thereof currently
being supported by them; (b) in each case, the machine-readable copy
substantially conforms to the corresponding source code listing; (c) it is
written in the language set forth on Schedule 3.14, for use on the hardware set
forth on Schedule 3.14 with standard operating systems; (d) it can be maintained
and modified by reasonably competent programmers familiar with such language,
hardware and operating systems or other Persons with whom KeyCom presently has
service and maintenance agreements; and (e) in each case, it operates in
accordance with the user manual therefor without material operating defects.
None of the Software or Intangibles listed on Schedule 3.14, or their respective
past or current uses, including the preparation, distribution, marketing or
licensing, has violated or infringed upon, or is violating or infringing upon,
any Software, technology, patent, copyright, trade secret or other Intangible of
any Person. To the knowledge of KeyCom, no Person is violating or infringing
upon, or has violated or infringed upon at any time, any of the Software or
Intangibles listed on Schedule 3.14. None of the Software or Intangibles listed
on Schedule 3.14 is owned by or registered in the name of any current or former
owner, shareholder, partner, director, executive, officer, employee, salesman,
agent, customer, representative or contractor of any of the Acquired Companies
nor does any such Person have any interest therein or right thereto, including
the right to royalty payments.
3.15 Contracts. Schedule 3.15 is an accurate and complete list of all
of the following types of Contracts which involve either future Obligations of
$50,000 or more to which any of the Acquired Companies is a party or by which
any of the Acquired Companies is bound, or is otherwise material to any of the
Acquired Companies (collectively, the "Specified Contracts"), grouped into the
following categories: (a) customer or client Contracts; (b) Contracts for the
purchase or lease of Real Property or otherwise concerning Real Property owned
or used by any of the Acquired Companies; (c) loan agreements, mortgages, notes,
guarantees and other financing Contracts; (d) Contracts for the purchase, lease
and/or maintenance of computer equipment and other equipment; (e) Contracts for
the purchase, license, lease and/or maintenance of Software under which any of
the Acquired Companies is the purchaser, licensee, lessee or user, and other
supplier Contracts; (f) employment, consulting and sales representative
Contracts (excluding Contracts which constitute Employee Benefit Plans listed on
Schedule 3.17, and excluding oral Contracts with employees for "at will"
employment); (g) Contracts under which any rights in and/or ownership of any
Software product, technology or other Intangible of any of the Acquired
Companies, or any prior version thereof, or any part of the customer base,
business or Assets of any of the Acquired Companies, or any shares or other
ownership interests in any of the Acquired Companies (or any of their
predecessors) was acquired; and (h) other material Contracts (excluding
Contracts which constitute Insurance Policies listed on Schedule 3.21 and
excluding this Agreement and all other Contracts entered into between any of the
Acquired Companies and Emergent, or among any of the Acquired Companies,
Emergent and other parties in connection herewith). A description of each oral
Specified Contract is included on Schedule 3.15, and copies of each written
Specified Contract have been made available to Emergent and Newco. Except as
set forth on Schedule 3.15, each of the material customers of the Acquired
Companies has signed and is bound by a written Contract that is identical to one
of the form agreements that are attached as part of Schedule 3.15, and the
provisions of each such customer Contract are binding on the customer and
enforceable by the Acquired Companies. Except as set forth on Schedule 3.15,
with respect to each of the Specified Contracts, none of the Acquired Companies
is in default thereunder nor would be in default thereunder with the passage of
time, the giving of notice, or both. Except as set forth on Schedule 3.15, to
the knowledge of KeyCom, none of the other parties to any Specified Contract is
in default thereunder or would be in default thereunder with the passage of
time, the giving of notice or both. Except as set forth on Schedule 3.15, none
of the Acquired Companies has given or received any notice of default or notice
of termination with respect to any Specified Contract, and each Specified
Contract is in full force and effect in accordance with its terms. The
Specified Contracts are all the Contracts necessary and sufficient to operate
the business of each of the Acquired Companies as it is presently conducted.
Except as set forth on Schedule 3.15, there are no currently outstanding
proposals or offers submitted by any of the Acquired Companies to any customer,
prospect, supplier or other Person which, if accepted, would result in a legally
binding Contract of such company involving an amount or commitment exceeding
$25,000 in any single case or an aggregate amount or commitment exceeding
$100,000in the aggregate.
3.16 Employees and Independent Contractors. Schedule 3.16 is a list of
all of the employees with annual base compensation in excess of $25,000 of the
Acquired Companies and (a) their titles or responsibilities; (b) their social
security numbers; (c) their dates of hire; (d) their current salaries or wages
and all bonuses, commissions and incentives paid at any time during the past
twelve months; (e) their last compensation changes and the dates on which such
changes were made; (f) any specific bonus, commission or incentive plans or
agreements for or with them; and (g) any outstanding loans or advances made to
them. Schedule 3.16 is a list of all sales representatives and material
independent contractors engaged by the Acquired Companies and (a) their payment
arrangements (if not set forth in a Contract listed or described on Schedule
3.15); and (b) brief description of their jobs or projects currently in
progress. Except as limited by any employment Contracts listed on Schedule 3.15
and except for any limitations of general application which may be imposed under
applicable employment Laws, each of the Acquired Companies has the right to
terminate the employment of each of its employees at will and to terminate the
engagement of any of its independent contractors without payment to such
employee or independent contractor other than for services rendered through
termination and without incurring any penalty or liability other than liability
for severance pay and benefits in accordance with such company's disclosed
severance pay policy and benefits due terminated employees. Neither the
Transactions, nor the termination of the employment of any employees of any of
the Acquired Companies prior to or following the consummation of the
Transactions could result in any of the Acquired Companies making or being
required to make any "excess parachute payment" as that term is defined in
Section 280G of the Code. To the knowledge of KeyCom, each of the Acquired
Companies is in full compliance in all material respects with all Laws
respecting employment practices. None of the Acquired Companies has ever been a
party to or bound by any union, collective bargaining or similar Contract, nor
is any such Contract currently in effect or being negotiated by or on behalf of
any of the Acquired Companies. Since the respective incorporation or formation
dates of each of the Acquired Companies, none of the Acquired Companies has
experienced any labor problem that was or is material to it. Except as set forth
on Schedule 3.16, each of the Acquired Companies' current and past employees has
signed an employee or confidentiality agreement which contains certain
restrictive covenants substantially in the form attached to Schedule 3.16.
Except as set forth on Schedule 3.16, each of the Acquired Companies' current
and past contractors or consultants has signed agreements with the Acquired
Companies containing restrictions that protect the proprietary and confidential
information of the Acquired Companies and vest in the Acquired Companies the
full ownership of items developed by such contractor. Except as indicated on
Schedule 3.16, since January 1, 2000, to the knowledge of KeyCom, no employee of
any of the Acquired Companies having an annual salary of $60,000 or more has
indicated an intention to terminate or has terminated his or her employment with
such company. To the knowledge of KeyCom, the Transactions will not adversely
affect relations with any material employee of the Acquired Companies.
