AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of August
7, 2000, is between CALIPSO, INC., a Delaware corporation ("CALIPSO"), and
KNOWLEDGE FOUNDATIONS, INC., a Delaware corporation ("KFI").
Whereas, the Boards of Directors of CALIPSO and KFI each have, in light
of and subject to the terms and conditions set forth herein, (i) determined
that the Merger (as defined below) is fair to their respective stockholders
and in the best interests of such stockholders and (ii) approved the Merger
in accordance with this Agreement;
Whereas, for Federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, CALIPSO and KFI desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also
to prescribe various conditions to the Merger.
Now, therefore, in consideration of the promises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, CALIPSO and KFI hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as defined below) and
upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL") KFI shall be merged with and into CALIPSO (as defined below) (the
"Merger"). Following the Merger, CALIPSO shall continue as the surviving
corporation (the "Surviving Corporation"), shall continue to be governed by
the laws of the jurisdiction of its incorporation or organization and the
separate corporate existence of KFI shall cease to exist. Prior to the
Effective Time, the parties hereto shall mutually agree as to the name of the
Surviving Corporation; however, initially the Surviving Corporation shall be
named KNOWLEDGE FOUNDATIONS, INC., a Delaware corporation. The Merger is
intended to qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Code.
Section 1.2 Effective Time. Subject to the terms and conditions set
forth in this Agreement, a Certificate of Merger (the "Merger Certificate")
shall be duly executed and acknowledged by each of KFI and CALIPSO, and
thereafter the Merger Certificate reflecting the Merger shall be delivered to
the Secretary of State of the State of Delaware for filing pursuant to the
DGCL on the Closing Date (as defined in Section 1.3). The Merger shall
become effective at such time as a properly executed and certified copy of
the Merger Certificate is duly filed by the Secretary of State of the State
of Delaware in accordance with the DGCL or such later time as the parties may
agree upon and set forth in the Merger Certificate (the time at which the
Merger becomes effective shall be referred to herein as the "Effective
Time").
Section 1.3 Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Article 5
(the "Closing Date"), at the offices of Xxxxx X. Xxxxxx, 0000 Xxxxxx Xxx Xxx,
Xxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx, unless another time, date or place
is agreed to in writing by the parties hereto.
Section 1.4 Effects of the Merger. The Merger shall have the effects
set forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges, and powers of KFI shall vest in the Surviving Corporation, and
all debts, liabilities and duties of KFI shall become the debts, liabilities
and duties of the Surviving Corporation.
Section 1.5 Board of Directors and Officers of Surviving Corporation.
The directors and officers of KFI immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation from and
after the Effective Time, until their successors shall have been duly elected
or appointed and qualified, or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and Bylaws.
Section 1.6 Conversion of Shares. At the Effective Time, each share
of common stock, $.0001 par value per share of KFI (individually a "KFI
Share" and collectively, the "KFI Shares") issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of KFI, CALIPSO, or the holder thereof, be converted into
and shall become fully paid and nonassessable CALIPSO Common Stock determined
by dividing (i) Thirty-Three Million Nine Hundred Eighteen Thousand Four
Hundred (33,918,400), by (ii) the total number of shares of KFI, Thirty-three
Million Six Hundred Eighteen Thousand Five Hundred (33,618,500) outstanding
immediately prior to the Effective Time (such quotient, the "Exchange
Ratio"); provided, however, that the aggregate shares of CALIPSO Common Stock
issued to the holders of KFI Common Stock in the Merger shall equal at least
eighty percent (80%) of the issued and outstanding capital stock of CALIPSO.
The holder of one or more shares of KFI Common Stock shall be entitled to
receive in exchange therefore a number of shares of CALIPSO Common Stock
equal to the product of (x) (the number of shares of KFI Common Stock
(33,618,500)), times (y) (the Exchange Ratio). By way of example,
33,918,400/33,618,500 = 1.01 (the Exchange Ratio). The number of shares of
KFI Common Stock held by a stockholder (1,000) times the Exchange Ratio of
1.01 equals 1,010 shares of CALIPSO Shares to be issued.
Section 1.7 Exchange of Certificates.
(a) Prior to the Effective Time, CALIPSO shall enter into an
agreement with, and shall deposit with, Signature Stock Transfer, Inc. or
such other agent or agents as may be satisfactory to CALIPSO and KFI
(the "Exchange Agent"), for the benefit of the holders of KFI Shares,
for exchange through the Exchange Agent in accordance with this
Article I: (i) certificates representing the appropriate number of
CALIPSO Shares to be issued to holders of KFI Shares issuable pursuant
to Section 1.6 in exchange for outstanding KFI Shares.
(b) As soon as reasonably practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time
represented outstanding KFI Shares (the "Certificates") whose shares
were converted into the right to receive CALIPSO Shares pursuant to
Section 1.6: (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions
as KFI and CALIPSO may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for
certificates representing CALIPSO Shares. Upon surrender of a
Certificate to the Exchange Agent, together with such letter of
transmittal, duly executed, and any other required documents, the holder
of such Certificate shall be entitled to receive in exchange therefore a
certificate representing that number of whole CALIPSO Shares, which such
holder has the right to receive pursuant to the provisions of this
Article I, and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of KFI Shares which
are not registered in the transfer records of KFI, a certificate
representing the proper number of CALIPSO Shares may be issued to a
transferee if the Certificate representing such KFI Shares is presented
to the Exchange Agent accompanied by all documents required by the
Exchange Agent or CALIPSO to evidence and effect such transfer and by
evidence that any applicable stock transfer or other taxes have been
paid. Until surrendered as contemplated by this Section 1.7, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing CALIPSO Shares as contemplated by this Section 1.7.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to CALIPSO Shares with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the CALIPSO Shares represented thereby until
the holder of record of such Certificate shall surrender such
Certificate.
(d) In the event that any Certificate for KFI Shares or CALIPSO
Shares shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange therefore, upon the making of an affidavit of
that fact by the holder thereof such CALIPSO Shares and cash in lieu of
fractional CALIPSO Shares, if any, as may be required pursuant to this
Agreement; provided, however, that CALIPSO or the Exchange Agent, may,
in its respective discretion, require the delivery of a suitable bond,
opinion or indemnity.
(e) All CALIPSO Shares issued upon the surrender for exchange of
KFI Shares in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such KFI
Shares. There shall be no further registration of transfers on the
stock transfer books of KFI of the KFI Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates of KFI are presented to CALIPSO for any reason, they shall
be canceled and exchanged as provided in this Article I.
(f) No fractional CALIPSO Shares shall be issued in the Merger,
but in lieu thereof each holder of KFI Shares otherwise entitled to a
fractional CALIPSO Share shall, upon surrender of its, his or her
Certificate or Certificates, be entitled to receive an additional share
to round up to the nearest round number of shares.
Section 1.8 Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, KFI or CALIPSO reasonably determines that any
deeds, assignments, or instruments or confirmations of transfer are necessary
or desirable to carry out the purposes of this Agreement and to vest CALIPSO
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of KFI, the officers and directors of
CALIPSO and KFI are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and
necessary or desirable action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CALIPSO
Except as set forth on the Disclosure Schedule delivered by CALIPSO to
KFI (the "CALIPSO Disclosure Schedule"), CALIPSO hereby represents and
warrants to KFI as follows:
Section 2.1 Organization and Qualification.
(a) CALIPSO is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, and has all requisite power and authority to own, lease
and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing and in
good standing or to have such power and authority would not have a
Material Adverse Effect (as defined below) on CALIPSO. When used in
connection with CALIPSO, the term "Material Adverse Effect" means any
change or effect (i) that is or is reasonably likely to be materially
adverse to the business, results of operations, condition (financial or
otherwise) or prospects of CALIPSO, other than any change or effect
arising out of general economic conditions unrelated to any business in
which CALIPSO is engaged, or (ii) that may impair the ability of CALIPSO
to perform its obligations hereunder or to consummate the transactions
contemplated hereby.
(b) CALIPSO has heretofore delivered to KFI accurate and complete
copies of the Certificate of Incorporation and Bylaws (or similar
governing documents), as currently in effect, of CALIPSO. Except as set
forth on Schedule 2.1 of the CALIPSO Disclosure Schedule, CALIPSO is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to
be so duly qualified or licensed and in good standing would not have a
Material Adverse Effect on CALIPSO.
Section 2.2 Capitalization of CALIPSO.
(a) The authorized capital stock of CALIPSO consists of: One
Hundred Million (100,000,000) Authorized Shares of Common Stock, $0.001
par value, 9,039,600 Common shares are issued and outstanding as of the
date hereof; and Twenty Million (20,000,000) Authorized Shares of
Preferred Stock, $0.001 par value, no Preferred shares have been issued.