3.17 Employee Benefit Plans. Schedule 3.17 sets forth an accurate and
complete list of all of KeyCom's Employee Benefit Plans to which any Acquired
Company is bound (collectively referred to as "KeyCom's Employee Benefit
Plans"). Except as set forth on Schedule 3.17, none of the Acquired Companies
has (a) established, maintained or contributed to (or has been obligated to
contribute to) any Employee Benefit Plans, (b) proposed any Employee Benefit
Plans which it plans to establish or maintain or to which it plans to
contribute, or (c) proposed any changes to any Employee Benefit Plans now in
effect. Accurate and complete copies of all of KeyCom's Employee Benefit Plans,
a list of all employees affected or covered by KeyCom's Employee Benefit Plans,
and all Obligations thereunder have been made available to Emergent. If
permitted and/or required by applicable Law, the Acquired Companies have
properly submitted all of KeyCom's Employee Benefit Plans in good faith to meet
the applicable requirements of ERISA and/or the Code to the Internal Revenue
Service (the "IRS") for its approval within the time prescribed therefor under
applicable federal regulations. Favorable letters of determination of such
tax-qualified status from the IRS are attached to Schedule 3.17. With respect
to KeyCom's Employee Benefit Plans, the Acquired Companies will have made, on or
before the Closing Date, all payments required to be made by them on or before
the Closing Date and will have accrued (in accordance with GAAP) as of the
Closing Date all payments due but not yet payable as of the Closing Date, so
there will not have been, nor will there be, any Accumulated Funding
Deficiencies (as defined in ERISA or the Code) or waivers of such deficiencies.
KeyCom has made available to Emergent an accurate and complete copy of the most
current Form 5500 and any other form or filing required to be submitted to any
governmental agency with regard to any of KeyCom's Employee Benefit Plans and
the most current actuarial report, if any, with regard to any of KeyCom's
Employee Benefit Plans. All of KeyCom's Employee Benefit Plans are, and have
been, operated in full compliance with their provisions and with all applicable
Laws including ERISA and the Code and the regulations and rulings thereunder.
The Acquired Companies and all fiduciaries of KeyCom's Employee Benefit Plans
have complied in all material respects with the provisions of KeyCom's Employee
Benefit Plans and with all applicable Laws including ERISA and the Code and the
regulations and rulings thereunder. There have been no Reportable Events (as
defined in ERISA), no events described in Sections 4062, 4063 or 4064 of ERISA,
and no termination or partial termination (including any termination or partial
termination attributable to the Transactions contemplated by this Agreement) of
any of KeyCom's Employee Benefit Plans. There would be no Obligation of any of
the Acquired Companies under Title IV of ERISA if any of KeyCom's Employee
Benefit Plans were terminated as of the Closing Date. As a result of any action
or inaction prior to Closing by any of the Acquired Companies, none of the
Acquired Companies has incurred, nor will incur, any withdrawal liability, nor
do any of the Acquired Companies have any contingent withdrawal liability, under
ERISA to any Multiemployer Plan (as defined in ERISA or the Code). None of the
Acquired Companies has incurred, or will incur, any Obligation to the Pension
Benefit Guaranty Corporation (or any successor thereto). Except as set forth on
Schedule 3.17, neither the execution and delivery of this Agreement nor the
consummation of the Transactions will (x) result in any payment (including any
severance, unemployment compensation or golden parachute payment) becoming due
from any of the Acquired Companies under any of KeyCom's Employee Benefit Plans,
(y) increase any benefits otherwise payable under any of KeyCom's Employee
Benefit Plans, or (z) result in the acceleration of the time of payment or
vesting of any such benefits to any extent. Except as set forth on Schedule
3.17, there are no pending Proceedings that have been asserted or instituted
against any of KeyCom's Employee Benefit Plans, the Assets of any of the trusts
under such plans, the plan sponsor, the plan administrator or any fiduciary of
any such plan (other than routine benefit claims), and, to the knowledge of
KeyCom, there are no facts which could form the basis for any such Proceeding.
There are no investigations or audits of any of KeyCom's Employee Benefit Plans,
any trusts under such plans, the plan sponsor, the plan administrator or any
fiduciary of any such plan that have been instituted or, to the knowledge of
KeyCom, threatened, and, to the knowledge of KeyCom, there are no facts which
could form the basis for any such investigation or audit. Except as disclosed
in Schedule 3.17, no event has occurred nor will occur which will result in any
of the Acquired Companies having an Obligation in connection with any Employee
Benefit Plan established, maintained, contributed to or to which there has been
as obligation to contribute (currently or previously) by it or by any other
entity which, together with any of the Acquired Companies, constitute elements
of either (i) a controlled group of corporations (within the meaning of Section
414(b) of the Code), (ii) a group of trades or businesses under common control
(within the meaning of Sections 414(c) of the Code or 4001 of ERISA), (iii) an
affiliated service group (within the meaning of Section 414(m) of the Code), or
(iv) another arrangement covered by Section 414(o) of the Code.
3.18 Customers, Prospects and Suppliers. The twenty largest customers
(by volume of business) of the Acquired Companies are listed as part of Schedule
3.18. Except as set forth on Schedule 3.18, since January 1, 2000, none of
these twenty largest customers or any material suppliers of the Acquired
Companies has given notice or otherwise indicated to such company that it will
or intends to terminate or not renew its Contract with such company before the
scheduled expiration date or otherwise terminate its relationship with such
company. To the knowledge of KeyCom, the relationship of each of the Acquired
Companies with such twenty largest customers and any material supplier is
currently on a good and normal basis. To the knowledge of KeyCom, the
Transactions will not adversely affect relations with any of such twenty largest
customers or any material supplier of any of the Acquired Companies. KeyCom has
made available to Emergent and Newco an accurate and complete copy of the most
recent customer surveys, if any, of each of the Acquired Companies.
3.19 Taxes. Schedule 3.19 is an accurate and complete list of all
federal, state, local, foreign and other Tax returns and reports (including
information returns) (collectively "Returns") filed by each of the Acquired
Companies with respect to its last two (2) fiscal years. Returns for the
immediately prior three (3) fiscal years have been made available to Emergent.
Accurate and complete copies of all federal, state, local and foreign income,
sales and use Tax Returns filed by each of the Acquired Companies since their
inception and accurate and complete copies of all other Tax Returns listed on
Schedule 3.19 have been delivered to Emergent and Newco. Except as explained on
Schedule 3.19, (a) each of the Acquired Companies has properly and timely filed
all Tax Returns required to be filed by it, all of which were accurately
prepared and completed in all material respects; (b) each of the Acquired
Companies has properly withheld from payments to its employees, agents,
representatives, contractors and suppliers all amounts required by Law to be
withheld for Taxes; (c) each of the Acquired Companies has paid all Taxes
required to be paid by it; (d) no audit of any of the Acquired Companies by any
governmental taxing authority has ever been conducted, is currently pending or,
to the knowledge of KeyCom, is threatened; (e) no notice of any proposed Tax
audit, or of any Tax deficiency or adjustment, has been received by any of the
Acquired Companies, and there is no reasonable basis for any Tax deficiency or
adjustment to be assessed against any of the Acquired Companies; and (f) there
are no agreements or waivers currently in effect that provide for an extension
of time for the assessment of any Tax against any of the Acquired Companies.
None of the Acquiring Companies is a party to any tax allocation or sharing
agreement. None of the Acquired Companies has been a member of an affiliated
group filing a consolidating Federal income tax return (other than a group, the
common parent of which is KeyCom), or has any liability for the Taxes of any
person or entity other than the Acquired Companies under Treasury Regulations
'1.1502-6 or any similar provision of state, local or foreign law as a
transferee or successor, by contract or otherwise). Subsequent to April 16,
1997, except as contemplated hereby, the Acquired Companies have not been a
party to any distribution described in '355(e)(2)(A)(i) of the Code.
3.20 Proceedings and Judgments. Except as described on Schedule 3.20,
(a) no Proceeding is currently pending or, to the knowledge of KeyCom,
threatened, nor has any Proceeding occurred at any time since January 1, 1999,
to which any of the Acquired Companies is or was a party, or by which any of the
Acquired Companies or any Assets or business of any of the Acquired Companies is
or was affected; (b) no Judgment is currently outstanding, nor has any Judgment
been outstanding at any time since January 1, 1999, against any of the Acquired
Companies, or by which any of the Acquired Companies or any Assets or business
of any of the Acquired Companies is or was affected; and (c) no breach of
contract, breach of warranty, tort, negligence, infringement, product liability,
discrimination, wrongful discharge or other claim of any nature has been
asserted or, to the knowledge of KeyCom, threatened by or against any of the
Acquired Companies at any time since January 1, 1999, and, to the knowledge of
KeyCom, there is no basis for any such claim. As to each matter described on
Schedule 3.20, accurate and complete copies of all pertinent pleadings,
judgments, orders, correspondence and other legal documents have been made
available to Emergent.
3.21 Insurance. Schedule 3.21 is an accurate and complete list of all
Insurance Policies (excluding Insurance Policies that constitute KeyCom's
Employee Benefit Plans described on Schedule 3.17) owned or maintained by any of
the Acquired Companies and/or any of their predecessors at any time since
January 1, 1999. Except as indicated on Schedule 3.21, all such Insurance
Policies are or were on an "occurrence" rather than a "claims made" basis. None
of the Acquired Companies has received notice of cancellation with respect to
any such current Insurance Policy, and, to the knowledge of KeyCom, there is no
basis for the insurer thereunder to terminate any such current Insurance Policy.
Except as indicated on Schedule 3.21, accurate and complete copies of all
Insurance Policies described on Schedule 3.21 have been made available to
Emergent. Each such Insurance Policy is or was in full force and effect during
the period(s) of coverage indicated on Schedule 3.21. Except as described on
Schedule 3.21, there are no claims that are pending under any of the Insurance
Policies described on Schedule 3.21.
3.22 Questionable Payments. Since February 15, 1999, none of the
Acquired Companies or, to the knowledge of KeyCom, no current or former partner,
owner, shareholder, member, director, executive, officer, representative, agent
or employee of any of the Acquired Companies (when acting in such capacity or
otherwise on behalf of any of the Acquired Companies or any of their
predecessors), (a) has used or is using any corporate funds (i) for any illegal
contributions, gifts, entertainment or other unlawful expenses relating to
political activity or, (ii) to the knowledge of KeyCom, in violation of customer
policies and/or rules; (b) has used or is using any corporate funds for any
direct or indirect unlawful payments to any foreign or domestic government
officials or employees; (c) has violated or is violating any provision of the
Foreign Corrupt Practices Act of 1977, (d) has established or maintained, or is
maintaining, any unlawful or unrecorded fund of corporate monies or other
properties; (e) has made at any time since January 1, 1999, any false or
fictitious entries on the books and records of any of the Acquired Companies;
(f) has made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment of any nature using corporate funds or otherwise on behalf of
any of the Acquired Companies; or (g) made any material favor or gift that is
not deductible for federal income tax purposes using corporate funds or
otherwise on behalf of any of the Acquired Companies.
3.23 Related Party Transactions. Except as described on Schedule 3.23
and except for any Contracts listed on Schedule 3.15, there are no current real
estate leases, personal property leases, loans, guarantees, Contracts,
transactions, understandings or other arrangements of any nature between or
among any of the Acquired Companies and any current or former partner, owner,
shareholder, member, director, officer or controlling Person of any of the
Acquired Companies (or any of their respective predecessors).
3.24 Brokerage Fees. No Person acting on behalf of any of the Acquired
Companies is or shall be entitled to any brokerage or finder's fee in connection
with the Transactions.
3.26 Full Disclosure.
(a) No representation or warranty made by KeyCom in this
Agreement or pursuant hereto (a) contains any untrue statement of material fact;
or (b) omits to state any material fact that is necessary to make the statements
made, in light of the circumstances under which they are made, not false or
misleading in any respect. The copies of documents attached as Schedules to this
Agreement or otherwise delivered to Emergent and Newco in connection with the
Transactions, are accurate and complete, and are not missing any amendments,
modifications, correspondence or other related papers which would be material to
's Emergent's or Newco's understanding thereof in any respect. There is no fact
known to KeyCom or any of its subsidiaries, that has not been disclosed to
Emergent in the Schedules to this Agreement or otherwise in writing, that was or
is or, so far as either KeyCom or any of its subsidiaries can reasonably
foresee, will have a material adverse effect on any of the Acquired Companies,
the business, the Assets or financial condition of any of the Acquired Companies
or the ability of KeyCom to perform its obligations under this Agreement.
(b) None of the information supplied or to be supplied by or on
behalf of the Acquired Companies for inclusion in the proxy statement to be
filed with the SEC by Emergent in connection with the KeyCom Shareholder's
Meeting (as hereinafter defined) to be held by KeyCom relating to the Merger
(the "Proxy Statement") will, at the time the Proxy Statement is filed, at the
time the Proxy Statement is mailed to the shareholders of KeyCom or at the time
of the KeyCom Shareholder's Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading, provided, however that
KeyCom makes no representation or warranty with respect to any information
furnished by Emergent or any of its accountants, counsel or other authorized
representatives in writing specifically for inclusion in the Proxy Statement.
Section 4: Representations of Emergent and Newco
Knowing that KeyCom relies thereon, Emergent and Newco, jointly and
severally, represent and warrant to KeyCom as of the date of this Agreement, and
covenant with KeyCom, as follows:
4.1 Organization. Emergent and Newco are each a corporation that is
duly organized, validly existing and in good standing under the Laws of
Delaware. Emergent and Newco each possess the full corporate power and
authority to own its Assets, conduct its business as and where such business is
presently conducted, and enter into this Agreement and the Plan. Newco is a
wholly owned subsidiary of Emergent. Newco has not engaged in any activities
other than in connection with its organization and this Agreement.
4.2 Agreement. Each of Emergent's and Newco's execution, delivery and
performance of this Agreement, and its consummation of the Transactions, (a)
have been duly authorized by all necessary corporate actions by their respective
boards of directors, and shareholders; (b) do not constitute a violation of or
default under their respective charters or bylaws; (c) do not constitute a
default or breach (immediately or after the giving of notice, passage of time or
both) under any Contract to which Emergent or Newco is a party or by which
Emergent or Newco is bound; (d) do not constitute a violation of any Law or
Judgment that is applicable to it or to their respective businesses or Assets,
or to the Transactions; and (e) do not require the Consent of any Person. This
Agreement constitutes the valid and legally binding agreement of each of
Emergent and Newco, enforceable against each of them in accordance with its
terms.
4.3 Emergent's Stock. The authorized capital stock of Emergent
consists of: (i) 150,000,000 shares of common stock, par value $0.001 per share,
of which approximately 27,555,000 shares were issued and outstanding as of July
16, 2001; and (ii) 25,000,000 shares of Preferred Stock, $0.001 par value per
share, of which approximately 8,500,000 Series A, 1,000,000 Series B and 1,400
Series D shares were outstanding as of July 16, 2001.