The offers and sales of all of the outstanding shares of capital stock
of CALIPSO were at all relevant times either registered under the
Securities Act of 1933, as amended, and applicable state securities laws
or exempt from such requirements. Pursuant to the Merger Agreement
CALIPSO will issue Thirty-Three Million Nine Hundred Eighteen Thousand
Four Hundred (33,918,400) shares of Rule 144 restricted common stock to
the stockholders of KFI. All of the outstanding CALIPSO Shares have
been duly authorized and validly issued, and are fully paid,
nonassessable and free of preemptive rights. Except as set forth
herein, as of the date hereof, there are no outstanding (i) shares of
capital stock or other voting securities of CALIPSO, (ii) securities of
CALIPSO convertible into or exchangeable for shares of capital stock or
voting securities of CALIPSO, (iii) options, warrants, calls, rights,
commitments, agreements, arrangements, or undertakings of any kind to
which CALIPSO is a party or by which it is bound obligating CALIPSO to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of CALIPSO
or obligating CALIPSO to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking, or other rights to acquire from CALIPSO,
except as set forth in Schedule 2.2(a) of the Disclosure Schedule, and,
no obligations of CALIPSO to issue, any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or
voting securities of CALIPSO, and (iv) equity equivalents, interests in
the ownership or earnings of CALIPSO or other similar rights
(collectively, "CALIPSO Securities"). As of the date hereof, except as
set forth on Schedule 2.2(a) of the CALIPSO Disclosure Schedule there
are no outstanding obligations of CALIPSO or its subsidiaries to
repurchase, redeem or otherwise acquire any CALIPSO Securities or
stockholder agreements, voting trusts or other agreements or
understandings to which CALIPSO is a party or by which it is bound
relating to the voting or registration of any shares of capital stock of
CALIPSO. There are no bonds, debentures, notes or other indebtedness of
CALIPSO having the right to vote (or convertible into securities having
the right to vote) on any matters on which stockholders of CALIPSO may
vote. For purposes of this Agreement, "Lien" means, with respect to any
asset (including, without limitation, any security) any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
of such asset.
(b) The CALIPSO Shares constitute the only class of equity
securities of CALIPSO registered or required to be registered under the
Exchange Act.
(c) CALIPSO does not own directly or indirectly more than fifty
percent (50%) of the outstanding voting securities or interests
(including membership interests) of any entity, other than as
specifically disclosed in the CALIPSO Disclosure Schedule.
Section 2.3 Authority Relative to this Agreement; Recommendation.
CALIPSO has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of
CALIPSO (the "CALIPSO Board") and by requisite vote of the then outstanding
CALIPSO Shares and no other corporate proceedings on the part of CALIPSO are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by CALIPSO and constitutes a valid, legal and binding agreement of
CALIPSO, enforceable against CALIPSO in accordance with its terms.
Section 2.4 SEC Reports; Financial Statements.
(a) CALIPSO has filed all required forms, reports and documents
with the Securities and Exchange Commission (the "SEC") since November
24, 1999, each of which has complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act (and the rules and regulations
promulgated thereunder, respectively), each as in effect on the dates
such forms, reports and documents were filed. CALIPSO has heretofore
delivered to KFI true and correct copies, in the form filed with the SEC
(including any amendments thereto but excluding any exhibits) of each
registration statement, report, definitive proxy statement, or
definitive information statement and all exhibits thereto filed
(including exhibits and any amendments thereto), including without
limitation, (i) its initial Registration Statement on Form 10SB12G filed
November 24, 1999, (ii) its quarterly report on Form 10QSB filed on
February 10, 2000, (iii) its annual report on Form 10KSB filed June 21,
2000 (iv) all definitive proxy statements relating to CALIPSO's meetings
of stockholders (whether annual or special) held since November 24,
1999, if any, and (v) all other reports or registration statements filed
by CALIPSO with the SEC since February 10, 2000 (all of the foregoing,
collectively, the "CALIPSO SEC Reports"). None of such CALIPSO SEC
Reports, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when
filed, any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
financial statements of CALIPSO included in the CALIPSO SEC Reports
comply in all material respects with applicable accounting requirements
in the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with GAAP, and fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
financial position of CALIPSO as of the dates thereof and its results of
operations and changes in financial position for the periods then ended.
All material agreements, contracts and other documents required to be
filed as exhibits to any of the CALIPSO SEC Reports have been so filed.
(b) CALIPSO has heretofore made available or promptly will make
available to KFI a complete and correct copy of any amendments or
modifications which are required to be filed with the SEC but have not
yet been filed with the SEC, to agreements, documents or other
instruments which previously had been filed by CALIPSO with the SEC
pursuant to the Exchange Act.
Section 2.5 Information Supplied. None of the information supplied
or to be supplied by CALIPSO for inclusion or incorporation by reference in
connection with the Merger will at the date presented to the stockholders of
KFI and at the times of the meeting or meetings of stockholders of CALIPSO to
be held in connection with the Merger, 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 light of the
circumstances under which they are made, not misleading.
Section 2.6 Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, state securities or blue sky laws, the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1916, as amended (the "HSR Act"), the rules of the
National Association of Securities Dealers, Inc. ("NASD"), the filing and
recordation of the Merger Certificate as required by the DGCL, and as set
forth on Schedule 2.6 of the CALIPSO Disclosure Schedule no filing with or
notice to, and no permit, authorization, consent or approval of, any court or
tribunal or administrative, governmental or regulatory body, agency or
authority (a "Governmental Entity") is necessary for the execution, delivery
and performance by CALIPSO of this Agreement or the consummation by CALIPSO
of the transactions contemplated hereby, except where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings
or give such notice would not have a Material Adverse Effect on CALIPSO.
Except as set forth in Schedule 2.6 of the CALIPSO Disclosure Schedule,
neither the execution, delivery and performance of this Agreement by CALIPSO
nor the consummation by CALIPSO of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the respective
Articles of Incorporation or Bylaws (or similar governing documents) of
CALIPSO, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which CALIPSO is a party or by which any of its properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree,
law, statute, rule or regulation applicable to CALIPSO or any of its
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults which would not have a Material Adverse Effect on
CALIPSO.
Section 2.7 No Default. Except as set forth in Schedule 2.7 of the
CALIPSO Disclosure Schedule, CALIPSO is not in breach, default or violation
(and no event has occurred which with notice or the lapse of time or both
would constitute a breach default or violation) of any term, condition or
provision of (i) its Articles of Incorporation or Bylaws (or similar
governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which
CALIPSO is now a party or by which any of its respective properties or assets
may be bound or (iii) any order, writ, injunction, decree, law, statute, rule
or regulation applicable to CALIPSO or any of its respective properties or
assets, except in the case of (ii) or (iii) for violations, breaches or
defaults that would not have a Material Adverse Effect on CALIPSO. Except as
set forth in Schedule 2.7 of the CALIPSO Disclosure Schedule, each note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which CALIPSO is now a party or by which its
respective properties or assets may be bound that is material to CALIPSO and
that has not expired is in full force and effect and is not subject to any
material default thereunder of which CALIPSO is aware by any party obligated
to CALIPSO thereunder.
Section 2.8 No Undisclosed Liabilities; Absence of Changes. Except
as and to the extent disclosed in the July 31, 1999 audited and December 31,
1999 unaudited and the March 31, 2000 audited financial statements, none of
CALIPSO or its subsidiaries had any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that would be required by
generally accepted accounting principles to be reflected on a consolidated
balance sheet of CALIPSO and its consolidated subsidiaries (including the
notes thereto) or which would have a Material Adverse Effect on CALIPSO
Except as disclosed by CALIPSO, none of CALIPSO or its subsidiaries has
incurred any liabilities of any nature, whether or not accrued, contingent or
otherwise, which could reasonably be expected to have, and there have been no
events, changes or effects with respect to CALIPSO or its subsidiaries having
or which could reasonably be expected to have, a Material Adverse Effect on
CALIPSO. Except as and to the extent disclosed by CALIPSO there has not been
(i) any material change by CALIPSO in its accounting methods, principles or
practices (other than as required after the date hereof by concurrent changes
in generally accepted accounting principles), (ii) any revaluation by CALIPSO
of any of its assets having a Material Adverse Effect on CALIPSO, including,
without limitation, any write-down of the value of any assets other than in
the ordinary course of business or (iii) any other action or event that would
have required the consent of any other party hereto pursuant to Section 4.1
of this Agreement had such action or event occurred after the date of this
Agreement.
Section 2.9 Litigation. Except as set forth in Schedule 2.9 of the
CALIPSO Disclosure Schedule there is no suit, claim, action, proceeding or
investigation pending or, to the Knowledge of CALIPSO, threatened against
CALIPSO or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
CALIPSO or could reasonably be expected to prevent or delay the consummation
of the transactions contemplated by this Agreement. Except as disclosed by
CALIPSO, none of CALIPSO or its subsidiaries is subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably
foreseen in the future, could reasonably be expected to have a Material
Adverse Effect on CALIPSO or could reasonably be expected to prevent or delay
the consummation of the transactions contemplated hereby. For purposes of
this Section 2, "Knowledge" shall mean the knowledge of the officers and
directors of CALIPSO, after due inquiry.
Section 2.10 Compliance with Applicable Law. Except as disclosed in
Schedule 2.10 of the CALIPSO Disclosure Schedule, CALIPSO and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "CALIPSO Permits"), except for failures to
hold such permits, licenses, variances, exemptions, orders and approvals
which would not have a Material Adverse Effect on CALIPSO. Except as
disclosed in Schedule 2.10 of the CALIPSO Disclosure Schedule, CALIPSO and
its subsidiaries are in compliance with the terms of the CALIPSO Permits,
except where the failure so to comply would not have a Material Adverse
Effect on CALIPSO. Except as disclosed in Schedule 2.10 of the CALIPSO
Disclosure Schedule, the businesses of CALIPSO and its subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for violations or possible violations which do
not, have a Material Adverse Effect on CALIPSO. Except as disclosed by
CALIPSO no investigation or review by any Governmental Entity with respect to
CALIPSO or its subsidiaries is pending or, to the Knowledge of CALIPSO,
threatened, nor, to the Knowledge of CALIPSO, has any Governmental Entity
indicated an intention to conduct the same.
Section 2.11 Employee Benefit Plans; Labor Matters.