4.4 SEC Filings As of their respective dates, the Emergent SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Emergent SEC Documents.
4.5 Authorization for Emergent Preferred Stock. Emergent will take all
necessary action prior to the Closing Date to permit it to issue the number of
shares of Emergent Senior Series E Preferred Stock required to be issued
pursuant to this Agreement and the Plan. All shares of Emergent Preferred Stock
issued pursuant to this Agreement and the Plan will, when issued, be validly
issued, fully paid and nonassessable and no Person will have any preemptive
right of subscription or purchase in respect thereof.
4.6 Investment Matters. Emergent is acquiring the KeyCom Stock for
its own account for investment purposes only and not with a view to, or for sale
in connection with, any resale or distribution thereof.
4.7 Brokerage Fees. Carbon House Ltd has acted as a financial advisor
to the company and will paid one hundred and fifty thousand dollars
($150,000.00) by Emergent pursuant to the Consulting Agreement dated June 13,
2001. Emergent will be solely responsible for bearing this cost.
4.8 Compliance with Law. The operations of Emergent, the conduct of
the businesses of Emergent, as and where such businesses have been or presently
are conducted, and the ownership, possession and use of the assets of Emergent
have complied and currently do comply in all material respects with all
applicable Laws. Emergent is not subject to any consent decree of any Person.
4.9 Full Disclosure. No representation or warranty made by Emergent in
this Agreement or pursuant hereto (a) contains any untrue statement of material
fact; or (b) omits to state any material fact that is necessary to make the
statements made, in light of the circumstances under which they are made, not
false or misleading in any respect. The copies of documents attached as
Schedules to this Agreement or otherwise delivered to KeyCom by Emergent in
connection with the Transactions, are accurate and complete, and are not missing
any amendments, modifications, correspondence or other related papers which
would be pertinent to KeyCom's understanding thereof in any respect.
Section 5: Certain Obligations of KeyCom Pending Closing
5.1 Conduct of Business. Between the date of this Agreement and the
Closing Date or termination of the Agreement, except with the prior written
consent of Emergent:
(a) Each of the Acquired Companies shall, (i) conduct its business
in the ordinary course consistent with past practice, (ii) not make any material
change in its business practices, and (iii) use its reasonable best efforts to
preserve their business organization intact, keeping available the services of
its current officers, employees, salesmen, agents and representatives, and
maintaining the goodwill of its customers, suppliers and other Persons having
business relations with the Acquired Companies.
(b) Except in the ordinary course of its business consistent with
its past practices, none of the Acquired Companies shall, (i) create or assume
any Encumbrances upon any of their businesses or Assets, (ii) incur any
Obligation, (iii) make any loan or advance, (iv) assume, guarantee or otherwise
become liable for any Obligation of any other Person, (v) commit for any capital
expenditure, (vi) purchase, lease, sell, abandon or otherwise acquire or dispose
of any business or Assets, (vii) waive any right or cancel any debt or claim,
(viii) assume or enter into any Contract other than this Agreement and the Plan
(and any other Contract contemplated herein) or, (ix) except for amendments to
existing employment agreements which have been approved prior to the date hereof
by Emergent, increase, or authorize an increase in, the compensation or benefits
paid or provided to any of their directors, officers, employees, salesmen,
agents or representatives.
(c) Even in the ordinary course of their business consistent with
their past practices, none of the Acquired Companies shall, borrow or lend any
funds, purchase any goods or services, lease any equipment, incur any debt,
Obligation, or enter into any Contract (excluding Customer Contracts and related
commitments entered into in the ordinary course of business consistent with past
practices) or other transaction involving, in any single case, an amount
exceeding $25,000.00 or, in the aggregate, an amount exceeding $75,000.00 or
such greater amount as shall have been agreed to by Emergent, such agreement to
not be unreasonably withheld or delayed.
(d) None of the Acquired Companies shall, (i) permit or cause a
material breach or material default by them under any of their Contracts,
Insurance Policies, licenses or Permits, (ii) adopt or enter into any new
Employee Benefit Plan or modify any existing Employee Benefit Plan, (iii)
participate in any merger, consolidation or reorganization, (iv) begin to engage
in any new type of business, (v) acquire the business or any bulk assets of any
other Person, (vi) completely or partially liquidate or dissolve, or (vii)
terminate any substantial part of their business.
(e) Each of the Acquired Companies shall, (i) maintain their Real
Property and Tangible Property in good condition and repair, ordinary wear and
tear excepted, (ii) maintain their Insurance Policies and Permits in full force
and effect or enter into substantially similar replacement policies, (iii)
repair, restore or replace any of their material Assets that are damaged,
destroyed, lost or stolen, (iv) comply with all applicable Contracts, Permits
and Laws, (v) properly file all Tax returns, annual reports and other returns
and reports required to be filed by them, and (vi) fully pay when due all Taxes
and fees payable by them.
(f) Each of the Acquired Companies shall, maintain its corporate
existence and good standing in its respective jurisdiction of incorporation and
its good standing in each jurisdiction where it is currently qualified as a
foreign corporation. None of the Acquired Companies shall amend its certificate
of incorporation or bylaws.
(g) None of the Acquired Companies shall, redeem, retire or
purchase,
or create, grant or issue any options, warrants or other Contracts or Contract
Rights with respect to, any shares of KeyCom Stock, or any other capital stock
or other securities of KeyCom, or create, grant or issue any stock options,
stock appreciation rights, phantom shares or other similar rights.
(h) KeyCom shall not sell, assign, give, pledge or otherwise
transfer, dispose of or encumber any shares of KeyCom Stock, or any other
capital stock or other securities of KeyCom.
(i) None of the Acquired Companies shall enter into any Contract
that commits it to take any action or omit to take any action that would be
inconsistent with any of the provisions of this Section 5.1 or any other
provisions of this Agreement or the Plan.
5.2 Emergent's Due Diligence Investigation. Between the date of this
Agreement and the Closing Date, the Acquired Companies shall (a) permit
Emergent and its authorized representatives to have reasonable access to the
Acquired Companies' facilities and offices during normal business hours, to
observe the Acquired Companies' operations, to meet with the Acquired Companies'
officers and employees, and to audit, examine and copy the Acquired Companies'
files, books and records and other documents and papers, and (b) provide to
Emergent and its authorized representatives all information concerning the
Acquired Companies' business, Assets and financial condition, its shareholders
and the KeyCom Stock that Emergent reasonably requests.
5.3 Consents. Between the date of this Agreement and the Closing Date,
each of the Acquired Companies shall in good faith use its reasonable best
efforts to obtain all Consents and approvals of all lenders, lessors, vendors,
customers and other Persons necessary to permit the Merger and the other
Transactions to be consummated without violating any loan agreement, lease or
other material Contract to which any of the Acquired Companies is a party or by
which any of the Acquired Companies is bound, and to give the notices and make
the filings described on Schedule 3.2.