(a) Except as set forth in Schedule 2.11(a) of the CALIPSO
Disclosure Schedule with respect to each employee benefit plan, program,
policy, arrangement and contract (including, without limitation, any
"employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")),
maintained or contributed to at any time by CALIPSO or any entity
required to be aggregated with CALIPSO pursuant to Section 414 of the
Code (each, a "CALIPSO Employee Plan"), no event has occurred and to the
Knowledge of CALIPSO, no condition or set of circumstances exists in
connection with which CALIPSO could reasonably be expected to be subject
to any liability which would have a Material Adverse Effect on CALIPSO.
(b)(i) No CALIPSO Employee Plan is or has been subject to Title IV
of ERISA or Section 412 of the Code; and (ii) each CALIPSO Employee Plan
intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code is the subject of a
favorable Internal Revenue Service determination letter, and nothing has
occurred which could reasonably be expected to adversely affect such
determination.
(c) Schedule 2.11(c) of the CALIPSO Disclosure Schedule sets forth
a true and complete list, as of the date of this Agreement, of each
person who holds any CALIPSO Stock Options, together with the number of
CALIPSO Shares which are subject to such option, the date of grant of
such option, the extent to which such option is vested (or will become
vested as a result of the Merger), the option price of such option (to
the extent determined as of the date hereof), whether such option is a
nonqualified stock option or is intended to qualify as an incentive
stock option within the meaning of Section 422(b) of the Code, and the
expiration date of such option. Section 2.11(c) of the CALIPSO
Disclosure Schedule also sets forth the total number of such incentive
stock options and such nonqualified options. CALIPSO has furnished KFI
with complete copies of the plans pursuant to which the CALIPSO Stock
Options were issued. Other than the automatic vesting of CALIPSO Stock
Options that may occur without any action on the part of CALIPSO or its
officers or directors, CALIPSO has not taken any action that would
result in any CALIPSO Stock Options that are unvested becoming vested in
connection with or as a result of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(d) CALIPSO has made available to KFI (i) a true and complete
description of the terms of employment and compensation arrangements of
all officers of CALIPSO and a copy of each such agreement currently in
effect; (ii) copies of all agreements with consultants who are
individuals obligating CALIPSO to make annual cash payments in an amount
exceeding $10,000; (iii) a schedule listing all officers of CALIPSO who
have executed a confidentiality and non-competition agreement with
CALIPSO and a copy of each such agreement currently in effect; (iv)
copies (or descriptions) of all severance agreements, programs and
policies of CALIPSO with or relating to its employees; and (v) copies of
all plans, programs, agreements and other arrangements of CALIPSO with
or relating to its employees which contain change in control provisions
all of which are set forth in Schedule 2.11(d) of the CALIPSO Disclosure
Schedule.
(e) Except as disclosed by CALIPSO on Schedule 2.11(e) of the
CALIPSO Disclosure Schedule, there shall be no payment, accrual of
additional benefits, acceleration of payments, or vesting in any benefit
under any CALIPSO Employee Plan or any agreement or arrangement
disclosed under this Section 2.11 solely by reason of entering into or
in connection with the transactions contemplated by this Agreement.
(f) There are no controversies pending or, to the Knowledge of
CALIPSO, threatened, between CALIPSO and any of their employees, which
controversies have or could reasonably be expected to have a Material
Adverse Effect on CALIPSO. Neither CALIPSO nor any of its subsidiaries
is a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by CALIPSO or any of its
subsidiaries (and neither CALIPSO nor any of its subsidiaries has any
outstanding material liability with respect to any terminated collective
bargaining agreement or labor union contract), nor does CALIPSO know of
any activities or proceedings of any labor union to organize any of its
or employees. CALIPSO has no Knowledge of any strike, slowdown, work
stoppage, lockout or threat thereof, by or with respect to any of its
employees.
Section 2.12 Environmental Laws and Regulations.
(a) Except as publicly disclosed by CALIPSO in the CALIPSO SEC
Reports, (i) CALIPSO is in material compliance with all applicable
federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) (collectively, "Environmental Laws"),
except for non-compliance that would not have a Material Adverse Effect
on CALIPSO, which compliance includes, but is not limited to, the
possession by CALIPSO of all material permits and other governmental
authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (ii) CALIPSO has not
received written notice of, or, to the Knowledge of CALIPSO, is the
subject of, any action, cause of action, claim, investigation, demand or
notice by any person or entity alleging liability under or non-
compliance with any Environmental Law (an "Environmental Claim"), and
(iii) to the Knowledge of CALIPSO, there are no circumstances that are
reasonably likely to prevent or interfere with such material compliance
in the future.
(b) Except as publicly disclosed by CALIPSO in the CALIPSO SEC
Reports, there are no Environmental Claims pending or, to the Knowledge
of CALIPSO, threatened against CALIPSO or, to the Knowledge of CALIPSO,
against any person or entity whose liability for any Environmental Claim
CALIPSO has or may have retained or assumed either contractually or by
operation of law.
Section 2.3 Tax Matters.
(a) Except as set forth in Schedule 2.13 of the CALIPSO Disclosure
Schedule: (i) CALIPSO has filed or has had filed on its behalf in a
timely manner (within any applicable extension periods) with the
appropriate Governmental Entity all income and other Tax Returns (as
defined herein) with respect to Taxes (as defined herein) of CALIPSO and
all Tax Returns were in all material respects true, complete and
correct; (ii) all Taxes with respect to CALIPSO have been paid in full
or have been provided for in accordance with GAAP on CALIPSO's most
recent balance sheet which is part of the CALIPSO SEC Documents; (iii)
there are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any federal, state, local or foreign
income or other Tax Returns required to be filed by or with respect to
CALIPSO; (iv) to the Knowledge of CALIPSO none of the Tax Returns of or
with respect to CALIPSO is currently being audited or examined by any
Governmental Entity; and (v) no deficiency for any income or other Taxes
has been assessed with respect to CALIPSO which has not been abated or
paid in full. CALIPSO has furnished or made available to KFI complete
and accurate copies of all income and franchise tax returns, and the
amendments thereto, filed by CALIPSO for all taxable years ending on or
after May 31, 1994. All Taxes due and payable by CALIPSO have been
paid. There are no Liens of any kind upon or with respect to any assets
or properties of CALIPSO, including without limitation, any Lien for any
tax. CALIPSO is not and has never been a member of any affiliated,
combined, consolidated, unitary or similar group. CALIPSO has withheld
and paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor, independent
contractor or other third party. CALIPSO does not expect any taxing
authority to assess any additional Taxes against it or in respect of it
for any tax period. There is no dispute or claim concerning any Tax
liability of CALIPSO and no issues have been raised in any examination
by any taxing authority with respect to CALIPSO.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, sales, use, ad valorem, goods and
services, capital, transfer, franchise, profits, license, withholding,
payroll, employment, employer health, excise, estimated, severance,
stamp, occupation, property or other taxes, customs duties, fees,
assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority and (ii) "Tax Return" shall mean any
report, return, documents declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction with
respect to Taxes.
Section 2.14 Title to Property. CALIPSO has good and marketable title
to all of its properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby
or which individually, or in the aggregate, would not have a Material Adverse
Effect on CALIPSO, and, to the Knowledge of CALIPSO, all leases pursuant to
which CALIPSO leases from others real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, to the Knowledge of CALIPSO, under any of such leases, any
existing material default or event of default (or event which with notice of
lapse of time, or both, would constitute a default and in respect of which
CALIPSO has not taken adequate steps to prevent such a default from
occurring) except where the lack of such good standing, validity and
effectiveness, or the existence of such default or event, would not have a
Material Adverse Effect on CALIPSO.
Intellectual Section 2.15 ntellectual Property.
(a) CALIPSO owns, or possesses adequate licenses or other valid
rights to use, all existing United States and foreign patents,
trademarks, trade names, service marks, copyrights, trade secrets and
applications therefore that are material to its business as currently
conducted (the "CALIPSO Intellectual Property Rights").
(b) The validity of the CALIPSO Intellectual Property Rights and
the title thereto of CALIPSO is not being questioned in any litigation
to which CALIPSO is a party.
(c) Except as set forth in Schedule 2.15(c) of the CALIPSO
Disclosure Schedule, the conduct of the business of CALIPSO as now
conducted does not, to CALIPSO's Knowledge, infringe any valid patents,
trademarks, trade names, service marks or copyrights of others. Except
as set forth in Schedule 2.15(c) of the CALIPSO Disclosure Schedule, the
consummation of the transactions completed hereby will not result in the
loss or impairment of any CALIPSO Intellectual Property Rights.
(d) CALIPSO has taken steps it believes appropriate to protect and
maintain its trade secrets as such, except in cases where CALIPSO has
elected to rely on patent or copyright protection in lieu of trade
secret protection.
(e) KFI has no interests in retaining any of the intellectual
property rights currently owned, maintained or used by Calipso or the
Directors of Calipso prior to the Xxxxx including domain names, web
sites, or trademarks. Upon completion of this merger all intellectual
property rights owned by CALIPSO or by the Directors and used by CALIPSO
shall be transferred to Xxxxxx Xxxxxx under separate Intellectual
Property Agreement within 30 days of the Closing.
Section 2.16 Insurance. CALIPSO currently does not maintain general
liability and other business insurance.
Section 2.17 Vote Required. CALIPSO shall provide KFI with copies of
all proxy materials and/or information statements prepared in compliance with
the Securities Act and Exchange Act provided to Stockholders of CALIPSO, and
evidence of approval of the Merger by the Stockholders of CALIPSO.