5.4 Acquisition Proposals. Between the date of this Agreement and the
Closing Date, neither KeyCom, nor any officer, director, employee,
representative or agent of KeyCom shall, directly or indirectly, solicit,
initiate, encourage or respond to any inquiries or proposals from, or
participate in any discussions or negotiations with, or provide any non-public
information to, any Person or group (other than Emergent and its officers,
employees, representatives and agents) concerning any bulk sale of any of the
Assets of the Acquired Companies (other than with respect to the conversion
and/or exercise of currently outstanding warrants and/or stock options), any
sale of shares of capital stock or other securities of the Acquired Companies
(other than with respect to the conversion and/or exercise of currently
outstanding stock options and/or warrants), or any merger, consolidation or
similar transaction involving any of the Acquired Companies. KeyCom shall
immediately advise Emergent of, and communicate to Emergent the terms of, any
such inquiry or proposal received by any of the Acquired Companies or any
Shareholder.
5.5 Advice of Changes. Between the date of this Agreement and the Closing
Date, KeyCom shall promptly advise Emergent, in writing, of any fact of which
it obtains knowledge and that, if existing or known as of the date of this
Agreement, would have been required to be set forth or disclosed in or pursuant
to this Agreement (it being understood that such advice shall not be deemed to
modify the representations, warranties and covenants of KeyCom contained in this
Agreement). For purposes of determining the accuracy of representations and
warranties of KeyCom contained in this Agreement for the purpose of determining
the fulfillment of the condition set forth in Section 9.3, the Schedules
delivered by KeyCom shall be deemed to include only that information contained
therein on the date of this Agreement and shall be deemed to exclude any
information contained in any subsequent supplement or amendment thereto. For
purposes of determining the accuracy of representation and warranties of KeyCom
contained in this Agreement for the purpose of the indemnification set forth in
Section 13.1 12.1, the Schedules delivered by KeyCom shall be deemed to include
that information contained therein on the date of this Agreement and any
information contained in any subsequent supplement or amendment thereto.
5.6 Reasonable Best Efforts. KeyCom shall use its reasonable best efforts
to consummate the Merger and the other Transactions as of the earliest
practicable date. KeyCom shall not take, or cause to be taken, or to the best
of its ability permit to be taken, any action that would impair the prospect of
completing the Merger and the other Transactions.
Section 6: Certain Obligations of Emergent and Newco Pending Closing
6.1 Corporate Status. Between the date of this Agreement and the
Closing Date:
(a) Each of Emergent and Newco shall maintain its corporate
existence and good standing in the State of Delaware and shall not amend its
charter or bylaws in any manner that would be inconsistent with its obligations
under this Agreement or the Plan.
(b) Neither Emergent nor Newco shall enter into any Contract that
commits it to take any action or omit to take any action that would be
inconsistent with any of the provisions of this Agreement or the Plan.
6.2 KeyCom Due Diligence Investigation. Between the date of this
Agreement and the Closing Date, upon KeyCom's request, Emergent shall (a) permit
KeyCom and its authorized representatives to visit Emergent's facilities during
normal business hours, to meet with 's Emergent's key officers, and (b) provide
to KeyCom and its authorized representatives all publicly and non-publicly
available information concerning Emergent, its owners and its subsidiaries and
their respective businesses, assets and financial condition, that KeyCom
reasonably requests. All such information to which KeyCom and its
representations are given access shall be subject to the Confidentiality
Agreement.
6.3 Consents. Between the date of this Agreement and the Closing Date,
Emergent and Newco shall in good faith use their reasonable best efforts to
obtain all Consents and approvals of all Persons necessary to permit the Merger
and the other Transactions to be consummated, and to give the notices and make
the filings, described in Section 4.2.
6.4 SEC Reports. Between the date of this Agreement and the Closing
Date, Emergent shall file all reports and other filings required to be filed by
it under the Exchange Act, and Emergent shall deliver to KeyCom, promptly after
they become available, all registration statements, proxy statements, reports
and other filings, and all amendments thereto, that Emergent files with the
SEC.
6.5 Advice of Changes. Between the date of this Agreement and the
Closing Date, Emergent shall promptly advise KeyCom, in writing, of any fact
of which it obtains knowledge and that, if existing or known as of the date of
this Agreement, would have been required to be set forth or disclosed pursuant
to a representation or warranty in this Agreement (it being understood that such
advice shall not be deemed to modify the representations, warranties and
covenants of Emergent and/or Newco contained in this Agreement).
6.6 Reasonable Best Efforts. Emergent and Newco shall use their
reasonable best efforts to consummate the Merger and the other Transactions as
of the earliest practicable date, and neither Emergent nor Newco shall take, or
cause to be taken, or to the best of their ability permit to be taken, any
action that would impair the prospect of completing the Merger and the other
Transactions.
6.7 Investment, Emergent will cause seven hundred and fifty thousand
dollars ($750,000.00) to be invested into KeyCom (the "Investment") payable in
three successive weekly installments of two hundred and fifty thousand dollars
($250,000.00) each, commencing on Wednesday, July 25, 2001 and a like payment
being made on each Wednesday thereafter until a total of $750,000.00 is paid.
The Investment will be represented by Zero Coupon Debt Certificates issued by
KeyCom in a form acceptable to Emergent, that form being recently supplied by
Emergent. Additionally, Emergent will provide on or before the 25th day of July,
2001, a formal underwriting commitment issued by Heritage West Securities, Inc.,
in a form and with the terms and conditions substantially similar to those
reflected in the letter of intent submitted by Heritage. The commitment must
provide for the sale of $5,000,000 in securities over the course of twelve
months
Section 7: Additional Covenants of the Parties
7.1 KeyCom Shareholder's Meeting KeyCom shall conduct a shareholder's
meeting to obtain approval for all matters in connection with this Plan of
Reorganization which require shareholder approval under the DGCL, including
proxy requirements.
7.2 Tax Free Reorganization. Emergent and KeyCom agree not to
intentionally take or cause to be taken any actions that would adversely affect
the treatment of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
Section 8: Conditions Precedent to KeyCom's Closing Obligations
Each obligation of KeyCom to be performed on the Closing Date shall be
subject to the satisfaction of each of the conditions stated in this Section 8,
except to the extent that such satisfaction is waived by KeyCom in writing.
8.1 Approval of KeyCom Shareholders. The Merger shall have been duly
approved by the affirmative vote of the Shareholders of KeyCom in accordance
with applicable Law. A majority of KeyCom shareholders have signed their
irrevocable proxy in favor of the merger.
8.2 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting Emergent or any of its subsidiaries
or their respective businesses, Assets or financial condition, between the date
of this Agreement and the Closing Date, and there shall not have been any
material adverse change in the financial performance of Emergent or its
subsidiaries between the date of this Agreement and the Closing Date. It is
understood that a decline in Emergent Common Stock's price shall not, in and of
itself, be deemed a material adverse change.
Section 9: Conditions Precedent to Emergent's and Newco's Closing Obligations
Each obligation of Emergent and Newco to be performed on the Closing Date
shall be subject to the satisfaction of each of the conditions stated in this
Section 9, except to the extent that such satisfaction is waived by Emergent in
writing.
9.1 Approval of the KeyCom Shareholders. The Merger shall have been
duly approved by the affirmative majority vote of the shareholders of KeyCom in
accordance with applicable Law.
9.2 Dissenting and other KeyCom Shareholders. The aggregate number of
shares of KeyCom Stock owned by those shareholders of KeyCom (if any) who shall
have exercised (or given notice of their intent to exercise) the rights of
dissenting shareholders under applicable California or any other applicable
corporate law shall be less than forty nine percent 49% of the total number of
outstanding shares of KeyCom Stock.