Section 2.18 Tax Treatment. Neither CALIPSO nor, to the Knowledge of
CALIPSO, any of its affiliates has taken or agreed to take action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
Section 2.19 Affiliates. Except for the directors and executive
officers of CALIPSO, each of whom is listed in Schedule 2.19 of the CALIPSO
Disclosure Schedule, there are no persons who, to the Knowledge of CALIPSO,
may be deemed to be affiliates of CALIPSO under Rule 1-02(b) of Regulation S-
X of the SEC (the "CALIPSO Affiliates").
Section 2.20 Certain Business Practices. None of CALIPSO or any
directors, officers, agents or employees of CALIPSO has (i) used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended (the "FCPA"), or (iii) made any
other unlawful payment.
Section 2.21 Insider Interests. Except as set forth in Schedule 2.21
of the CALIPSO Disclosure Schedule, neither any officer or director of
CALIPSO has any interest in any property, real or personal, including without
limitation, any computer software or CALIPSO Intellectual Property Rights,
used in or pertaining to the business of CALIPSO, expect for the ordinary
rights of a stockholder or employee stock optionholder.
Section 2.22 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of CALIPSO other than the Agreement whereby CALIPSO
shall issue One Million Twelve Thousand Five Hundred (1,012,500) common
restricted shares to Xxxxxx & Bleers and Nine Hundred Eighty-Seven Thousand
Five Hundred (987,500 ) common restricted shares to Ocean Way Investments
Ltd., each of whom shall execute such investment representation letters and
other documents as are reasonably requested by KFI, including, without
limitation, Lock-Up Agreements. One-half of such shares shall be issued at
the Closing for services rendered in connection with the Merger and the
remaining one-half of the shares shall be issued upon receipt of $1,500,000
in equity financing within ninety (90) days of the Closing, and an additional
$1,500,000 in equity financing within one hundred eighty (180) days of the
Closing.
Section 2.23 Disclosure. No representation or warranty of CALIPSO in
this Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to KFI pursuant hereto or in connection herewith
contains, as of the date of such representation, warranty or instrument, or
will contain any untrue statement of a material fact or, at the date thereof,
omits or will omit to state a material fact necessary to make any statement
herein or therein, in light of the circumstances under which such statement
is or will be made, not misleading.
Section 2.24 No Existing Discussions. As of the date hereof, CALIPSO
is not engaged, directly or indirectly, in any discussions or negotiations
with any other party with respect to any Third Party Acquisition.
Section 2.25 Material Contracts.
(a) CALIPSO has delivered or otherwise made available to KFI true,
correct and complete copies of all contracts and agreements (and all
amendments, modifications and supplements thereto and all side letters
to which CALIPSO is a party affecting the obligations of any party
thereunder) to which CALIPSO is a party or by which any of its
properties or assets are bound, that are material to the business,
properties or assets of CALIPSO taken as a whole, including, without
limitation, to the extent any of the following are, individually or in
the aggregate, material to the business, properties or assets of CALIPSO
taken as a whole, all: (i) employment, product design or development,
personal services, consulting, non-competition, severance, golden
parachute or indemnification contracts (including, without limitation,
any contract to which CALIPSO is a party involving employees of
CALIPSO); (ii) licensing, publishing, merchandising or distribution
agreements; (iii) contracts granting rights of first refusal or first
negotiation; (iv) partnership or joint venture agreements; (v)
agreements for, other than in the ordinary course of business, the
acquisition, sale or lease of material properties or assets or stock or
otherwise entered into since December 31, 1999, (vi) contracts or
agreements with any Governmental Entity, and (vii) all commitments and
agreements to enter into any of the foregoing (collectively, together
with any such contracts entered into in accordance with Section 4.1
hereof, the "CALIPSO Contracts"). CALIPSO is not a party to or bound by
any severance, golden parachute or other agreement with any employee or
consultant pursuant to which such person would be entitled to receive
any additional compensation or an accelerated payment of compensation as
a result of the consummation of the transactions contemplated hereby.
(b) Except as set forth in Schedule 2.25, each of the CALIPSO
Contracts is valid and enforceable in accordance with its terms, and
there is no default under any CALIPSO Contract so listed either by
CALIPSO or, to the Knowledge of CALIPSO, by any other party thereto, and
no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder by CALIPSO or, to
the Knowledge of CALIPSO, any other party, in any such case in which
such default or event could reasonably be expected to have a Material
Adverse Effect on CALIPSO.
(c) No party to any such CALIPSO Contract has given notice to
CALIPSO of or made a claim against CALIPSO with respect to any breach or
default thereunder.
Section 2.26 Financial Statements. CALIPSO has delivered to KFI a
true and complete copy of the following financial statements.
(a) the audited balance sheets of CALIPSO as of March 31, 1998,
March 31, 1999 and March 31, 2000 and the related audited statement of
operations for the fiscal years then ended; and
(b) the unaudited balance sheet of CALIPSO as of June 30, 2000 and
the unaudited statement of operations for such interim period
(collectively, the "CALIPSO Financial Statements").
As of their respective dates and for the respective periods then ended,
the audited financial statements and unaudited interim financial statements
(including, in each case, the notes, if any, thereto) included in the CALIPSO
financial statements (a) were prepared in accordance with generally accepted
accounting principals applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes thereto) and (b)
fairly present (subject, in the case of unaudited interim financial
statements, to normal, recurring year-end audit adjustments which are not
expected to be, individually or in the aggregate, materially adverse to
CALIPSO and to the absence of certain footnote disclosures) the financial
position of CALIPSO as at the respective dates thereof and the results of its
operations and cash flows for the respective periods then ended.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF KFI
Except as set forth on the Disclosure Schedule delivered by KFI to
CALIPSO (the "KFI Disclosure Schedule"), KFI hereby represents and warrants
to CALIPSO as follows:
Section 3.1 Organization and Qualification.
(a) KFI is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization
and has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, except
where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a Material Adverse
Effect (as defined below) on KFI. When used in connection with KFI, the
term "Material Adverse Effect" means any change or effect (i) that is or
is reasonably likely to be materially adverse to the business, results
of operations, condition (financial or otherwise) or prospects of KFI,
taken as a whole, other than any change or effect arising out of general
economic conditions unrelated to any businesses in which KFI is engaged,
or (ii) that may impair the ability of KFI to consummate the
transactions contemplated hereby.
(b) KFI has heretofore delivered to CALIPSO accurate and complete
copies of the Certificate of Incorporation and Bylaws (or similar
governing documents), as currently in effect, of KFI. KFI is duly
qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or
licensing necessary except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not have a
Material Adverse Effect on KFI.
Section 3.2 Capitalization of KFI.
(a) As of July 31, 2000, the authorized capital stock of KFI
consists of: (i) One Hundred Million (100,000,000) KFI common Shares,
$0.0001 par value, of which 33,618,500 common Shares are issued and
outstanding; and (ii) Twenty-five Million (25,000,000) KFI Preferred
Shares, $0.0001 par value, no Preferred Shares have been issued. All of
the outstanding KFI Shares have been duly authorized and validly issued,
and are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth in Schedule 3.2(b) of the KFI Disclosure
Schedule, between June 30, 2000 and the date hereof, no shares of KFI's
capital stock have been issued and no KFI Stock options have been
granted. Except as set forth in Section 3.2(a) above, as of the date
hereof, there are no outstanding (i) shares of capital stock or other
voting securities of KFI, (ii) securities of KFI convertible into or
exchangeable for shares of capital stock or voting securities of KFI,
(iii) options or other rights to acquire from KFI, or obligations of KFI
to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of KFI, or
(iv) equity equivalents, interests in the ownership or earnings of KFI
or other similar rights (collectively, "KFI Securities"). Except as set
forth in Schedule 3.2(b) of the KFI Disclosure Schedule, as of the date
hereof, there are no outstanding obligations of KFI to repurchase,
redeem or otherwise acquire any KFI Securities. Except as set forth in
Section 3.2(b), there are no stockholder agreements, voting trusts or
other agreements or understandings to which KFI is a party or by which
it is bound relating to the voting or registration of any shares of
capital stock of KFI.
(c) Except as set forth in Schedule 3.2(c) of the KFI Disclosure
Schedule, there are no securities of KFI convertible into or
exchangeable for, no options or other rights to acquire from KFI, and no
other contract, understanding, arrangement or obligation (whether or not
contingent) providing for the issuance or sale, directly or indirectly,
of any capital stock or other ownership interests in KFI.
(d) The KFI Shares constitute the only class of equity securities
of KFI.
(e) Except as set forth in Schedule 3.2(e) of the KFI Disclosure
Schedule, KFI does not own directly or indirectly more than fifty
percent (50%) of the outstanding voting securities or interests
(including membership interests) of any entity.
Section 3.3 Authority Relative to this Agreement; Recommendation.
KFI has all necessary corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of KFI (the "KFI Board"), and no other corporate
proceedings on the part of KFI are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby, except, as referred to in
Section 3.16, the approval and adoption of this Agreement by the holders of
at least a majority of the then outstanding KFI Shares. Subject to obtaining
the requisite shareholder approval, this Agreement has been duly and validly
executed and delivered by KFI and constitutes a valid, legal and binding
agreement of KFI, enforceable against KFI in accordance with its terms.
Section 3.4 Information Supplied. None of the information supplied
or to be supplied by KFI for inclusion or incorporation by reference to the 8-
K will, at the time the 8-K is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
Section 3.5 Consents and Approvals; No Violations. Except as set
forth in Schedule 3.5 of the KFI Disclosure Schedule, and for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the rules of the NASD, and the
filing and recordation of the Merger Certificate as required by the DGCL, no
filing with or notice to, and no permit, authorization, consent or approval
of, any Governmental Entity is necessary for the execution and delivery by
KFI of this Agreement or the consummation by KFI of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on KFI.
Subject to obtaining requisite shareholder approval, neither the
execution, delivery and performance of this Agreement by KFI nor the
consummation by KFI of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the respective Certificate
of Incorporation or Bylaws (or similar governing documents) of KFI, (ii)
result in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration or Lien) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to
which KFI is a party or by which KFI or any of its respective properties or
assets may be bound or (iii) violate any order, writ, injunction, decree,
law, statute, rule or regulation applicable to KFI or any of its properties
or assets, except in the case of (ii) or (iii) for violations, breaches or
defaults which would not have a Material Adverse Effect on KFI.
Section 3.6 No Default. Except as set forth in Schedule 3.6 of the
KFI Disclosure Schedule, KFI is not in breach, default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a breach, default or violation) of any term, condition or
provision of (i) its Certificate of Incorporation or Bylaws, (ii) any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which KFI is now a party or by which any of its
properties or assets may be bound, or (iii) any order, writ, injunction,
decree, law, statute, rule or regulation applicable to KFI or any of its
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults that would not have a Material Adverse Effect on KFI.
Each note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which KFI is now a party or by which any of
its properties or assets may be bound that is material to KFI taken as a
whole and that has not expired is in full force and effect and is not subject
to any material default thereunder of which KFI is aware by any party
obligated to KFI.
Section 3.7 No Undisclosed Liabilities; Absence of Changes. Except
as set forth in Schedule 3.7 of the KFI Disclosure Schedule, as of June 30,
2000, KFI does not have any liabilities or obligations of any nature, whether
or not accrued, contingent or otherwise, that would be required by generally
accepted accounting principles to be reflected on a balance sheet of KFI
(including the notes thereto) or which would have a Material Adverse Effect
on KFI. Except as disclosed by KFI, since June 30, 2000, KFI has not
incurred any liabilities of any nature, whether or not accrued, contingent or
otherwise, which could reasonably be expected to have, and there have been no
events, changes or effects with respect to KFI having or which reasonably
could be expected to have, a Material Adverse Effect on KFI. Except as and
to the extent disclosed by KFI on Schedule 3.7 of the KFI Disclosure
Schedule, since June 30, 2000, there has not been (i) any material change by
KFI in its accounting methods, principles or practices (other than as
required after the date hereof by concurrent changes in generally accepted
accounting principles), (ii) any revaluation by KFI of any of its assets
having a Material Adverse Effect on KFI, including, without limitation, any
write-down of the value of any assets other than in the ordinary course of
business or (iii) any other action or event that would have required the
consent of any other party hereto pursuant to Section 4.2 of this Agreement
had such action or event occurred after the date of this Agreement.
Section 3.8 Litigation. Except as disclosed by KFI on Schedule 3.8
of the KFI Disclosure Schedule, there is no suit, claim, action, proceeding
or investigation pending or, to the knowledge of KFI, threatened against KFI
or any of its properties or assets before any Governmental Entity which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on KFI or could reasonably be expected to prevent or
delay the consummation of the transactions contemplated by this Agreement.
Except as disclosed by KFI, KFI is not subject to any outstanding order,
writ, injunction or decree which, insofar as can be reasonably foreseen in
the future, could reasonably be expected to have a Material Adverse Effect on
KFI or could reasonably be expected to prevent or delay the consummation of
the transactions contemplated hereby.
Section 3.9 Compliance with Applicable Law. Except as disclosed by
KFI on Schedule 3.9 of the KFI Disclosure Schedule, KFI holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of its business (the "KFI
Permits"), except for such failures to hold KFI Permits that would not have a
Material Adverse Effect on KFI. Except as disclosed on Schedule 3.9, KFI is
in compliance with the terms of the KFI Permits, except where the failure so
to comply would not have a Material Adverse Effect on KFI. Except as
disclosed in Schedule 3.9, the business of KFI is not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity and
except for violations or possible violations which do have a Material Adverse
Effect on KFI. Except as disclosed by KFI, no investigation or review by any
Governmental Entity with respect to KFI is pending or, to the knowledge of
KFI, threatened, nor, to the knowledge of KFI, has any Governmental Entity
indicated an intention to conduct the same.
Section 3.10 Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program, policy,
arrangement and contract (including, without limitation, any "employee
benefit plan," as defined in Section 3(3) of ERISA), maintained or
contributed to at any time by KFI or any entity required to be
aggregated with KFI pursuant to Section 414 of the Code (each, a "KFI
Employee Plan"), no event has occurred and, to the knowledge of KFI, no
condition or set of circumstances exists in connection with which KFI or
any of its subsidiaries could reasonably be expected to be subject to
any liability which would have a Material Adverse Effect on KFI.
(b)(i) No KFI Employee Plan is or has been subject to Title IV of
ERISA or Section 412 of the Code; and (ii) each KFI Employee Plan
intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code is the subject of a
favorable Internal Revenue Service determination letter, and nothing has
occurred which could reasonably be expected to adversely affect such
determination.
(c) Schedule 3.10(c) of the KFI Disclosure Schedule sets forth a
true and complete list, as of the date of this Agreement, of each person
who holds any KFI Stock Options, together with the number of KFI Shares
which are subject to such option, the date of grant of such option, the
extent to which such option is vested (or will become vested as a result
of the Merger), the option price of such option (to the extent
determined as of the date hereof), whether such option is a nonqualified
stock option or is intended to qualify as an incentive stock option
within the meaning of Section 422(b) of the Code, and the expiration
date of such option. Schedule 3.10(c) of the KFI Disclosure Schedule
also sets forth the total number of such incentive stock options and
such nonqualified options. KFI has furnished CALIPSO with complete
copies of the plans pursuant to which the KFI Stock Options were issued.
Other than the automatic vesting of KFI Stock Options that may occur
without any action on the part of KFI or its officers or directors, KFI
has not taken any action that would result in any KFI Stock Options that
are unvested becoming vested in connection with or as a result of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(d) KFI has made available to CALIPSO: (i) a description of the
terms of employment and compensation arrangements of all officers of KFI
and a copy of each such agreement currently in effect; (ii) copies of
all agreements with consultants who are individuals obligating KFI to
make annual cash payments in an amount exceeding $60,000; (iii) a
schedule listing all officers of KFI who have executed a non-competition
agreement with KFI and a copy of each such agreement currently in
effect; (iv) copies (or descriptions) of all severance agreements,
programs and policies of KFI with or relating to its employees, except
programs and policies required to be maintained by law; and (v) copies
of all plans, programs, agreements and other arrangements of the KFI
with or relating to its employees which contain change in control
provisions.
(e) Except as disclosed by KFI on Schedule 3.10(e) of the KFI
Disclosure Schedule, there shall be no payment, accrual of additional
benefits, acceleration of payments, or vesting in any benefit under any
KFI Employee Plan or any agreement or arrangement disclosed under this
Section 3.10 solely by reason of entering into or in connection with the
transactions contemplated by this Agreement.
(f) Except as disclosed by KFI on Schedule 3.10(f) of the KFI
Disclosure Schedule, there are no controversies pending or, to the
knowledge of KFI threatened, between KFI and any of its employees, which
controversies have or could reasonably be expected to have a Material
Adverse Effect on KFI. KFI is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed
by KFI (and KFI does not have any outstanding material liability with
respect to any terminated collective bargaining agreement or labor union
contract), nor does KFI know of any activities or proceedings of any
labor union to organize any of its employees. KFI has no knowledge of
any strike, slowdown, work stoppage, lockout or threat thereof by or
with respect to any of its employees.
Section 3.11 Environmental Laws and Regulations.
(a) Except as disclosed by KFI on Schedule 3.11(a) of the KFI
Disclosure Schedule, (i) KFI is in material compliance with all
Environmental Laws, except for non-compliance that would not have a
Material Adverse Effect on KFI, which compliance includes, but is not
limited to, the possession by KFI of all material permits and other
governmental authorizations required under applicable Environmental
Laws, and compliance with the terms and conditions thereof; (ii) KFI has
not received written notice of, or, to the knowledge of KFI, KFI is not
the subject of, any Environmental Claim that could reasonably be
expected to have a Material Adverse Effect on KFI; and (iii) to the
knowledge of KFI, there are no circumstances that are reasonably likely
to prevent or interfere with such material compliance in the future.
(b) Except as disclosed by KFI on Schedule 3.11(b) of the KFI
Disclosure Schedule, there are no Environmental Claims which could
reasonably be expected to have a Material Adverse Effect on KFI that are
pending or, to the knowledge of KFI, threatened against KFI or, to the
knowledge of KFI, against any person or entity whose liability for any
Environmental Claim KFI has or may have retained or assumed either
contractually or by operation of law.
Section 3.12 Tax Matters. Except as set forth on Schedule 3.12 of the
KFI Disclosure Schedule: (i) KFI has filed or has had filed on its behalf in
a timely manner (within any applicable extension periods) with the
appropriate Governmental Entity all income and other Tax Returns with respect
to Taxes of KFI and all Tax Returns were in all material respects true,
complete and correct; (ii) all Taxes with respect to KFI have been paid in
full or have been provided for in accordance with GAAP on KFI's most recent
balance sheet which is part of the KFI Documents; (iii) there are no
outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local or foreign income or
other material Tax Returns required to be filed by or with respect to KFI;
(iv) to the knowledge of KFI none of the Tax Returns of or with respect to
KFI is currently being audited or examined by any Governmental Entity; and
(v) no deficiency for any income or other Taxes has been assessed with
respect to KFI which has not been abated or paid in full.