9.3 KeyCom's Representations. All representations, warranties and
certifications made by KeyCom in this Agreement or pursuant hereto shall not
have been false or misleading in any material respect.
9.4 KeyCom's Performance. All of the terms and conditions of this
Agreement to be satisfied or performed by KeyCom on or before the Closing Date
(including the Obligations set forth in Section 10.2) shall have been
substantially satisfied or performed.
9.5 Absence of Proceedings. No Proceeding shall have been instituted
(excluding any such Proceeding initiated by or on behalf of Emergent or any of
its subsidiaries), no Judgment shall have been issued, and no new Law shall have
been enacted, on or before the Closing Date, that seeks to or does prohibit or
restrain, or that seeks damages as a result of, the consummation of the Merger
or any of the other Transactions.
9.6 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting any of the Acquired Companies, or
their respective businesses, Assets or financial condition, between the date of
this Agreement and the Closing Date, and there shall not have been any material
adverse change in the financial performance of any of the Acquired Companies
between the date of this Agreement and the Closing Date.
9.7 Audit. KeyCom shall have completed its annual audit of the books
and records of the Acquired Companies.
Section 10: Closing
10.1 Closing. The closing of the Merger and the other Transactions
(the "Closing") shall take place at a mutually agreeable time and place on a
date designated by Emergent (the "Closing Date"),. Contemporaneously with the
Closing, the parties hereto shall cause the Plan and properly executed
Certificate of Merger conforming to the requirements of Delaware and California
Law (the "Certificate of Merger") to be filed with the proper officers of the
States of Delaware and California, and the parties shall take such further
actions as may be required by the States of Delaware and California, and any
other applicable Law, in connection with consummation of the Merger. The Merger
shall take effect at the time such filing is made with the States of Delaware
and California or at such later time as may be specified in the Certificate of
Merger (the "Effective Date").
10.2 KeyCom's Obligations at Closing. At or prior to the Closing,
Emergent and Newco shall have received the following:
(a) All instruments or documents necessary to change the names of
the individuals who have access to or are authorized to make withdrawals from or
dispositions of all bank accounts, other accounts, certificates of deposits,
marketable securities, other investments, safe deposit boxes, lock boxes and
safes of KeyCom described on Schedule 3.4 and all keys and combinations to all
safe deposit boxes, lock boxes and safes of KeyCom and other depositories
described on Schedule 3.4.
(b) A certificate, dated the Closing Date, in form and substance
satisfactory to Emergent, signed by the Chief Executive Officer and Chief
Financial Officer of KeyCom, certifying, that (i) all representations and
warranties made by KeyCom in this Agreement are correct in all material respects
as of the Closing Date, as if made on and as of the Closing Date, except for
changes contemplated or permitted by this Agreement, (ii) all of the terms and
conditions of this Agreement to be satisfied or performed by KeyCom on or before
the Closing Date have been substantially satisfied or performed, and (iii) there
has not been any material adverse change or material casualty loss affecting any
of the Acquired Companies, or their business, Assets or financial condition,
between the date of this Agreement and the Closing Date, and there has not been
any material adverse change in KeyCom's financial performance between the date
of this Agreement and the Closing Date [other than continued operating losses in
the ordinary course of business
(c) A Certificate of Merger for the States of Delaware and
California, in form and substance, acceptable to the parties ("Certificate of
Merger"), dated the Closing Date and duly executed by KeyCom.
(d) The signed copies of all Consents listed on Schedule 3.2.
(e) All of the original minute books and stock books of the
Acquired Companies (including original stock certificates evidencing KeyCom's
100% ownership of each of the subsidiaries) and duly executed resignations,
dated the Effective Date, of all directors and officers of the Acquired
Companies other than as specified by Emergent.
(f) Good standing certificates for KeyCom, dated no earlier than
ten (10) days before the Closing Date, from the State of California and from
each other jurisdiction in which it is qualified or registered to do business as
a foreign corporation and good standing certificate or equivalent from each of
the other Acquired Companies from their respective jurisdiction of
incorporation.
(g) A certificate of Secretary of KeyCom as to the incumbency and
signatures of the officers of KeyCom executing this Agreement.
(h) Copies of the resolutions duly adopted by the board of
directors and shareholders of KeyCom, authorizing KeyCom to execute, deliver and
perform this Agreement and the Plan and to consummate the Transactions,
certified by an officer of KeyCom as in full force and effect, without
modification or rescission, on and as of the Closing Date.
Emergent.
Purchase price: Emergent will deliver as full payment for the shares
of KeyCom to be acquired 250,000 of its Senior Series E Secured Preferred Stock.
(j) A Security Agreement, substantially in the form attached
hereto as Exhibit "B" (the Security Agreement") dated the Closing Date, and duly
executed by Emergent.
(n) All other agreements, certificates, instruments, financial
statement certifications, opinions of counsel and documents reasonably requested
by Emergent in order to fully consummate the Transactions and carry out the
purposes and intent of this Agreement and the Plan.
10.3 Emergent's and Newco's Obligations at Closing. At the Closing,
KeyCom shall have received the following:
(a) The Certificate of Merger duly executed by Newco.
(b) A certificate, dated the Closing Date, in form and substance
satisfactory to the Shareholders, signed by an executive officer of Emergent,
certifying that (i) all representations and warranties made by Emergent and/or
Newco in this Agreement are correct in all material respects as of the Closing
Date, as if made on and as of the Closing Date, except for changes contemplated
or permitted by this Agreement and (ii) all of the terms and conditions of this
Agreement to be satisfied or performed by Emergent and/or Newco on or before
the Closing Date have been substantially satisfied or performed.
(c) Good standing certificates for each of Emergent and Newco,
dated no earlier than ten (10) days before the Closing Date, from the State of
Delaware.
(d) Copies of the resolutions duly adopted by the board of
directors of Emergent and by the board of directors and the sole Shareholder of
Newco, authorizing Emergent and Newco, respectively, to execute, deliver and
perform this Agreement and the Plan and to consummate the Transactions,
certified by an officer of Emergent or Newco, respectively, as in full force and
effect, without modification or rescission, on and as of the Closing Date.
(e) A certificate of Secretary of each of Emergent and Newco as to
the incumbency and signatures of the officers of Emergent and Newco executing
this Agreement.
(g) Security Agreement duly executed Emergent and Newco.
(i) All other agreements, certificates, instruments, opinions of
counsel and documents reasonably requested by KeyCom in order to fully
consummate the Transactions and carry out the purposes and intent of this
Agreement.