Section 3.13 Title to Property. Except as disclosed by KFI on
Schedule 3.13 of the KFI Disclosure Schedule, KFI has good and marketable
title to all of its properties and assets, free and clear of all liens,
charges and encumbrances except liens for taxes not yet due and payable and
such liens or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby or which, individually or in the aggregate, would not have a
Material Adverse Effect on KFI; and, to KFI's knowledge, all leases pursuant
to which KFI leases from others real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, to the knowledge of KFI, under any of such leases, any existing
material default or event of default (or event which with notice or lapse of
time, or both, would constitute a material default and in respect of which
KFI has not taken adequate steps to prevent such a default from occurring)
except where the lack of such good standing, validity and effectiveness, or
the existence of such default or event of default would not have a Material
Adverse Effect on KFI.
Section 3.14 Intellectual Property.
(a) KFI owns, or possesses adequate licenses or other valid rights
to use, all existing United States and foreign patents, trademarks,
trade names, services marks, copyrights, trade secrets, and applications
therefore that are material to its business as currently conducted (the
"KFI Intellectual Property Rights").
(b) Except as set forth on Schedule 3.14(b) of the KFI Disclosure
Schedule the validity of the KFI Intellectual Property Rights and the
title thereto of KFI, is not being questioned in any litigation to which
KFI is a party.
(c) The conduct of the business of KFI as now conducted does not,
to KFI's knowledge, infringe any valid patents, trademarks, tradenames,
service marks or copyrights of others, the consummation of the
transactions contemplated hereby will not result in the loss or
impairment of any KFI Intellectual Property Rights, other than, in each
case, those which KFI reasonably believes will not have a Material
Adverse Effect on KFI.
(d) KFI has taken steps it believes appropriate to protect and
maintain its trade secrets as such, except in cases where KFI has
elected to rely on patent or copyright protection in lieu of trade
secret protection.
Section 3.15 Insurance. KFI currently does not maintain general
liability and other business insurance.
Section 3.16 Vote Required. The affirmative vote of the holders of at
least a majority of the outstanding KFI Shares is the only vote of the
holders of any class or series of KFI's capital stock necessary to approve
and adopt this Agreement and the Merger.
Section 3.17 Tax Treatment. Neither KFI nor, to the knowledge of KFI,
any of its affiliates has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code.
Section 3.18 Affiliates. Except for the directors and executive
officers of KFI, each of whom is listed in Schedule 3.18 of the KFI
Disclosure Schedule, there are no persons who, to the knowledge of KFI, may
be deemed to be affiliates of KFI under Rule 1-02(b) of Regulation S-X of the
SEC (the "KFI Affiliates").
Section 3.19 Certain Business Practices. None of KFI, any of its
directors, officers, agents or employees has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the FCPA, or (iii) made any other
unlawful payment.
Section 3.20 Insider Interests. Except as set forth in Schedule 3.20
of the KFI Disclosure Schedule, no officer or director of KFI has any
interest in any material property, real or personal, including without
limitation, any computer software or KFI Intellectual Property Rights, used
in or pertaining to the business of KFI or any subsidiary, except for the
ordinary rights of a stockholder or employee stock option holder.
Section 3.21 Brokers. Except as set forth in Schedule 3.21 of the KFI
Disclosure Schedule, no broker, finder or investment banker (other than the
KFI Financial Adviser, a true and correct copy of whose engagement agreement
has been provided to CALIPSO) is entitled to any brokerage, finders or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of KFI.
Section 3.22 Disclosure. No representation or warranty of KFI in this
Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to CALIPSO pursuant hereto or in connection
herewith contains, as of the date of such representation, warranty or
instrument, or will contain any untrue statement of a material fact or, at
the date thereof, omits or will omit to state a material fact necessary to
make any statement herein or therein, in light of the circumstances under
which such statement is or will be made, not misleading.
Section 3.23 No Existing Discussions. As of the date hereof, KFI is
not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to any Third Party Acquisition.
Section 3.24 Material Contracts.
(a) KFI has delivered or otherwise made available to CALIPSO true,
correct and complete copies of all contracts and agreements (and all
amendments, modifications and supplements thereto and all side letters
to which KFI is a party affecting the obligations of any party
thereunder) to which KFI is a party or by which any of their properties
or assets are bound that are, material to the business, properties or
assets of KFI taken as a whole, including, without limitation, to the
extent any of the following are, individually or in the aggregate,
material to the business, properties or assets of KFI taken as a whole,
all: (i) employment, product design or development, personal services,
consulting, non-competition, severance, golden parachute or
indemnification contracts (including, without limitation, any contract
to which KFI is a party involving employees of KFI); (ii) licensing,
publishing, merchandising or distribution agreements; (iii) contracts
granting rights of first refusal or first negotiation; (iv) partnership
or joint venture agreements; (v) agreements for the acquisition, sale or
lease of material properties or assets or stock or otherwise; (vi)
contracts or agreements with any Governmental Entity; and (vii) all
commitments and agreements to enter into any of the foregoing
(collectively, the "KFI Contracts"). Except as set forth in Schedule
3.24, KFI is not a party to or bound by any severance, golden parachute
or other agreement with any employee or consultant pursuant to which
such person would be entitled to receive any additional compensation or
an accelerated payment of compensation as a result of the consummation
of the transactions contemplated hereby.
(b) Each of the KFI Contracts is valid and enforceable in
accordance with its terms, and there is no default under any KFI
Contract so listed either by KFI or, to the knowledge of KFI, by any
other party thereto, and no event has occurred that with the lapse of
time or the giving of notice or both would constitute a default
thereunder by KFI or, to the knowledge of KFI, any other party, in any
such case in which such default or event could reasonably be expected to
have a Material Adverse Effect on KFI.
(c) No party to any such KFI Contract has given notice to KFI of
or made a claim against KFI with respect to any breach or default
thereunder, in any such case in which such breach or default could
reasonably be expected to have a Material Adverse Effect on KFI.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business of CALIPSO. Except as contemplated
by this Agreement or as described in Schedule 4.1 of the CALIPSO Disclosure
Schedule, during the period from the date hereof to the Effective Time,
CALIPSO will conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, with
no less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organization, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings
with it to the end that goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing,
except as otherwise expressly provided in this Agreement or as described in
Schedule 4.1 of the CALIPSO Disclosure Schedule, prior to the Effective Time,
CALIPSO will not, without the prior written consent of KFI:
(a) amend its Articles of Incorporation or Bylaws (or other
similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities
(except bank loans) or equity equivalents (including, without
limitation, any stock options or stock appreciation rights;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed
distribution in respect of its capital stock or otherwise make any
payments to stockholders in their capacity as such, or redeem or
otherwise acquire any of its securities;
adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
CALIPSO (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue
any debt securities except for borrowings or issuances of letters of
credit under existing lines of credit in the ordinary course of
business; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person; (iii) make any loans, advances or
capital contributions to, or investments in, any other person; (iv)
pledge or otherwise encumber shares of capital stock of CALIPSO; or (v)
mortgage or pledge any of its material assets, or create or suffer to
exist any material Lien thereupon (other than tax Liens for taxes not
yet due);
(f) except as may be required by law, enter into, adopt or amend
or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund or other arrangement for
the benefit or welfare of any director, officer or employee in any
manner, or increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any
plan and arrangement as in effect as of the date hereof (including,
without limitation, the granting of stock appreciation rights or
performance units); provided, however, that this paragraph (f) shall not
prevent CALIPSO from (i) entering into employment agreements or
severance agreements with employees in the ordinary course of business
and consistent with past practice or (ii) increasing annual compensation
and/or providing for or amending bonus arrangements for employees for
fiscal 2000 in the ordinary course of year-end compensation reviews
consistent with past practice and paying bonuses to employees for fiscal
2000 in amounts previously disclosed to KFI (to the extent that such
compensation increases and new or amended bonus arrangements do not
result in a material increase in benefits or compensation expense to
CALIPSO);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions (other than in the
ordinary course of business);
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets including,
without limitation, writing down the value of inventory or writing-off
notes or accounts receivable other than in the ordinary course of
business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization
or division thereof or any equity interest therein; (ii) enter into any
contract or agreement other than in the ordinary course of business
consistent with past practice which would be material to CALIPSO;
(iii) authorize any new capital expenditure or expenditures which,
individually is in excess of $1,000 or, in the aggregate, are in excess
of $5,000; provided, however that none of the foregoing shall limit any
capital expenditure required pursuant to existing contracts;
(k) make any tax election or settle or compromise any income tax
liability material to CALIPSO;
(l) settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii)
the settlement or compromise of which could have a Material Adverse
Effect on CALIPSO;
(m) commence any material research and development project or
terminate any material research and development project that is
currently ongoing, in either case, except pursuant to the terms of
existing contracts or in the ordinary course of business; or
(n) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through 4.1(m) or any action which
would make any of the representations or warranties of contained in
this Agreement untrue or incorrect.