Section 11: Certain Obligations and Rights after Closing
11.1 Cooperation with Emergent and the Surviving Corporation. From
and after the Closing Date, (a) each of the KeyCom management shall fully
cooperate to transfer to Emergent and the Surviving Corporation the full
control and enjoyment of the Acquired Companies; (b) none of the KeyCom
management shall take any action, directly or indirectly, alone or together with
others, that obstructs or impairs the smooth assumption by Emergent and the
Surviving Corporation of the business of the Acquired Companies; and (c) the
KeyCom management shall promptly deliver to Emergent and the Surviving
Corporation all correspondence, papers, documents and other items and materials
received by any of the management of KeyCom after the Effective Date which
pertain to the business or Assets of the Acquired Companies. At any time and
from time to time after the Closing Date, at Emergent's request and without
further consideration (but at 's Emergent's expense), each of KeyCom management
shall promptly execute and deliver all such further agreements, certificates,
instruments and documents and perform such further actions as Emergent may
reasonably request, in order to fully consummate the Merger and the other
Transactions and to fully carry out the purposes and intent of this Agreement
and the Plan, including, but not limited to, such documents and actions as may
be required in connection with the continuation or termination of the employee
benefit plans of KeyCom, the adoption by the Surviving Corporation of
Emergent's employee benefit plans, and the filing of tax returns of KeyCom for
all periods ending on, before or including the Closing Date. The aforementioned
co-operation is acknowledged by all parties to be to be integral in arranging
the financing necessary for the continuation of the business including the
payments contemplated under the preferred stock agreements. Therefore any delay
in providing the requested information shall defer the obligations under the
security agreement and shall constitute an absolute defense to any noticed
default. Notwithstanding the foregoing, nothing in this Section 11.1 shall
limit the rights of any Person to exercise his legal rights with respect to his
capacity as a shareholder, officer, director or employee of the Acquired
Companies or, after the Closing Date, Emergent or any of its subsidiaries,
including his rights under employment agreements or his right, to vote his
shares or dissent from the Merger.
Stock.
(a) The shares of Emergent Preferred Stock to be issued in the
Merger will not be transferable until on or after two years from the Closing
Date and each Stockholder of KeyCom shall be subject to such restriction;
(b) All certificates for Emergent Preferred Stock to be issued in
the Merger shall bear appropriate restrictive legends to reflect Subsection (a)
hereof, and Emergent shall have the right to place a stop transfer order with
its transfer agent against all such shares.
Section 12: Indemnification
12.1 Indemnification.
From and after the Closing Date, the KeyCom shareholders, through, shall
indemnify and hold harmless Emergent and its successors and assigns, and its
directors, officers, employees, agents and representatives, from and against any
and all actions, suits, claims, demands, debts, liabilities, obligations,
losses, damages, costs and expenses (in each case net of any applicable reserves
set forth on the October 31 Latest Balance Sheet and net of any insurance
recoveries) , including without limitation reasonable attorney's fees and court
costs, arising out of or caused by, directly or indirectly, any of the
following:
(a) Any misrepresentation, breach or failure of any warranty or
representation made by KeyCom in or pursuant to this Agreement.
(b) Any failure or refusal by KeyCom to satisfy or perform any
covenant, term or condition of this Agreement required to be satisfied or
performed by any or all of them.
(c) Any Proceeding against Emergent by any Person arising out of
or caused by, directly or indirectly, any act or omission of KeyCom, or any of
its shareholders, directors, officers, employees, agents or representatives,
occurring at any time prior to the Effective Date.
(d) Any deficiency or adjustment for Taxes and related interest,
penalties and expenses, assessed against or imposed upon KeyCom (or any of its
successors) with respect to any period ending on or before the Closing Date.
The right of Emergent to indemnification under this Section 12.1 shall not be
affected by the fact that the applicable tax deficiency, adjustment, interest or
penalties may be assessed against Emergent as a result of the fact that, after
the Closing Date, KeyCom shall be included in the consolidated federal income
tax returns filed by Emergent.
12.2 Indemnification Procedures. With respect to each event,
occurrence or matter (an "Indemnification Matter") as to which Emergent,(the
"Indemnitee"), is entitled to indemnification (the "Indemnitor") under Section
12.1.
(a) Within ten (10) days after the Indemnitee receives written
documents underlying the Indemnification Matter or, if the Indemnification
Matter does not involve a third party action, suit, claim or demand, promptly
after the Indemnitee first has knowl-edge of the Indemnification Matter, the
Indemnitee shall give notice to the Indemnitor of the nature of the
Indemnification Matter and the amount demanded or claimed in connection
therewith ("Indemnification Notice"), together with copies of any such written
documents.
(b) If a third party action, suit, claim or demand is involved,
then, upon receipt of the Indemnification Notice, the Indemnitor shall, at its
expense and through counsel of its choice, promptly assume and have sole control
over the litigation, defense or settlement (the "Defense") of the
Indemnification Matter, except that (i) the Indemnitee may, at its option and
expense and through counsel of its choice, participate in (but not control) the
Defense; (ii) if the Indemnitee reasonably believes that the handling of the
Defense by the Indemnitor may have a material adverse effect on the Indemnitee,
its business or financial condition, or its relationship with any customer,
supplier, employee, salesman, consultant, agent or representative, then the
Indemnitee may, at its option and expense and through counsel of its choice,
assume control of the Defense, provided that the Indemnitor shall be entitled to
participate in the Defense at its expense and through counsel of its choice;
(iii) the Indemnitee shall not consent to any judgment or order, or agree to any
settlement, without the Indemnitor's prior written consent; (iv) if the
Indemnitor does not promptly assume control over the Defense or, after doing so,
does not continue to prosecute the Defense in good faith, the Indemnitee may, at
its option and through counsel of its choice, but at the Indemnitor's expense,
assume control over the Defense. In any event, the Indemnitor and the Indemnitee
shall fully cooperate with each other in connection with the Defense, including
without limitation by furnishing all available documentary or other evidence as
is reasonably requested by the other.
(c) All amounts owed by the Indemnitor to the Indemnitee (if any)
shall be paid in full in accordance with the terms of the Escrow Agreement.
12.3 Limits on Indemnification. The KeyCom shareholders' liability under
this Section 13 shall be limited as follows:
(1) No amount shall be payable by any KeyCom shareholder under
this Section 12 unless and until the aggregate amount otherwise payable by the
KeyCom shareholders under this Section 12 exceeds Twenty Five Thousand Dollars
($25,000), in which event the KeyCom shareholders shall only pay all future
amounts in excess of such amount payable by any of the KeyCom shareholders under
this Section 12.
(2) The KeyCom shareholders' total liability under this Section 12
shall not exceed the total amount of the Escrow Fund (as defined in the Escrow
Agreement).
(3) With respect to any Indemnification Matters, the Indemnitor
shall not be liable as to any such Indemnification Matter for which the
Indemnitee does not give an Indemnification Notice to the Indemnitor in
accordance with Section 12.2(a) within) twelve (12) months after the Effective
Date.
12.4 Exceptions. None of the foregoing limitations shall apply in the
case of any Indemnification Matter involving intentional misrepresentation,
fraud or criminal matters.
Section 13: Other Provisions
13.1 Termination. At any time before the Closing, whether or not the
Merger has been approved by KeyCom's shareholders, this Agreement may be
terminated and the Merger abandoned in accordance with any of the following
methods:
(a) By the mutual written consents of Emergent and KeyCom,
authorized by their respective boards of directors.
(b) By written notice from Emergent to KeyCom, or from KeyCom to
Emergent, if it becomes certain (for all practical purposes) that any of the
conditions to the closing obligations of the party giving such notice cannot be
satisfied on or before December 31, 2000, for a reason other than such party's
default, and such party is not willing to waive the satisfaction of such
condition.
(c) By written notice from Emergent to KeyCom, or from KeyCom to
Emergent, if the Closing does not occur on or before December 31, 2001 for any
reason other than a breach of this Agreement by the party giving such notice.