Section 4.2 Conduct of Business of KFI. Except as contemplated by
this Agreement or as described in Schedule 4.2 of the KFI Disclosure Schedule
during the period from the date hereof to the Effective Time, KFI will
conduct its operations in the ordinary course of business consistent with
past practice and, to the extent consistent therewith, with no less diligence
and effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organization, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement or as described in Schedule 4.2 of the
KFI Disclosure Schedule, prior to the Effective Time, KFI will not, without
the prior written consent of CALIPSO:
(a) amend its Articles of Incorporation or Bylaws (or other
similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities
(except bank loans) or equity equivalents (including, without
limitation, any stock options or stock appreciation rights;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed
distribution in respect of its capital stock or otherwise make any
payments to stockholders in their capacity as such, or redeem or
otherwise acquire any of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger consolidation, restructuring, recapitalization or other
reorganization of KFI (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue
any debt securities except for borrowings or issuances of letters of
credit under existing lines of credit in the ordinary course of
business; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person; (iii) make any loans, advances or
capital contributions to or investments in, any other person; (iv)
pledge or otherwise encumber shares of capital stock of KFI; or (v)
mortgage or pledge any of its material assets, or create or suffer to
exist any material Lien thereupon (other than tax Liens for taxes not
yet due);
(f) except as may be required by law, enter into, adopt or amend
or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund or other arrangement for
the benefit or welfare of any director, officer or employee in any
manner, or increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any
plan and arrangement as in effect as of the date hereof (including,
without limitation, the granting of stock appreciation rights or
performance units); provided, however, that this paragraph (f) shall not
prevent KFI from (i) entering into employment agreements or severance
agreements with employees in the ordinary course of business and
consistent with past practice or (ii) increasing annual compensation
and/or providing for or amending bonus arrangements for employees for
fiscal 2000 in the ordinary course of year end compensation reviews
consistent with past practice and paying bonuses to employees for fiscal
2000 in amounts previously disclosed to CALIPSO (to the extent that such
compensation increases and new or amended bonus arrangements do not
result in a material increase in benefits or compensation expense to
KFI);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions other than in the ordinary
course of business;
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory of writing-off
notes or accounts receivable other than in the ordinary course of
business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership, or other business organization
or division thereof or any equity interest therein; (ii) enter into any
contract or agreement other than in the ordinary course of business
consistent with past practice which would be material to KFI; (iii)
authorize any new capital expenditure or expenditures which,
individually, is in excess of $1,000 or, in the aggregate, are in excess
of $5,000; provided, however that none of the foregoing shall limit any
capital expenditure required pursuant to existing contracts;
(k) make any tax election or settle or compromise any income tax
liability material to KFI;
(l) settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii)
the settlement or compromise of which could have a Material Adverse
Effect on KFI;
(m) commence any material research and development project or
terminate any material research and development project that is
currently ongoing, in either case, except pursuant to the terms of
existing contracts or except in the ordinary course of business; or
(n) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through 4.2(m) or any action which
would make any of the representations or warranties of the KFI contained
in this Agreement untrue or incorrect.
Section 4.3 Preparation of the 8-K. KFI and CALIPSO shall promptly
prepare and file with the SEC an 8-K disclosing this merger with audited
financials of KFI along with pro forma combined statements.
Section 4.4 Other Potential Acquirers. KFI, its affiliates and their
respective officers, directors, employees, representatives and agents shall
immediately cease any existing discussions or negotiations, if any, with any
parties conducted heretofore with respect to any Third Party Acquisition.
Section 4.5 Meetings of Stockholders. KFI shall take all action
necessary, in accordance with the General Corporation Law of its state of
incorporation, and its Certificate of Incorporation and bylaws, to duly call,
give notice of, convene and hold a meeting of its stockholders as promptly as
practicable, to consider and vote upon the adoption and approval of this
Agreement and the transactions contemplated hereby. KFI will, through its
Board of Directors, recommend to its shareholders approval of such matters.
Section 4.6 NASD OTC:BB Listing. The parties shall use all
reasonable efforts to maintain the quotation of the CALIPSO Shares on the
National Association of Securities Dealers, Inc. (NASD) Over-the-Counter
Bulletin Board (OTC:BB) or other national stock exchange.
Section 4.7 Access to Information.
(a) Between the date hereof and the Effective Time, CALIPSO will
give KFI and its authorized representatives, and KFI will give CALIPSO
and its authorized representatives, reasonable access to all employees,
plants, offices, warehouses and other facilities and to all books and
records of itself, will permit the other party to make such inspections
as such party may reasonably require and will cause its officers to
furnish the other party with such financial and operating data and other
information with respect to the business and properties of itself as the
other party may from time to time reasonably request.
(b) Between the date hereof and the Effective Time, CALIPSO shall
furnish to KFI, and KFI will furnish to CALIPSO, within 25 business days
after the end of each quarter, quarterly statements prepared by such
party in conformity with its past practices) as of the last day of the
period then ended.
(c) Each of the parties hereto will hold and will cause its
consultants and advisers to hold in confidence all documents and
information furnished to it in connection with the transactions
contemplated by this Agreement.
Section 4.8 Additional Agreements, Reasonable Efforts. Subject to
the terms and conditions herein provided, each of the parties hereto agrees
to use all reasonable efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, (i) cooperating in the preparation and filing of the 8-K, any
filings that may be required under the HSR Act, and any amendments to any
thereof; (ii) obtaining consents of all third parties and Governmental
Entities necessary, proper or advisable for the consummation of the
transactions contemplated by this Agreement; (iii) contesting any legal
proceeding relating to the Merger and (iv) the execution of any additional
instruments necessary to consummate the transactions contemplated hereby.
Subject to the terms and conditions of this Agreement, KFI and CALIPSO agree
to use all reasonable efforts to cause the Effective Time to occur as soon as
practicable after the stockholder votes with respect to the Merger. In case
at any time after the Effective Time any further action is necessary to carry
out the purposes of this Agreement, the proper officers and directors of each
party hereto shall take all such necessary action.
Section 4.9 Indemnification; Releases
(a) Subject to obtaining a Release in form reasonably acceptable
by the parties from each officer and director of CALIPSO, and provided
that all such Releases are obtained, CALIPSO agrees, to the extent, if
any, not provided by an existing right under one of the parties'
directors and officers liability insurance policies, from and after the
Effective Time, to the fullest extent permitted by applicable law and
CALIPSO's Certificate of Incorporation and Bylaws, to indemnify, defend
and hold harmless each person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Time, a
director or officer of CALIPSO (each an "Indemnified Party" and,
collectively, the ``Indemnified Parties") against all losses, expenses
(including reasonable attorneys' fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence,
amounts paid in settlement arising out of actions or omissions occurring
at or prior to the Effective Time and whether asserted or claimed prior
to, at or after the Effective Time) that are in whole or in part based
on the Merger or arising out of the business of the Surviving
Corporation after the Merger, provided, however, in no event shall
CALIPSO have the obligation to indemnify and hold harmless any
Indemnified Party or Indemnified Parties for any breach of their duty of
loyalty to CALIPSO or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law (including, without limitation, any federal or state
securities laws), for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL, or
for any transaction from which the Indemnified Person derived an
improper personal benefit. In the event of any such loss, expense,
claim, damage or liability (whether or not arising before the Effective
Time), (i) CALIPSO shall advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, to the extent
not prohibited by the DGCL or its Certificate of Incorporation or
Bylaws, (ii) CALIPSO will cooperate in the defense of any such matter
and (iii) any determination required to be made with respect to whether
an Indemnified Party's conduct complies with the standards set forth
under the DGCL and CALIPSO's Certificate of Incorporation or Bylaws
shall be made by independent counsel mutually acceptable to CALIPSO and
the Indemnified Party; provided, however, that CALIPSO shall not be
liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld). The Indemnified Parties as
a group may retain only one law firm with respect to each related
matter.
(b) In the event CALIPSO or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or
merger or (ii) transfers all or substantially all of its properties and
assets to any person, then and in either such case, proper provision
shall be made so that the successors and assigns of CALIPSO shall assume
the obligations set forth in this Section 4.9.
(c) The provisions of this Section 4.9 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her representatives.
Section 4.10 Information Statement. As soon as practicable after the
execution of this Agreement, CALIPSO will prepare an Information Statement or
other applicable filing for mailing to its stockholders, in accordance with
the requirements of all federal and state securities laws and other
applicable laws. CALIPSO will file the Information Statement with the
Securities and Exchange Commission and with appropriate regulatory
authorities in all jurisdictions where the same is required and will mail the
same to the appropriate persons in accordance with applicable federal and
state securities laws. Each party will provide the other on a timely basis
with all such information as may be required to be included in the
Information Statement. The parties will cooperate with each other in
connection with the preparation of documentation for submission to regulatory
authorities and holders of their respective securities and will keep each
other informed of any requests or comments made by regulatory authorities in
connection with such documentation. CALIPSO will, through its Board of
Directors, recommend to its stockholders, approval of such matters.
Section 4.11 Press Releases. No press release or other public
announcement concerning the proposed transactions contemplated by this
Agreement will be made by any party hereto without the prior consent of the
other party, such consent not to be unreasonably withheld; provided, however,
that any party may without such consent make such disclosure about itself as
may be required by any stock exchange on which its securities are listed or
by federal and state securities laws or any regulatory authority having
jurisdiction over such party and, if such disclosure is required, the party
making the disclosure will use reasonable efforts to give prior oral or
written notice to the other party and an opportunity to allow the other party
to comment on the proposed disclosure provided the party required to make the
disclosure has reasonable time to do so before such regulatory authorities
require such disclosure to be made.
Section 4.12 Other Filings. At all times from and after the date
hereto until the Effective Time, CALIPSO covenants and agrees to make all
filings it is required to make pursuant to the Exchange Act on a timely
basis.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1 Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of KFI and CALIPSO;
(b) this Agreement shall have been approved and adopted by the
Board of Directors of CALIPSO and KFI;
(c) no statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or enforced
by any United States court or United States governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the
Merger; and
(d) any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired, and any other governmental or
regulatory notices or approvals required with respect to the
transactions contemplated hereby shall have been either filed or
received.
Section 5.2 Conditions to the Obligations of CALIPSO. The obligation
of CALIPSO to effect the Merger is subject to the satisfaction at or prior to
the Effective Time of the following conditions:
(a) the representations of KFI contained in this Agreement or in
any other document delivered pursuant hereto shall be true and correct
(except to the extent that the breach thereof would not have a Material
Adverse Effect on KFI) at and as of the Effective Time with the same
effect as if made at and as of the Effective Time (except to the extent
such representations specifically related to an earlier date, in which
case such representations shall be true and correct as of such earlier
date), and at the Closing KFI shall have delivered to CALIPSO a
certificate to that effect;
(b) each of the covenants and obligations of KFI to be performed
at or before the Effective Time pursuant to the terms of this Agreement
shall have been duly performed in all material respects at or before the
Effective Time and at the Closing KFI shall have delivered to CALIPSO a
certificate to that effect;
(c) KFI shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the
Merger as relates to any obligation, right or interest of KFI under any
loan or credit agreement, note, mortgage, indenture, lease or other
agreement or instrument, except those for which failure to obtain such
consents and approvals would not, in the reasonable opinion of CALIPSO,
individually or in the aggregate, have a Material Adverse Effect on KFI;
and
(d) there shall have been no events, changes or effects with
respect to KFI having or which could reasonably be expected to have a
Material Adverse Effect on KFI.
Section 5.3 Conditions to the Obligations of KFI. The obligation of
KFI to effect the Merger is subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) the representations of CALIPSO contained in this Agreement or
in any other document delivered pursuant hereto shall be true and
correct (except to the extent that the breach thereof would not have a
Material Adverse Effect on CALIPSO) at and as of the Effective Time with
the same effect as if made at and as of the Effective Time (except to
the extent such representations specifically related to an earlier date,
in which case such representations shall be true and correct as of such
earlier date), and at the Closing CALIPSO shall have delivered to KFI a
certificate to that effect;
(b) each of the covenants and obligations of CALIPSO to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and at the Closing CALIPSO shall have
delivered to KFI a certificate to that effect;
(c) CALIPSO shall have obtained the consent or approval of each
person whose consent or approval shall be required in order to permit
the Merger as relates to any obligation, right or interest of CALIPSO
under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument, except those for which failure to obtain
such consents and approvals would not, in the reasonable opinion of KFI,
individually or in the aggregate, have a Material Adverse Effect on
CALIPSO;
(d) there shall have been no events, changes or effects with
respect to CALIPSO having or which could reasonably be expected to have
a Material Adverse Effect on CALIPSO;
(e) effective as of the Closing, Xxxxxx X. Xxxxxx and Xxxxxxxx
Xxxx Xxxxxx will surrender to CALIPSO, for cancellation, certificates
totaling 4,860,000 shares of CALIPSO's Common Stock;
(f) the Release referred to in Section 4.9 and the Lock-Up
Agreements shall have been entered into in forms reasonably satisfactory
to the parties;
(g) The stockholders of CALIPSO and the stockholders of KFI shall
have approved the principal terms of this Agreement, the Merger and the
transactions contemplated herein in accordance with applicable law and
their Certificate of Incorporation and Bylaws,
(h) At the Closing, CALIPSO shareholders holding in the aggregate
less than one percent (1%) of the CALIPSO Common Stock shall have
perfected dissenter's or appraisal rights.
(i) KFI shall have received such additional documents,
certificates, covenants, representations and warranties as may be
reasonably necessary, in the opinion of its legal counsel, to ensure
that the KFI stockholders will receive good title to 33,918,400 CALIPSO
Common Shares, which shares shall represent at least eighty percent
(80%) of the issued and outstanding capital stock of CALIPSO as of the
Effective Date.
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
Section 6.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval and adoption of this Agreement by CALIPSO's or
KFI's stockholders:
(a) by mutual written consent of CALIPSO and KFI;
(b) by KFI or CALIPSO if (i) any court of competent jurisdiction
in the United States or other United States Governmental Entity shall
have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and
such order, decree, ruling or other action is or shall have become
nonappealable or (ii) the Merger has not been consummated by October 1,
2000; provided, however, that no party may terminate this Agreement
pursuant to this clause (ii) if such party's failure to fulfill any of
its obligations under this Agreement shall have been the reason that the
Effective Time shall not have occurred on or before said date;
(c) by CALIPSO if (i) there shall have been a breach of any
material representation or warranty on the part of KFI set forth in this
Agreement, or if any representation or warranty of KFI shall have become
untrue, in either case such that the conditions set forth in Section
5.2(a) would be incapable of being satisfied by October 1, 2000 (or as
otherwise extended), (ii) there shall have been a breach by KFI of its
covenants or agreements hereunder having a Material Adverse Effect on
KFI or materially adversely affecting (or materially delaying) the
consummation of the Merger, and KFI, has not cured such breach within 20
business days after notice by CALIPSO thereof, provided that CALIPSO has
not breached any of its obligations hereunder, or (iii) CALIPSO shall
have convened a meeting of its stockholders to vote upon the Merger and
shall have failed to obtain the requisite vote of its stockholders; or
(d) by KFI if (i) there shall have been a breach of any material
representation or warranty on the part of CALIPSO set forth in this
Agreement, or if any representation or warranty of CALIPSO shall have
become untrue, in either case such that the conditions set forth in
Section 5.3(a) would be incapable of being satisfied by October 1, 2000
(or as otherwise extended), (ii) there shall have been a breach by
CALIPSO of its covenants or agreements hereunder having a Material
Adverse Effect on CALIPSO or materially adversely affecting (or
materially delaying) the consummation of the Merger, and CALIPSO has not
cured such breach within 20 business days after notice by KFI thereof,
provided that KFI has not breached any of its obligations hereunder, or
(iii) KFI shall have convened a meeting of its stockholders to vote upon
the Merger and shall have failed to obtain the requisite vote of its
stockholders.
Section 6.2 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 6.1, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party hereto or its affiliates, directors, officers or
stockholders, other than the provisions of this Section 6.2 and Sections
4.7(c) and 6.3 hereof. Nothing contained in this Section 6.2 shall relieve
any party from liability for any breach of this Agreement.
Section 6.3 Fees and Expenses. Except as specifically provided in
this Section 6.3, each party shall bear its own expenses in connection with
this Agreement and the transactions contemplated hereby; provided, however,
that notwithstanding anything herein to the contrary, CALIPSO's fees and
expenses shall not be paid or reimbursed by the Surviving Corporation.
Section 6.4 Amendment. This Agreement may be amended by action taken
by CALIPSO and KFI at any time before or after approval of the Merger by the
stockholders of CALIPSO and KFI (if required by applicable law) but, after
any such approval, no amendment shall be made which requires the approval of
such stockholders under applicable law without such approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of the
parties hereto.
Section 6.5 Extension; Waiver. At any time prior to the Effective
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of any other party, (ii) waive any inaccuracies
in the representations and warranties of any other party contained herein or
in any document, certificate or writing delivered pursuant hereto or (iii)
waive compliance by any other party with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall
not limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 7.2 Entire Agreement; Assignment. This Agreement and the
exhibits and schedules attached hereto (a) constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings both written and
oral, between the parties with respect to the subject matter hereof and (b)
shall not be assigned by operation of law or otherwise.
Section 7.3 Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be severable.
Section 7.4 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person,
by facsimile or by registered or certified mail (postage prepaid, return
receipt requested), to each other party as follows:
If to KFI: KNOWLEDGE FOUNDATIONS, INC.
Attn: Xxxxxxx X. Xxxxxxxxxx
0000 Xxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
with a copy to: Xxxxx X. Xxxxxx
0000 Xxxxxx Xxx Xxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
if to CALIPSO: CALIPSO, INC.
Attn: Xxxxxx X. Xxxxxx
00000 Xxxxxxx Xxxx, Xxxxx X
Xxxxx, XX 00000
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
regard to the principles of conflicts of law thereof.
Section 7.6 Descriptive Headings. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
Section 7.7 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and its successors
and permitted assigns, and except as provided in Sections 4.9, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under
or by reason of this Agreement.
Section 7.8 Certain Definitions. For the purposes of this Agreement,
the term:
(a) "affiliate" means (except as otherwise provided in Sections
2.19 and 3.18 a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "business day" means any day other than a day on which Nasdaq
is closed;
(c) "capital stock" means common stock, preferred stock,
partnership interests, limited liability company interests or other
ownership interests entitling the holder thereof to vote with respect to
matters involving the issuer thereof;
(d) "person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated
organization or other legal entity; and
(e) "subsidiary" or "subsidiaries" of CALIPSO, KFI or any other
person, means any corporation, partnership, limited liability company,
association, trust, unincorporated association or other legal entity of
which CALIPSO, KFI or any such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly
or indirectly, 50% or more of the capital stock, the holders of which
are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
Section 7.9 Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part
of any direct or indirect stockholder of CALIPSO, KFI or any officer,
director, employee, agent, representative or investor of any party hereto.
Section 7.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
[SIGNATURE PAGE IS NEXT PAGE]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
KNOWLEDGE FOUNDATIONS, INC. CALIPSO, INC.
By:/s/ Xxxxxxx Xxxxxxxxxx By:/s/ Xxxxxx Xxxxxx
Name: Xxxxxxx X. Xxxxxxxxxx Name: Xxxxxx X. Xxxxxx
Title: President Title: President