13.2 Publicity. Without the prior written consent of Emergent, KeyCom
shall not make any public announcement regarding the Transactions, nor shall
they in any public manner disseminate any information regarding KeyCom,
Emergent, the Merger or the other Transactions. Unless required by Law or stock
exchange regulation, in the opinion of 's Emergent's counsel, neither Emergent
nor Newco shall make any public announcement regarding the Transactions without
first consulting with KeyCom. With respect to any announcement that any of the
parties is required by Law or stock exchange regulation to issue, such party
shall, to the extent possible under the circumstances, review the necessity for
the contents of the announcement with the other party before issuing the
announcement. The provisions of this Section 14.2 13.2 shall survive any
termination of this Agreement for a period of one year.
13.3 Fees and Expenses. Emergent shall pay all of the fees and
expenses incurred by it and/or Newco, and KeyCom shall, at or prior to Closing,
pay all of the fees and expenses incurred by it and the KeyCom Shareholders in
negotiating and preparing this Agreement and the Plan (and all other contracts
and documents executed in connection herewith or therewith) and in consummating
the Transactions as well as all other fees and expenses owed by it to its
counsel;
13.4 Notices. All notices, consents or other communications required
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or one business day
after being sent by a nationally recognized overnight delivery service, postage
or delivery charges prepaid. Notices may also be given by prepaid facsimile and
shall be effective on the date transmitted if confirmed telephonically
immediately thereafter and within 48 hours thereafter by a signed original sent
in the manner provided in the preceding sentence. Notices to KeyCom shall be
sent to KeyCom to the attention of its President (in the manner provided below).
Notices to Emergent and/or Newco shall be sent to Emergent's address stated on
page one of this Agreement to the attention of its President. Any party may
change its address for notice and the address to which copies must be sent by
giving notice of the new addresses to the other parties in accordance with this
Section 13.4, provided that any such change of address notice shall not be
effective unless and until received.
13.5 Survival of Representations and Covenants. Except as provided in
Section 12.3(c), all representations and warranties and covenants made in this
Agreement or pursuant hereto shall survive the date of this Agreement, the
Closing Date, the Effective Date and the consummation of the Transactions for a
period of two years.
13.6 Interpretation of Representations. Each representation and
warranty made in this Agreement or pursuant hereto is independent of all other
representations and warranties made by the same parties, whether or not covering
related or similar matters, and must be independently and separately satisfied.
Exceptions or qualifications to any such representation or warranty shall not be
construed as exceptions or qualifications to any other representation or
warranty.
13.7 Reliance by Emergent and Newco. Notwithstanding the right of
Emergent and Newco to investigate the businesses, Assets and financial condition
of the Acquired Companies, and notwithstanding any knowledge determined or
determinable by Emergent and Newco as a result of such investigation, Emergent
and Newco have the unqualified right to rely upon, and have relied upon, each of
the representations and warranties made by KeyCom in this Agreement or pursuant
hereto.
13.8 Entire Understanding. This Agreement, together with the Exhibits
and Schedules hereto, and the Plan and, Security Agreement, state the entire
understanding among the parties with respect to the subject matter hereof and
thereof, and supersede all prior oral and written communications and agreements,
and all contemporaneous oral communications and agreements, with respect to the
subject matter hereof, including without limitation all confidentiality letter
agreements and letters of intent and term sheets previously entered into among
some or all of the parties hereto. No amendment or modification of this
Agreement shall be effective unless in writing and signed by the party against
whom enforcement is sought.
13.9 Parties in Interest. This Agreement shall bind, benefit, and be
enforceable by and against KeyCom, Emergent and Newco and their respective
successors and assigns. No party shall in any manner assign any of its rights
or obligations under this Agreement without the express prior written consent of
the other parties. Nothing in this Agreement or the Plan is intended to confer,
or shall be deemed to confer, any rights or remedies upon any Persons other than
the parties hereto and the respective directors and Shareholders of KeyCom,
Emergent and Newco.
13.10 Waivers. Except as otherwise expressly provided herein, no
waiver with respect to this Agreement shall be enforceable unless in writing and
signed by the party against whom enforcement is sought. Except as otherwise
expressly provided herein, no failure to exercise, delay in exercising, or
single or partial exercise of any right, power or remedy by any party, and no
course of dealing between or among any of the parties, shall constitute a waiver
of, or shall preclude any other or further exercise of, any right, power or
remedy.
13.11 Severability. If any provision of this Agreement is construed
to be invalid, illegal or unenforceable, then the remaining provisions hereof
shall not be affected thereby and shall be enforceable without regard thereto.
13.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
13.13 Section Headings. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
13.14 References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
13.15 Controlling Law. Except and only to the extent that the
corporate law aspects of the Merger are governed by the corporate laws of the
State of Delaware. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
13.16 Arbitration. In the event of any dispute, claim or controversy
concerning, arising out of or relating to this Agreement, its effect, the breach
thereof, or the transactions contemplated by it, the same shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA Rules"). The arbitration shall be before one
neutral arbitrator to be selected in accordance with the AAA Rules and whose
decision shall be rendered in writing. The results of the arbitration shall be
final and binding upon the parties, with costs paid by the party who does not
prevail in the arbitration, and judgment on the award may be entered in any
court having jurisdiction thereof. In rendering the award, the arbitrator shall
determine the rights and obligations of the parties according to the substantive
and procedural laws of the State of Delaware. The arbitration shall be held in
Chicago, Illinois, or at such other place as may be selected by mutual agreement
of the parties. The arbitrator shall have no authority to award punitive damages
or any other damages not measured by the prevailing party's actual damages, and
may not, in any event, make any ruling, finding or award that does not conform
to the terms and conditions of this Agreement. Neither party nor the arbitrator
may disclose the existence, content, or results of any arbitration hereunder
without the prior written consent of both parties, unless required to do so by
order of a Governmental Authority, or as required by either party's auditors in
connection with the preparation of audited financial statements, or as required
by the disclosure requirements of any U.S. or foreign securities law, regulation
or stock exchange rule, or if a petition to enforce arbitration is necessary to
be filed with a court of competent jurisdiction.
13.17 No Third-Party Beneficiaries. No provision of this Agreement or
the Plan is intended to or shall be construed to grant or confer any right to
enforce this Agreement or the Plan, or any remedy for breach of this Agreement
or the Plan, to or upon any Person other than the parties hereto, including, but
not limited to, any customer, prospect, supplier, employee, contractor,
salesman, agent or representative of any of the Acquired Companies.
13.18 Nature of Transactions. The parties intend that the Merger shall
constitute a tax-free reorganization under the Internal Revenue Code of 1986,
as amended.
13.19 Bankruptcy and Equitable Qualifications. Each representation or
warranty made in or pursuant to this Agreement regarding the enforceability of
any Contract shall be qualified to the extent that such enforceability may be
effected by bankruptcy, insolvency and other similar laws or equitable
principles (but not those concerning fraudulent conveyance) generally affecting
creditors' rights and remedies.
13.20 Construction. The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement or any agreements delivered in connection with the Transactions.
Witness the due execution and delivery hereof as of the date first stated
above.
KeyCom, Inc. Emergent Financial Group, Inc.
_______________________ _______________________
By: By:
Name: Name:
Title: Title:
KeyCom Holding Corporation
_______________________
By:
Name:
Title:
