AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is
entered into as of October 1, 2002 ("Agreement Date"), by and among Trinity
Companies, Inc., a Utah corporation ("Acquirer"), Competency Based
Learning, Inc., a California corporation ("Target"), CBL Acquisition Corp.,
a Utah corporation that is a wholly-owned subsidiary of Acquirer ("Newco").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Target will merge with and into Newco in a
triangular merger (the "Merger"), with Newco to be the surviving
corporation of the Merger, all pursuant to the terms and conditions of this
Agreement and the applicable provisions of the Utah Revised Business
Corporation Act ("Utah Law") and the applicable provisions of the
California General Corporation Law (the "California Law"). Upon the
effectiveness of the Merger (the "Effective Time"), all the outstanding
Target Common Stock, no par value ("Target Common Stock") will be converted
into Common Stock and other consideration from Acquirer, all in the manner
and on the basis determined herein.
B. The Merger is intended to be treated in accordance with the
purchase method of accounting and as a tax-free reorganization pursuant to
the provisions of Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code"), by virtue of the provisions of Section
368(a)(2)(E) of the Code.
NOW, THEREFORE, the parties hereto agree as follows:
1. PLAN OF REORGANIZATION
1.1 The Merger.
-----------
The Articles of Merger required by Section
16-10a-1105 of the Utah Law ("the Articles of Merger") will be filed with
the Division of Corporations and Commercial Code of the Utah Department of
Commerce (the "Division") as soon as practicable after the Closing (as
defined in Section 7.1 below). The Effective Time will occur upon the
filing of the Articles of Merger with the Division, or on such other date
as the parties hereto may mutually agree upon. Subject to the terms and
conditions of this Agreement, Target will be merged with and into Newco in
a statutory merger pursuant to this Agreement and in
accordance with applicable provisions of Utah Law
as follows:
1.1.1 Conversion of Target Common Stock.
----------------------------------
Each share of Target Common Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares, as
defined in Section 1.9 below) will, by virtue of the Merger
and at the Effective Time, and without any action on the part of any holder
thereof, be canceled and converted into the right to receive (i) the
Applicable Fraction (determined in accordance with Section 1.1.2 hereof) of
a share of validly issued, fully paid and nonassessable Common Stock of
Acquirer ("Acquirer Common Stock"), and (ii) a Convertible Note (as defined
in Section 1.1.2).
1.1.2 Definitions; Consideration.
---------------------------
(a) The "Applicable Fraction" shall be determined by
dividing (i) the "Total Acquirer Shares" (as defined below) by (ii) the sum
of the number of shares Target Common Stock outstanding at the Effective
Time.
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(b) The "Total Acquirer Shares" shall mean the total
number of shares of Acquirer Common Stock to be issued or to become
issuable in the Merger to the holders of Target capital stock, which shall
equal 1,455,000 shares of Acquirer Common Stock.
(c) The "Convertible Note" shall mean the Secured
Convertible Note issued by Acquirer to each holder of Target Common Stock
in the amount equal to $485.00 for each share of Target Common Stock held
by each such holder dated as of an even date herewith in the form attached
hereto as Exhibit A. In no event shall the aggregate amount of all
Convertible Notes exceed $485,000.
(d) The "Security Agreements" shall mean those certain
security agreements executed in connection with the Convertible Note in the
form attached hereto as Exhibit B.
1.1.3 Adjustments for Capital Changes.
--------------------------------
If prior to the Merger, Acquirer or Target recapitalizes
either through a split-up of its outstanding shares into a greater number,
or through a combination of its outstanding shares into a lesser number, or
reorganizes, reclassifies or otherwise changes its outstanding shares into
the same or a different number of shares of other classes (other than
through a split-up or combination of shares provided for in the previous
clause), or declares a dividend on its outstanding shares payable in shares
or securities convertible into shares, the calculation of the Applicable
Fraction will be adjusted appropriately.
1.2 Fractional Shares.
------------------
No fractional shares of Acquirer Common Stock will be
issued in connection with the Merger, but in lieu thereof, the holder of
any shares of Target Company Stock who would otherwise be entitled to
receive a fraction of a share of Acquirer Common Stock will receive from
Acquirer, promptly after the Effective Time, one share of Acquirer Common
Stock.
1.3 Escrow Agreement.
-----------------
Pursuant to an Escrow Agreement to be entered into on or
before the Closing Date (as defined in Section 7.1) in the form attached as
Exhibit 1.3 (the "Escrow Agreement"), among Acquirer, the Target
Shareholder (as that term is defined in Section 2.3), Xxxxx Xxxxxxx
(pursuant to a separate Securities Purchase Agreement dated as of an even
date herewith) and Heritage Bank of Commerce (the "Escrow Agent"), Acquirer
will withhold from the Total Acquirer Shares and deposit into escrow an
aggregate of at least 500,000 shares of Acquirer Common Stock (the "Escrow
Shares"). From the Total Acquirer Shares that would otherwise be
distributable at Closing to the holders of Target Common Stock ("Closing
Distributable Shares"), Escrow Shares shall be withheld and deposited into
escrow. Promptly after the Closing Date, Acquirer will deposit or cause to
be deposited in escrow pursuant to the Escrow Agreement, the Escrow Shares.
The Escrow Shares will be held in escrow as collateral for the
indemnification obligations of Target Shareholder under Section 11.2 below
and will be released from escrow pursuant to the Escrow Agreement.
1.4 Effects of the Merger.
----------------------
At the Effective Time, the parties agree that the
following shall occur, whether by law or by action of Acquirer: (a) the
separate existence of Target will cease and Target will be merged with and
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into Newco and Newco will be the surviving corporation pursuant to the
terms of this Agreement (the "Surviving Corporation"); (b) the Articles of
Incorporation and Bylaws of Newco will remain the Articles of Incorporation
and Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law; (c) each share of Target Common Stock will
be converted as provided in this Section 1; (d) all of the directors of
NewCo and two (2) directors designated by Target (the "Target Directors")
will become the directors of Surviving Corporation and the executive
officers of Target will become the executive officers of Surviving
Corporation, and during the term of Target Shareholder's employment
agreement with Newco and so long as any amount of principal or interest
remains outstanding under the Convertible Note, Acquirer shall cause the
Target Directors to be elected or appointed to the board of directors of
Surviving Corporation; and (e) the Merger will, at and after the Effective
Time, have all of the effects provided by applicable law. The initial
Target Directors shall be Xxxxxx Xxxxxxx Xxxxxxxx ("Scammell") and Xxxxx
Xxxxxxx ("Xxxxxxx").
1.5 Further Assurances.
-------------------
Target agrees that if, at any time after the Effective Time,
Acquirer considers or is advised that any further deeds, assignments or
assurances are reasonably necessary or desirable to vest, perfect or
confirm in Acquirer or the Surviving Corporation title to any property or
rights of Target as provided herein, Acquirer and any of its officers are
hereby authorized by Target to execute and deliver all such proper deeds,
assignments and assurances and do all other things necessary or desirable
to vest, perfect or confirm title to such property or rights in Acquirer or
the Surviving Corporation and otherwise to carry out the purposes of this
Agreement, in the name of Target, the Target Shareholder or otherwise.
1.6 Private Placement; Certificate Legends.
---------------------------------------
The shares of Acquirer Common Stock to be issued pursuant to
this Section 1 shall not have been registered and shall be characterized as
"restricted securities" under the federal securities laws, and under such
laws such shares may be resold without registration under the Securities
Act of 1933, as amended (the "Securities Act"), only in certain limited
circumstances. Each certificate evidencing shares of Acquirer Common Stock
to be issued pursuant to this Section 1 shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF
LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED."
and any legends required by state securities laws. Specifically, the
shares issuable in connection with the Merger will not be eligible for
public resale under Rule 144 for a period of not less than one year
following the Merger.
1.7 Tax-Free Reorganization.
------------------------
The parties intend to adopt this Agreement as a tax-free
plan of reorganization and to consummate the Merger in accordance with the
provisions of Section 368(a)(1)(A) of the Code, by virtue of the provisions
of Section 368(a)(2)(E) of the Code. For purposes of this Section 1.7,
Acquirer and Target agree to report the transactions contemplated in this
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Agreement in a manner consistent with the reorganization treatment they
intend and will not take any position inconsistent therewith in any tax
return, refund claim, litigation or otherwise unless required to do so by
any governmental authority or advised in writing to do so by Acquirer's tax
advisor. Acquirer, Newco and Target will use all reasonable best efforts
prior to the Effective Time to cause the Merger to qualify as a
reorganization under Section 368(a)(1)(A) of the Code. In the event the
transactions contemplated by this Agreement are deemed by any relevant
taxing authority not to qualify as a tax-free reorganization, Target
covenants to cause Target Shareholder to pay any and all taxes or other
governmental fees assessed as a result of the failure to so qualify.
1.8 Purchase Accounting.
--------------------
The parties intend that the Merger be treated as a
purchase for accounting purposes.
1.9 Dissenting Shares.
------------------
Holders of shares of Target capital stock who have
complied with all requirements for perfecting shareholders' dissenters'
rights, as set forth in Section 1300 et seq. of the California Law, shall
be entitled to their rights under the California Law with respect to such
shares ("Dissenting Shares").
2. REPRESENTATIONS AND WARRANTIES OF TARGET
For purposes of the representations and warranties of Target
contained herein, disclosure in any section of the Target Disclosure Letter
(defined below) shall be deemed to be adequate response and disclosure of
such facts or circumstances with respect to all representations or
warranties by Target which would reasonably call for disclosure of such
information, whether or not such disclosure is specifically associated with
or purports to respond to one or more or all of such representations or
warranties; provided such disclosure is fair and accurate. The inclusion
of any information in any section of the Target Disclosure Letter or other
document delivered by Target pursuant to this Agreement shall not be deemed
to be an admission or evidence of the materiality of such item, nor shall
it establish a standard of materiality for any purpose whatsoever. Target
hereby represents and warrant that, except as disclosed in the Target
disclosure letter (the "Target Disclosure Letter") delivered by Target to
Acquirer herewith as amended from time to time prior to Closing:
2.1 Organization and Good Standing.
-------------------------------
Except as disclosed in Item 2.1, Target is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, has the corporate power and authority to own, operate
and lease its properties and to carry on its business as now conducted and
is qualified as a foreign corporation in each jurisdiction where the nature
of its business or location of its properties requires such qualification
except where the failure to so qualify would not result in a Material
Adverse Effect (as defined in Section 12.13 below) on Target.
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2.2 Power, Authorization and Validity.
----------------------------------
2.2.1 Target has the corporate right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement and under the Escrow Agreement and the other agreements to be
signed by Target in connection with this Agreement (the "Target Ancillary
Agreements"). This Agreement and the Target Ancillary Agreements have been
or will be duly executed and delivered by Target. The execution, delivery
and performance of this Agreement and the Target Ancillary Agreements have
been duly and validly approved and authorized by all necessary corporate
action on the part of Target (other than the approval and adoption of this
Agreement by the shareholders of Target as required under California Law).
The Board of Directors of Target has (a) unanimously determined that the
Merger is advisable and fair and in the best interests of Target and its
shareholders, (b) unanimously approved the execution, delivery and
performance of this Agreement by the Target and has unanimously approved
the Merger, and (c) unanimously recommended the adoption and approval of
this Agreement and the Merger by the Target Shareholder and directed that
this Agreement and the Merger be submitted for consideration by the
Target's shareholders at the Shareholders' Meeting (as defined in
Section 4.14). The affirmative vote of the holders of a majority of the
shares of Target Common Stock, voting in accordance with Target's Articles
of Incorporation and California Law, outstanding on the record date for the
Shareholders' Meeting (the "Required Vote") is the only vote of the holders
of any class or series of the Company's capital stock necessary to adopt
and approve this Agreement, the Merger and the other transactions
contemplated by this Agreement.
2.2.2 No filing, authorization or approval with or of any
governmental entity is necessary or required to be made or obtained prior
to the Effective Time to enable Target to enter into, and to perform its
obligations under, this Agreement and the Target Ancillary Agreements,
except for (a) the filing of the Articles of Merger with the Secretary of
State, the filing of such officers' certificates and other documents as are
required to effectuate the Merger under Utah law and the filing of
appropriate documents with the relevant authorities of the states other
than Delaware and Utah in which Target is qualified to do business, if any,
(b) such filings as may be required to comply with federal and state
securities laws, and (c) the approval of the Target Shareholder of the
transactions contemplated hereby.
2.2.3 Assuming the due authorization, execution and delivery
by Acquirer and, if applicable, Newco, this Agreement and the Target
Ancillary Agreements are, or when executed and delivered by Target, and the
other parties thereto will be, valid and binding obligations of Target,
enforceable against Target and against the Escrow Shares deposited pursuant
to the Escrow Agreement in accordance with their respective terms, subject
to approval of Target's shareholders, except as to the effect, if any, of
(a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (b) rules of law governing specific performance,
injunctive relief and other equitable remedies, and (c) the enforceability
of provisions requiring indemnification in connection with the offering,
issuance or sale of securities.
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2.3 Capitalization.
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(a) Authorized/Outstanding Capital Stock.
-------------------------------------
As of the date hereof, the authorized capital stock of
Target consists of 600,000 shares of Common Stock, no par value, of which
1,000 shares designated as Series A Common Stock are issued and
outstanding, and 500,000 shares of Preferred Stock, none of which are
issued and outstanding. All issued and outstanding shares of Target
capital stock have been duly authorized and validly issued, are fully paid
and nonassessable, are not subject to any right of rescission and have been
offered, issued, sold and delivered by Target in compliance with all
registration or qualification requirements (or applicable exemptions
therefrom) of applicable federal and state securities laws, except where
the failure to so qualify would not result in a Material Adverse Effect on
Target. A list of all holders of Target Stock, and the number of shares
and options held by each, in each case as of the date hereof, has been
delivered by Target to Acquirer herewith as Item 2.3. As of the date
hereof, Scammell is the sole shareholder of Target ("Target Shareholder").
(b) Options/Rights.
---------------
Except as disclosed in Section 2.3(a) or on Item 2.3,
there are no options, warrants, calls, commitments, conversion privileges
or preemptive or other rights or agreements outstanding to purchase any of
Target's authorized but unissued capital stock or any securities
convertible into or exchangeable for shares of Target Stock or obligating
Target to grant, extend, or enter into any such option, warrant, call,
right, commitment, conversion privilege or other right or agreement, and
there is no liability for dividends accrued but unpaid. Except as
described in Item 2.3, there are no voting agreements, rights of first
refusal or other restrictions (other than normal restrictions on transfer
under applicable federal and state securities laws) applicable to any of
Target's outstanding securities. Except as described in Item 2.3, Target is
not under any obligation to register under the Securities Act any of its
presently outstanding securities or any securities that may be subsequently
issued.
2.4 Subsidiaries and Guaranties.
----------------------------
Except as disclosed in Item 2.4 of the Disclosure Letter,
Target does not have any subsidiaries or any interest, direct or indirect,
in any corporation, partnership, joint venture or other business entity.
Target is not a guarantor of any obligation of a third party, whether or
not such third party is related to or affiliated with Target.
2.5 No Violation of Existing Agreements or Laws.
--------------------------------------------
Except as disclosed in Item 2.5, neither the execution and
delivery of this Agreement or any Target Ancillary Agreement, nor the
consummation of the transactions provided for herein or therein, will
conflict with, or (with or without notice or lapse of time, or both) result
in a termination, breach or violation of (a) any provision of the Articles
of Incorporation or Bylaws of Target, as currently in effect, (b) any
instrument or contract to which Target or is a party or by which Target is
bound or (c) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Target or any Subsidiary
or their respective assets or properties, other than, with respect to (a),
(b) and (c), any such conflict, termination, breach or violation that would
not have a Material Adverse Effect on Target. The consummation of the
Merger and succession by the Surviving Corporation to all rights, licenses,
franchises, leases and agreements of Target in and of itself will not
require the consent of any third party, except as disclosed in Item 2.5.
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2.6 Litigation.
-----------
Except as disclosed in Item 2.6, there is no action,
proceeding or claim or investigation pending against Target before any
court or administrative agency nor is there any basis therefor, nor has any
party threatened the same. Except as disclosed in Item 2.6, there is no
basis for any shareholder or former shareholder of Target, or any other
person, firm, corporation or entity to assert a claim against Target,
Acquirer or the Surviving Corporation as successor in interest to Target
based upon: (a) ownership or rights to ownership of any shares of Target
Stock or other securities, (b) any rights as a Target securities holder,
including, without limitation, any option or other right to acquire any
Target securities, any preemptive rights or any rights to notice or to vote
or (c) any rights under any agreement between Target and any Target
securities holder or former Target securities holder in such holder's
capacity as such. There is no action, suit, proceeding, claim, arbitration
or investigation pending or as to which Target has received any notice of
assertion against Target, which in any manner challenges or seeks to
prevent, enjoin, materially alter or materially delay any of the
transactions contemplated by this Agreement.
2.7 Target Financial Statements.
----------------------------
Target has delivered to Acquirer in Item 2.7(a) Target's
balance sheet as of March 31, 2002 (respectively, the "Target Balance
Sheet" and the "Balance Sheet Date") and Target's income statements from
the date of inception to March 31, 2002 and unaudited income statement for
the three (3) months ended March 31, 2002 (collectively, the "Target
Financial Statements"). Except as provided in Item 2.7(b), the Target
Financial Statements (a) are in accordance with the books and records of
Target, and (b) fairly and accurately represent the financial condition of
Target at the respective dates specified therein and the results of
operations for the respective periods specified therein. Except as
disclosed in Item 2.7, Target has no debt, liability or obligation of any
nature, whether accrued, absolute or contingent, and whether due or to
become due, that would be required under generally accepted accounting
principles ("GAAP") to be reflected on the liabilities column of a balance
sheet, prepared as of the date hereof in accordance with GAAP and is not
reflected, reserved against or disclosed in the Target Financial
Statements, except for those that may have been incurred after the Balance
Sheet Date in the ordinary course of business consistent with past practice
("Ordinary Course").
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2.8 Taxes.
------
(a) For purposes of this Agreement, the following terms have
the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means any and all taxes, including without limitation (i) any
income, profits, alternative or add-on minimum tax, gross receipts, sales,
use, value-added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, net
worth, premium, property, environmental or windfall profit tax, custom,
duty or other tax governmental fee or assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental entity responsible for the
imposition of any such tax (domestic or foreign) (a "Taxing Authority"),
(ii) any liability for the payment of any amounts of the type described in
clause (i) above as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period or as the
result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii)
above as a result of any express or implied obligation to indemnify any
other person.
(b) Except as disclosed in Item 2.8(b), all Tax returns,
statements, reports and forms (including estimated Tax returns and reports
and information returns and reports) required to be filed with any Taxing
Authority on or before the Effective Time, by or on behalf of Target and
each of its Subsidiaries (collectively, the "Target Returns"), have been or
will be filed when due (including any extensions of such due date), and all
amounts shown to be due thereon on or before the Effective Time have been
or will be paid on or before such date. The Target Financial Statements
fully accrue all actual liabilities for Taxes with respect to all periods
through the dates thereof and to the knowledge of Target, Target does not
have any contingent liabilities for Taxes except as disclosed in Item 2.8.
The Target Balance Sheet fully accrues consistent with past practices all
actual liabilities for Taxes (i) with respect to all periods through the
Balance Sheet Date, and (ii) with respect to all transactions and events
occurring on or prior to such date. Except as disclosed in Item 2.8(b),
all information set forth in the notes to the Target Financial Statements
relating to Tax matters is true, complete and accurate in all material
respects.
(c) No Tax liability since March 31, 2002 has been incurred
other than in the ordinary course of business, and adequate provision has
been made for all Taxes since that date in accordance with past practices
on a timely basis. Except as disclosed in Item 2.8(c), Target has timely
withheld and paid to the applicable financial institution or Taxing
Authority all amounts required to be withheld. Except as disclosed in Item
2.8(c), none of the Target Returns have been audited. Except as disclosed
in Item 2.8(c), Target has not granted any extension or waiver of the
limitation period applicable to any Target Returns.
(d) There is no claim, audit, action, suit, proceeding, or
investigation now pending or, to the knowledge of Target, threatened
against or with respect to Target or any Subsidiary in respect of any Tax,
nor to the knowledge of Target is there any basis therefor. There are no
liabilities for Taxes with respect to any notice of deficiency or similar
document of any Tax Authority received by Target or any Subsidiary which
have not been satisfied in full (including liabilities for interest,
additions to tax and penalties thereon and related expenses). Neither
Target nor any Subsidiary nor any person on behalf of Target has entered
into or will enter into any agreement or consent pursuant to Section 341(f)
of the Code. There are no liens for taxes upon the assets of Target or any
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Subsidiary except liens for current Taxes not yet due. Except as disclosed
in Item 2.8(d), Target has not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Closing.
(e) There is no contract, agreement, plan or arrangement,
including without limitation the provisions of this Agreement and the
Employment Agreements, covering any employee, director or independent
contractor or former employee, director or independent contractor of Target
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or Section 162
of the Code (as determined without regard to Section 280G(b)(4)). Other
than pursuant to this Agreement, Target or any Subsidiary is not a party to
or bound by (or will prior to the Effective Date become a party to or bound
by) any tax indemnity, tax sharing or tax allocation agreement. Target has
previously provided or made available to Acquirer true and correct copies
of all Target Returns, and, as reasonably requested by Acquirer, prior to
or following the date hereof, presently existing information statements,
reports, work papers, Tax opinions and memoranda and other Tax data and
documents.
Target has not been at any time within the past five years,
and will not be prior to the Effective Time, a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code.
2.9 Title to Properties.
--------------------
Except as disclosed in Item 2.9, Target has good and
marketable title to all of its material assets and properties (including
but not limited to those shown on the balance sheet as of the Balance Sheet
Date included in the Target Financial Statements), free and clear of all
liens, charges or encumbrances (other than (i) liens for taxes not yet due
and payable; (ii) liens or obligations reflected or disclosed on the
Balance Sheet as of the Balance Sheet Date; (iii) liens which are not
material in character, amount or extent, and which do not materially
detract from the value or materially interfere with the use of the property
subject thereto or affected thereby; and (iv) contractor's liens and liens
with respect to taxes that are not yet due and payable (the foregoing (i),
(ii), (iii) and (iv), "Permitted Liens"). The machinery and equipment
included in such assets are in good condition and repair, normal wear and
tear excepted, and all leases of real or personal property to which Target
or any Subsidiary is a party are fully effective and afford Target or the
Subsidiary peaceful and undisturbed possession of the subject matter of the
lease. Neither Target nor any Subsidiary is in violation of any zoning,
building, safety or environmental ordinance, regulation or requirement or
other law or regulation applicable to the operation of owned or leased real
property which would have a Material Adverse Effect on Target, and neither
Target nor any Subsidiary has received any notice of such violation with
which it has not complied or had waived.
2.10 Absence of Certain Changes.
---------------------------
Since the Balance Sheet Date, Target has carried on its
business in the Ordinary Course substantially in accordance with the
procedures and practices in effect on the Balance Sheet Date. Except as
disclosed in Item 2.10 or in connection with the transactions contemplated
by this Agreement and the Target Ancillary Agreements, since the Balance
Sheet Date there has not been with respect to Target:
(a) any change in the financial condition, properties,
assets, liabilities, business, material rights relating to Intellectual
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Property (as defined below), results of operations, which change by itself
or in conjunction with all other such changes, whether or not arising in
the Ordinary Course, have had or is reasonably likely to have a Material
Adverse Effect on Target;
(b) any contingent liability incurred thereby as guarantor
or surety with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
assets or properties thereof (other than Permitted Liens);
(d) any obligation or liability incurred thereby other than
in the Ordinary Course, which obligations or liabilities do not exceed in
the aggregate $10,000;
(e) any purchase, license, sale or other disposition, or any
agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the properties, assets or goodwill of Target other
than in the Ordinary Course;
(f) any damage, destruction or loss, whether or not covered
by insurance, that has had a Material Adverse Effect on Target;
(g) any declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, the
capital stock thereof, any split, stock dividend, combination or
recapitalization of the capital stock thereof, any direct or indirect
redemption, purchase or other acquisition of the capital stock thereof;
(h) any labor dispute or claim of unfair labor practices,
any change in the compensation payable or to become payable to any of its
officers, employees or agents (other than pursuant to existing agreements
set out on Item 2.10(h) or, in the case of non-officers, in the Ordinary
Course), or any bonus payment or arrangement made to or with any of such
officers, employees or agents other than amounts paid pursuant to Employee
Plans, as that term is defined in Section 2.15.3, disclosed in Item 2.15.3
or bonuses in an aggregate amount not to exceed $10,000 for all persons to
whom bonuses are paid;
(i) any loss of key executive, management or development
personnel thereof;
(j) any payment or discharge of a lien or liability thereof,
which lien or liability was not either (i) shown on the balance sheet as of
the Balance Sheet Date included in the Target Financial Statements or (ii)
incurred in the Ordinary Course after the Balance Sheet Date;
(k) any obligation or liability incurred thereby to any of
its officers, directors, shareholders or affiliates, or any loans or
advances made thereby to any of its officers, directors, shareholders or
affiliates, except normal compensation and expense allowances payable to
officers and employees;
(l) any loss on or prior to the date of this Agreement of
one or more Material Customers (as defined in Section 2.23) or such number
of customers which together represent a material amount of business or any
indication that such a loss is, or losses are, reasonably likely;
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(m) any amendment or change in the Articles of Incorporation
or Bylaws of Target;
(n) any issuance or sale of any debt or equity securities
(including but not limited to stock) thereby or of any options or other
rights to acquire from Target, directly or indirectly, any debt or equity
securities (including but not limited to stock) thereof; or
(o) any termination, or any extension, amendment,
relinquishment, expiration or non-renewal that to Target's knowledge
resulted from third party dissatisfaction with Target's services or
contract performance, of any contract to which Target is a party, or any
written request received by Target for or to effect any of the foregoing,
other than, in each such case, where any such action or requested action
would not have a Material Adverse Effect on Target.
2.11 Agreements and Commitments.
---------------------------
As of the date hereof, except as disclosed in Item 2.11
delivered by Target to Acquirer herewith, or as disclosed in Item 2.12,
Item 2.15.3 or Item 2.15.6 as required by Section 2.12, Section 2.15.3 or
Section 2.15.6, as the case may be, on the date of this Agreement Target is
not a party or subject to any oral or written executory contract or, to the
extent expressly enumerated in paragraphs below, commitment, that is
material to Target, its financial condition, business or prospects,
including but not limited to the following:
(a) Any contract, commitment, letter agreement or purchase
order providing for payments by or to Target in an aggregate amount of (i)
$10,000 or more in the Ordinary Course or (ii) $5,000 or more not in the
Ordinary Course;
(b) Any license agreement under which Target is licensor
(except for any nonexclusive software license granted by Target to
customers in the Ordinary Course); or under which Target is licensee
(except for standard "shrink wrap" licenses for off-the-shelf software
products with a license fee or purchase price of under $5,000 per copy or
seat);
(c) Any material agreement by Target to encumber, transfer
or sell rights in or with respect to any material item of Target
Intellectual Property (as defined in Section 2.12 hereof), excluding non-
exclusive software licenses;
(d) Any agreement for the sale or lease of real or tangible
personal property involving more than $10,000 per year;
(e) Any dealer, distributor, sales representative, original
equipment manufacturer, value-added remarketer or other agreement for the
distribution of Target's products;
(f) Any franchise agreement;
(g) Any stock redemption or agreement obligating Target to
purchase its capital stock;
(h) Any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons or the
payment of royalties to any other person, excluding non-exclusive software
licenses;
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(i) Any instrument evidencing indebtedness for borrowed
money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee or otherwise, except for trade
indebtedness or any advance to any employee of Target incurred or made in
the Ordinary Course, and except as disclosed in the Target Financial
Statements;
(j) Any contract containing covenants purporting to limit
Target's freedom to compete in any line of business, market or industry
and/or in any geographic area; or
(k) Any contract for the employment of any officer, employee
or consultant of Target or any other type of contract or commitment with
any officer, employee or consultant of Target that is not immediately
terminable by Target without cost or other liability.
Except as noted in Item 2.5, all agreements, obligations and
commitments disclosed in Item 2.11, Item 2.12, Item 2.15.3 or Item 2.15.6
as required by Section 2.11, Section 2.12, Section 2.15.3 or Section
2.15.6, as the case may be, are valid and in full force and effect, except
where the failure to be such would not have a Material Adverse Effect on
Target. Except as noted on Item 2.11, neither Target nor to Target's
knowledge any other party is in breach of or default under any material
term of any such agreement, obligation or commitment nor has such other
party threatened such a breach or default. Target is not a party to any
contract or arrangement that it believes will have a Material Adverse
Effect on Target. Target does not have liability for renegotiation of
government contracts or subcontracts which can reasonably be expected to
have a Material Adverse Effect on Target.
2.12 Intellectual Property.
----------------------
(a) For purposes of this Agreement, "Intellectual Property"
means:
(i) all issued patents, reissued or reexamined
patents, revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof, regardless of country or
formal name (collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications"
and, with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including all rights of authorship, use,
publication, reproduction, distribution, performance, transformation, moral
rights and rights of ownership of copyrightable works, semiconductor
topography works and mask works, and all rights to register and obtain
renewals and extensions of registrations, together with all other interests
accruing by reason of international copyright, semiconductor topography and
mask work conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications
for registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names
(collectively, "Trademarks");
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(v) all technology, ideas, inventions, designs,
proprietary information, manufacturing and operating specifications,
know-how, formulae, trade secrets, technical data and proprietary
processes;
(vi) all databases and all collected data and all
rights therein throughout the world;
(vii) all computer software, including all source code,
object code firmware, development tools, files, records and data and all
media on which any of the foregoing is recorded; and
(viii) all Web addresses, rights and domain names and
all rights under all Web cross-linking agreements.
(b) With respect to each item of Intellectual Property
incorporated into any product of Target or used in connection with any
service offered or provided by Target or otherwise used in the business of
Target and in each case owned by Target or licensed to Target (except "off
the shelf" or other software widely available through regular commercial
distribution channels at a cost not exceeding $5,000 per copy or seat or
CPU on standard, non-negotiated terms and conditions) ("Target Intellectual
Property"), the Target Disclosure Letter lists as of the date of this
Agreement at Item 2.12:
(i) all Patents, all registered Trademarks, and all
registered Copyrights, including the jurisdictions in which each such
Intellectual Property has been issued or registered or in which any such
application for such issuance and registration has been filed.
(ii) the following agreements relating to the products
or service offerings or capabilities of Target, including products or
service offerings or capabilities currently under development (collectively
the "Target Services") or other Target Intellectual Property: all (A)
agreements granting any right to distribute or sublicense any of the Target
Services on any exclusive basis, (B) any exclusive licenses of Intellectual
Property to or from Target, (C) projects under agreements pursuant to which
the amounts actually paid or payable individually under firm commitments to
or by Target are $10,000 or more, (D) joint development agreements, (E) any
agreement by which Target grants any ownership right to any Intellectual
Property owned by Target other than nonexclusive software licenses entered
into with customers in the Ordinary Course, (F) any option relating to any
Target Intellectual Property, and (G) agreements pursuant to which any
party is granted any rights to access source code or to use source code to
create derivative works of Target Intellectual Property.
(c) The Target Disclosure Letter contains an accurate list
as of the date of this Agreement of all licenses, sublicenses and other
agreements to which Target is a party and pursuant to which Target is
authorized to use any Intellectual Property owned by any third party
(except "off the shelf" or other software widely available through regular
commercial distribution channels at a cost not exceeding $5,000 per copy or
seat or CPU on standard non-negotiated terms and conditions and any rights
implied by law) ("Third Party Intellectual Property").
(d) To the best of Target's knowledge, there is
nounauthorized use, disclosure, infringement or misappropriation of any
Target Intellectual Property, including any Third Party Intellectual
Property, by any employee of Target and Target has not received actual
notice that any former employee or any other third party has made any
unauthorized use, disclosure, infringement or misappropriation of any
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Target Intellectual Property, including any Third Party Intellectual
Property. Target has not entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property,
other than indemnification provisions contained in sales or services
agreements arising in the ordinary course of business, copies of which have
been delivered to Acquirer or its counsel. There are no royalties, fees or
other payments payable by Target to any Person, under any written or oral
contract or understanding or otherwise, by reason of the ownership, use,
sale or disposition of any Intellectual Property.
(e) Target is not in breach of any license, sublicense or
other agreement relating to the Target Intellectual Property or Third Party
Intellectual Property Rights. Except as disclosed in Item 2.12(e), neither
the execution, delivery or performance of this Agreement or any ancillary
agreement contemplated hereby nor the consummation of the Merger or any of
the transactions contemplated by this Agreement will contravene, conflict
with or result in any violation of Acquirer's right to own or use any
Target Intellectual Property, including any Third Party Intellectual
Property.
(f) All registered Trademarks and registered service marks
held by Target are valid and subsisting. Except for such as are not past
due, all maintenance and annual fees have been fully paid and all fees paid
during prosecution and after issuance of any patent comprising or relating
to such item have been paid in the correct entity status amounts. Target
has not infringed, misappropriated or made unlawful use of, is not
currently infringing, misappropriating or making unlawful use of, and has
not received any written notice or written communication alleging or
relating to any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Intellectual Property or other
proprietary right or asset owned or used by any third party. Without
limiting the foregoing, the offering and sale of the Target Services by
Target does not, and the offering and sale of the Target Services by the
Surviving Corporation immediately after the Effective Time will not, and
the business of Target as conducted as of the date hereof does not, and
Target's use of Intellectual Property as of the date hereof does not, to
Target's knowledge, infringe or violate any Intellectual Property of any
other person. There is no proceeding pending or threatened, nor has any
written claim or demand been made, which challenges the legality, validity,
enforceability or ownership of any item of Target Intellectual Property or
Third Party Intellectual Property. Target has not brought a proceeding
alleging infringement of Target Intellectual Property or breach of any
license or agreement involving Intellectual Property against any third
party.
(g) Except as disclosed in Item 2.12(g), all current and
former officers and managerial and technical employees and employees
engaged in development of Target have executed and delivered to Target an
agreement (containing no exceptions or exclusions from the scope of its
coverage other than as set forth in the standard form supplied to Acquirer)
regarding the protection of proprietary information and the assignment to
Target of any Intellectual Property arising from services performed for
Target by such persons, the form of which has been supplied to Acquirer.
Except as disclosed in Item 2.12(g), all current and former consultants and
independent contractors to Target involved in the development,
modification, marketing and servicing of Target's products, and/or Target
Intellectual Property have executed and delivered to Target an agreement
(containing no exceptions or exclusions from the scope of its coverage
other than as set forth in the standard form) regarding the protection of
proprietary information and the assignment to Target of any Intellectual
Property arising from services performed for Target by such persons except
where the failure to obtain such agreements from former employees and
independent contractors would not have a Material Adverse Effect on Target.
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To the knowledge of Target, no employee or independent contractor of Target
is in violation of any term relating to Intellectual Property of any patent
disclosure agreement or employment contract or any other contract or
agreement relating to the relationship of any such employee or independent
contractor with Target or of any other term of any such agreements or
contracts. Other than with respect to Third Party Intellectual Property
that is not used in connection with Target Services, no current or former
officer, director, shareholder, employee, consultant or independent
contractor has any right, claim or interest in or with respect to any
Target Intellectual Property. To the best knowledge of Target, Target is
not using any trade secrets, and to the knowledge of Target, Target is not
using any other confidential information, of any former employer of any
past or present employees.
(h) Target has disclosed in Item 2.12(h) all measures and
precautions taken to protect and maintain the confidentiality of all Target
Intellectual Property. Except as disclosed in Item 2.12(h), Target has
taken all commercially reasonable and customary measures and precautions
necessary to maintain and protect the full value of all Intellectual
Property it owns except where such failure to protect and maintain would
not have a Material Adverse Effect on Target. All use, disclosure or
appropriation of confidential and proprietary information of any third
party ("Confidential Information") has, to Target's knowledge, been
pursuant to the terms of a written agreement between Target and the owner
of such Confidential Information, or is otherwise lawful.
(i) No product liability claims have been communicated in
writing to or, to Target's knowledge, threatened against Target.
(j) A complete list of each of the principal Target
Services, together with a brief description of each, is set forth in
Schedule 2.12(j). The Target Services, including the performance and
results thereof, conform in all material respects with any published
specification, published documentation or written performance standard
provided with respect thereto by Target.
(k) Target is not subject to any proceeding or outstanding
decree, order, judgment, or stipulation which may affect the validity, use
or enforceability of any Target Intellectual Property or restricting in any
manner the use, transfer, or licensing thereof by Target. Target is not
subject to any agreement which restricts in any material respect the use,
transfer, or licensing by Target of the Target Intellectual Property or
Target Services, excluding agreements relating to Third Party Intellectual
Property.
(l) Target owns all right, title and interest in, or has the
right to use, all Intellectual Property that is material to or reasonably
necessary to the conduct of its business as presently conducted ("Material
Target Intellectual Property"). Target is not aware of any loss,
cancellation, termination or expiration of any Patent or Patent
Application, registered Trademark, or registered Copyright relating to any
Material Target Intellectual Property. Copies of all forms of
nondisclosure or confidentiality agreements currently utilized by Target to
protect the Target Intellectual Property have been provided to Acquirer.
Except as set out in Item 2.12, Target has not granted any reseller,
distributor, sales representative, original equipment manufacturer, value
added reseller or other third party any right to reproduce, manufacture,
sell, license, furnish or distribute any Target Services in any market
segment or geographic location.
-15-
2.13 Compliance with Laws.
---------------------
Except for noncompliance that would not result in a Material
Adverse Effect on Target, Target has complied, or prior to the Closing Date
(as defined in Section 7.1 hereof) will have complied, and is or will be at
the Closing Date in full compliance, in all material respects, with all
applicable laws, ordinances, regulations and rules, and all orders, writs,
injunctions, awards, judgments and decrees, applicable to Target or to the
assets, properties and business thereof, including, without limitation: (a)
all applicable federal and state securities laws and regulations except as
disclosed in Item 2.3, (b) all applicable federal, state and local laws,
ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing,
ownership or management of owned, leased or licensed real or personal
property, products or technical data, (ii) employment or employment
practices, terms and conditions of employment, or wages and hours and (iii)
safety, health, fire prevention, environmental protection (including toxic
waste disposal and related matters described in Section 2.21 hereof),
building standards, zoning or other similar matters, (c) the Export
Administration Act and regulations promulgated thereunder and other laws,
regulations, rules, orders, writs, injunctions, judgments or decrees
applicable to the export or re-export of controlled commodities or
technical data, (d) the Immigration Reform and Control Act and (e) all
governmental and nongovernmental regulations related to the operation and
use of the Internet. Except as disclosed in Item 2.5, Target has received
all permits and approvals from, and has made all filings with, third
parties, including government agencies and authorities, that are necessary
to the conduct of its business as presently conducted except where the
failure to receive such permit or approval or make such filing would not
have a Material Adverse Effect on Target.
2.14 Certain Transactions and Agreements.
------------------------------------
No person who is an officer of Target nor any member of their
immediate families, has any direct or indirect ownership interest in or any
employment or consulting agreement with any firm or corporation that
competes with Target (except with respect to any interest in less than 1%
of the outstanding voting shares of any corporation whose stock is publicly
traded). Except as disclosed in Item 2.14, none of said officers or any
directors of Target or any member of their immediate families, is directly
or indirectly interested in any contract with Target, including, but not
limited to, any loan agreements (excluding travel advances), except for
normal compensation for services as an officer (disclosed in Item 2.15.3),
director or employee of Target and except for the normal rights of a
shareholder, warrantholder or optionholder. Except as disclosed in Item
2.14, none of such officers or directors or family members has, except for
the normal rights of a shareholder or an option holder, any interest in any
(a) Target Intellectual Property or (b) any interest in any property (other
than Target Intellectual Property) used in the business of Target, whether
such property is real or personal, tangible or intangible.
2.15 Employees.
----------
2.15.1 Except as disclosed in Item 2.15.1, Target does not
have any employment contract or consulting agreement currently in effect
that is not terminable at will without penalty or payment of compensation
by Target (other than agreements with the purpose of providing for the
confidentiality of proprietary information or assignment of inventions).
2.15.2 Target (a) has not ever been or is now subject to a
union organizing effort, (b) is not subject to any collective bargaining
agreement with respect to any of its employees, (c) is not subject to any
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other material contract, written or oral, with any trade or labor union,
employees' association or similar organization or (d) does not have has any
current labor dispute. Target has good labor relations, and has no
knowledge of any facts indicating that the consummation of the transactions
provided for herein (other than any contemplated reductions in force
associated therewith) will have a Material Adverse Effect on Target and has
no knowledge that any of its key development or other employees intends to
leave its employ where such departure would reasonably be expected to have
a Material Adverse Effect on Target.
2.15.3 Item 2.15.3 delivered by Target to Acquirer herewith
contains a list of all severance agreements, pension, retirement,
disability, medical, dental or other health plans, life insurance or other
death benefit plans, profit sharing, deferred compensation agreements,
stock, option, bonus or other incentive plans, vacation, sick, holiday or
other paid leave plans, severance plans or other similar employee benefit
plans maintained by Target or any trade or business which is treated as a
single employer with Target within the meaning of Code Section 414(b), (c),
(m) or (o) (each an "ERISA Affiliate") or in which any employees of Target
participate (the "Employee Plans"), including without limitation all
"employee benefit plans" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), as well as
all employment and consulting agreements to which Target is a party.
Except as disclosed in Item 2.15.3, each of the Employee Plans, and its
operation and administration, is in compliance in all material respects
with each of the respective Employee Plans' terms and with all applicable,
federal, state, local and other governmental laws and ordinances, orders,
rules and regulations, including the requirements of ERISA and the Code.
Target has delivered to Acquirer a true and complete copy of, to the extent
applicable, (a) all Employee Plans as well as all employment and consulting
agreements to which Target is a party as amended, (b) the three most recent
annual reports (Form 5500s), (c) each trust agreement related to such
Employee Plans, (d) most recent summary plan description for each Employee
Plan for which a description is required, (e) the most recent Internal
Revenue Service determination letter issued with respect to any Employee
Plan, and (f) any material contract regarding the funding arrangement for
any Employee Plan. Except as disclosed in Item 2.15.3, all such Employee
Plans that are "employee pension benefit plans" (as defined in Section 3(2)
of ERISA) which are intended to qualify under Section 401(a) of the Code
have received favorable determination opinion, notification or advisory
letters with respect to such plans that such plans comply with the Tax
Reform Act of 1986 or have remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
letter and make any amendments necessary to obtain a favorable
determination as to the qualified states of each such Employee Plan. In
addition, neither Target nor any Subsidiary has ever been a participant in
any "prohibited transaction," within the meaning of Section 406 of ERISA
with respect to any employee pension benefit plan (as defined in Section
3(2) of ERISA) which Target or any Subsidiary sponsors as employer or in
which Target or any Subsidiary participates as an employer, which would
impose a material penalty on Target or which was not otherwise exempt
pursuant to Section 408 of ERISA (including, but not limited to, any
individual exemption granted under Section 408(a) of ERISA), or which could
result in an excise tax under the Code. The group health plans, as defined
in Section 4980B(g) of the Code, that benefit employees of Target or any
Subsidiary are in compliance in all material respects with the continuation
coverage requirements of subsection 4980B of the Code. There are no
outstanding violations of Section 4980B of the Code with respect to any
Employee Plan, covered employees or qualified beneficiaries. Except as set
forth in Item 2.15.3, no Employee Plans will be subject to any surrender
fees or service fees upon termination other than the normal and reasonable
administrative fees associated with the termination of benefit plans.
Except as disclosed in Item 2.15.3, no employee of Target or any Subsidiary
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and no person subject to any Target or any Subsidiary health plan has made
medical claims through such health plan during the twelve months preceding
the date hereof for more than $5,000 in the aggregate.
2.15.4 To the knowledge of Target, no employee of Target is
in violation of any term of any employment contract, patent or trade secret
disclosure agreement or noncompetition agreement or any other contract or
agreement, or any restrictive covenant, relating to the right of any such
employee to be employed by Target or to use trade secrets or proprietary
information of others, and the employment of any employee of Target does
not subject Target to any material liability to any third party.
2.15.5 Except as disclosed in Item 2.15.5, Target is not a
party to any (a) agreement with any employee of Target (i) the benefits of
which are contingent, or the terms of which are materially altered, upon
the occurrence of a transaction involving Target in the nature of any of
the transactions contemplated by this Agreement (ii) providing any term of
employment or compensation guarantee or (iii) providing severance benefits
or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment other than as
required by law, or (b) agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase
plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated, by the
occurrence of any of the transactions contemplated by this Agreement.
2.15.6 A list of all employees of Target and their current base
compensation as of the date of this Agreement is disclosed on
Item 2.15.6. Copies of all offer letters and other documents
reflecting bonus arrangements of any Target officer, director or employee
have been delivered to Acquirer.
2.15.7 All contributions due from Target with respect to any
of the Employee Plans through the Balance Sheet Date have been made or
accrued on Target's financial statements.
2.16 Corporate Documents.
--------------------
Target has made available to Acquirer for examination
all documents and information disclosed in Items 2.1 through 2.26 or other
exhibits called for by this Agreement which have been reasonably requested
by Acquirer' legal counsel, including, without limitation, the following:
(a) copies of Target's Articles of Incorporation and Bylaws as currently in
effect; (b) Target's minute book containing all records of all proceedings,
consents, actions and meetings of Target's directors and shareholders; (c)
Target's stock ledger, journal and other records reflecting all stock
issuances and transfers; and (d) all permits, orders and consents issued by
any regulatory agency with respect to Target, or any securities of Target,
and all applications for such permits, orders and consents.
2.17 No Brokers.
-----------
Except as disclosed in Item 2.17, Target is not
obligated for the payment of fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any transaction provided for herein or
therein.
2.18 Books and Records.
------------------
The books, records and accounts of Target (a) are in all
material respects true and complete, and (b) have been maintained in
accordance with reasonable business practices except where failure to
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maintain such books, records and accounts in accordance with reasonable
business practices will not have a Material Adverse Effect on anyone
relying on such books, record and accounts.
2.19 Environmental Matters.
----------------------
2.19.1 To Target's knowledge, during the period that
Target has leased or owned its properties or leased, owned or operated any
facilities, there have been no disposals, releases or threatened releases
of Hazardous Materials (as defined below) on, from or under any such
properties or facilities that would have a Material Adverse Effect on
Target. Target has no knowledge of any presence, disposals, releases or
threatened releases of Hazardous Materials on, from or under any of such
properties or facilities, which may have occurred prior to Target or any
Subsidiary having taken possession of any of such properties or facilities
which might reasonably be expected to have a Material Adverse Effect on
Target. For purposes of this Agreement, the terms "disposal," "release,"
and "threatened release" have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Para 9601 et seq., as amended ("CERCLA"). For the purposes
of this Section 2.19, "Hazardous Materials" mean any hazardous or toxic
substance, material or waste which is or becomes prior to the Closing Date,
regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance" or
"hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (iii) the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.;
(iv) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (v)
the Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et
seq.; (vi) regulations promulgated under any of the above statutes; or
(vii) any other applicable federal, state or local statute, ordinance, rule
or regulation that has a scope or purpose similar to those identified
above.
2.19.2 To Target's knowledge, none of the properties or
facilities currently leased or owned by Target or any properties or
facilities previously leased or owned by Target is in violation of any
federal, state or local law, ordinance, regulation or order relating to
industrial hygiene or to the environmental conditions on, under or about
such properties or facilities, including, but not limited to, soil and
ground water condition which violation would have a Material Adverse Effect
on Target.
2.19.3 During Target's occupancy of any properties or
facilities owned or leased at any time by Target, neither Target, nor to
Target's knowledge, any third party, has used, generated, manufactured,
released or stored on, under or about such properties and facilities or
transported to or from such properties and facilities any Hazardous
Materials that would have or is reasonably likely to have a Material
Adverse Effect on Target.
2.19.4 During the time that Target has owned or leased
the properties and facilities currently occupied by it or any properties
and facilities previously occupied by Target, there has been no material
litigation, proceeding or administrative action brought or threatened
against Target, or any material settlement reached by Target with, any
party or parties alleging the presence, disposal, release or threatened
release of any Hazardous Materials on, from or under any of such properties
or facilities.
-19-
2.20 Government Contracts.
---------------------
All representations, certifications and disclosures made
by Target to any Government Contract Party (as defined below) have been in
all material respects current, complete and accurate at the times they were
made. There have been no acts, omissions or noncompliance with regard to
any applicable public contracting statute, regulation or contract
requirement (whether express or incorporated by reference) relating to any
of Target's contracts with any Government Contract Party in either case
that have led to or is reasonably likely to lead to, either before or after
the Closing Date, (a) any material claim or dispute involving Target,
and/or Acquirer as successor in interest to Target and any Government
Contract Party or (b) any suspension, debarment or contract termination, or
proceeding related thereto. There has been no act or omission that relates
to the marketing, licensing or selling to any Government Contract Party of
any of Target technical data, computer software, products and services and
that has led to or is reasonably likely to lead to, either before or after
the Closing Date, any cloud on any of Target's rights in and to its
technical data, computer software, products and services. There is
currently no dispute between Target and any Government Contract Party. For
purposes of this Section 2.20, the term "Government Contract Party" means
any independent or executive agency, division, subdivision, audit group or
procuring office of the federal, state, county, local or municipal
government, including any prime contractor of the federal government and
any higher level subcontractor of a prime contractor of the federal
government, and including any employees or agents thereof, in each case
acting in such capacity.
2.21 Warranties, Guarantees and Indemnities.
---------------------------------------
Except as disclosed in Item 2.21 or in the agreements or
contract listed herein, Target has not provided to its customers or any
third parties (i) any warranties or guarantees regarding the Target
Services; (ii) any rights to obtain refunds with respect to Target Services
or (iii) any indemnities with respect to intellectual property
infringement.
2.22 No Shareholder Claims.
----------------------
No Target Shareholder has claimed in writing any
interest in any additional shares of Target Stock, or any options, warrants
or other securities of Target, except for the number of shares of Target
Stock which such person is shown to be the owner of on Item 2.3, and no
third party who is not disclosed on Item 2.3 has made in writing, any claim
of entitlement to receive any shares of the capital stock of Target, any
warrants or other rights to acquire any capital stock of Target or any
other securities of Target, and to Target's knowledge no such claim has
been made orally.
2.23 Customer Relationships.
-----------------------
Target has good commercial working relationships with
its customers. Except as disclosed in Item 2.23, no customer accounting
for more than 5% of the Target's revenues in any month during the last
twelve (12) calendar months (a "Material Customer") has canceled or
otherwise terminated its relationship with Target, decreased or limited
materially the amount of product or services ordered from Target or
threatened in writing (or to Target's knowledge orally) to take any such
action.
2.24. Product and Service Quality.
----------------------------
All services provided by Target to customers on or prior
to the Closing Date conform to applicable contractual commitments, implied
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warranties not disclaimed, express warranties, product specifications and
quality standards published by Target in all material respects, and Target
does not have any material liability (and Target is not aware of any basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against Target giving rise to any
liability) for replacement or repair thereof, or for the taking of any
remedial action with respect thereto or other damages in connection
therewith. All material complaints received since January, 2001 from
customers regarding Target's services are set out in Item 2.24 in detail
reasonably sufficient to understand the nature of the complaint and the
resolution or lack of resolution thereof.
2.25 Insurance.
----------
Target maintains the insurance coverage disclosed on
Item 2.25. Item 2.25 sets forth all claims made under such insurance
policies since Target's inception and the premiums that apply with respect
to such insurance policies as of the date of this Agreement.
2.26 Disclosure.
-----------
Target has not failed to disclose any information known
to it that is material to a decision to consummate the Merger. This
Agreement (including Schedules and Exhibits) and the certificates and
instruments delivered pursuant to this Agreement at the Closing by or on
behalf of Target, to Target's knowledge, do not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements contained herein and therein not misleading in light of
the circumstances under which they were made.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIRER AND NEWCO
Each of Acquirer and Newco, where applicable, hereby
represents and warrants, that, except as disclosed on the Acquirer
disclosure letter delivered to Target herewith as amended from time to time
in non-material respects prior to Closing:
3.1 Organization and Good Standing.
-------------------------------
Acquirer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah, and
Newco is a corporation duly organized, validly existing and in good
standing under the laws of the State of Utah. Each of Acquirer and Newco
has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to
be conducted.
3.2 Power, Authorization and Validity; Adverse Changes.
---------------------------------------------------
3.2.1 Each of Acquirer and Newco has the corporate
right, power, legal capacity and authority to enter into and perform its
obligations under this Agreement, and under the Escrow Agreement and each
other agreement to be entered by Acquirer in connection (the "Acquirer
Ancillary Agreements"). This Agreement has been duly executed and
delivered by Acquiror and Newco and the Acquirer Ancillary Agreements have
been or will be duly executed and delivered by Acquirer and Newco (as
applicable). The execution, delivery and performance of this Agreement and
the Acquirer Ancillary Agreements have been duly and validly approved and
authorized by Acquirer's Board of Directors and Newco's Board of Directors
and shareholders, as applicable, and no other corporate approvals or
proceedings on the part of Acquirer or Newco are necessary to authorize
this Agreement and the transactions contemplated hereby.
3.2.2 No filing, authorization or approval,
governmental or otherwise, is necessary or required to be made or obtained
-21-
to enable Acquirer and Newco as applicable, to enter into, and to perform
its obligations under, this Agreement and the Acquirer Ancillary
Agreements, except for (a) the filing of the Articles of Merger with the
Secretary of State, the filing of such officers' certificates and other
documents as are required to effectuate the Merger under Utah law and the
filing of appropriate documents with the relevant authorities of states
other than Utah in which Acquirer and Newco are qualified to do business,
if any, and (b) such filings as may be required to comply with federal and
state securities laws.
3.2.3 This Agreement is and the Acquirer Ancillary
Agreements are, or when executed and delivered by Acquirer and Newco (as
applicable) and the other parties thereto will be, valid and binding
obligations of Acquirer and Newco, enforceable against Acquirer and Newco
in accordance with their respective terms, except as to the effect, if any,
of (a) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (b) rules of law governing specific performance,
injunctive relief and other equitable remedies; and (c) the enforceability
of provision requiring indemnification in connection with the offering,
issuance or sale of securities.
3.2.4 Since June 30, 2002, there has not been with
respect to Acquirer any Material Adverse Change.
3.3 No Violations.
--------------
Neither the execution nor delivery of this
Agreement or any Acquirer Ancillary Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with, or (with
or without notice or lapse of time, or both) result in a termination,
breach or violation of (a) any provision of the Certificate of
Incorporation or Bylaws of Acquirer or Newco, as currently in effect or (b)
any instrument or contract to which Acquirer or Newco is a party or by
which Acquirer or Newco is bound, or (c) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation
applicable to Acquirer or Newco or their respective assets or properties,
other than, with respect to (a), (b) and (c), any such, conflict,
termination, breach or violation that would not have a Material Adverse
Effect on Acquirer.
3.4 Disclosure.
-----------
Acquirer has furnished Target with its most recent
annual report on Form 10-K (the "Form 10-K") for the year ended September
30, 2001 and all other reports or documents required to be filed by
Acquirer pursuant to Section 13(a) or 15(d) of the 1934 Act since the
filing of the Form 10-K through the date hereof and, hereafter, through the
Closing Date, in each case as may be amended (the "Acquirer Disclosure
Package"). The items in the Acquirer Disclosure Package, (including,
without limitation, any financial statement or schedules included therein)
(i) were prepared in substantial compliance with the requirements of the
Securities Act, or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder, as the case may
be, and (ii) to Acquirer's knowledge, did not at the time of filing (or if
amended, supplemented or superseded by a filing prior to the date hereof,
on the date of that filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Acquirer has filed all forms,
reports and documents required to be filed with the SEC in the last twelve
(12) months under the Securities Act, or the Exchange Act, and the rules
and regulations thereunder.
-22-
3.5 Newco.
------
Newco has been formed for the sole purpose of effecting
the Merger and, except as contemplated by this Agreement, Newco has not
conducted any business activities and does not have any material
liabilities or obligations. The sole shareholder of Newco has adopted this
Agreement in accordance with Section 16-10a-1103 of the Utah Law.
3.4 Duly Issued Shares.
-------------------
The shares of Acquirer Common Stock to be issued
pursuant to the Merger (including such shares as could be issued upon
conversion of the Convertible Note) have been reserved for such issuance
and, when issued and delivered in accordance with this Agreement will be
duly and validly issued, fully paid and nonassessable.
3.5 Litigation.
-----------
There is no litigation, suit, action, or
proceeding pending, or to the knowledge of Newco or Acquirer, threatened
against Newco or Acquirer, nor is there, to the knowledge of Acquirer, any
basis therefore.
a. Capitalization.
---------------
(a) Authorized/Outstanding Capital Stock.
-----------------------------------------
As of the date hereof, the authorized
capital stock of Aquirer consists of 20,000,000 shares of Common Stock, no
par value, of which 49,774 shares are issued and outstanding and 1,000,000
shares of Preferred Stock, no par value, of which no shares are issued and
outstanding. All issued and outstanding shares of Acquirer capital stock
have been duly authorized and validly issued, are fully paid and
nonassessable, are not subject to any right of rescission and have been
offered, issued, sold and delivered by Acquirer in compliance with all
registration or qualification requirements (or applicable exemptions
therefrom) of applicable federal and state securities laws, except where
the failure to so qualify would not result in a Material Adverse Effect on
Acquirer.
(b) Options/Rights.
-------------------
Except as disclosed in Item 3.8(b), there
are no options, warrants, calls, commitments, conversion privileges or
preemptive or other rights or agreements outstanding to purchase any of
Target's authorized but unissued capital stock or any securities
convertible into or exchangeable for shares of Acquirer capital stock or
obligating Acquirer to grant, extend, or enter into any such option,
warrant, call, right, commitment, conversion privilege or other right or
agreement, and there is no liability for dividends accrued but unpaid.
There are no voting agreements, rights of first refusal or other
restrictions (other than normal restrictions on transfer under applicable
federal and state securities laws) applicable to any of Acquirer's
outstanding securities.
4. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, Target covenants to and agrees with Acquirer as follows:
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4.1 Advice of Changes.
------------------
Target will promptly advise Acquirer in writing (a) of
any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of Target contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect (however, no advisory need be
provided regarding any event or action contemplated or permitted under this
Agreement and (b) of the occurrence of any Material Adverse Change with
respect to Target.
4.2 Maintenance of Business.
------------------------
The parties hereto understand and acknowledge that it is
their intent to work closely together during the period from the date
hereof until the Closing Date. Target will use commercially reasonable
efforts to carry on and preserve its business and its relationships with
customers, suppliers, employees and others in substantially the same manner
as it has prior to the date hereof. If Target becomes aware of a material
deterioration in the relationship with any material customer, supplier or
key employee, it will promptly bring such information to the attention of
Acquirer in writing and, if requested by Acquirer, will use commercially
reasonable efforts to restore the relationship.
4.3 Conduct of Business.
--------------------
Target will continue to conduct its business and
maintain its business relationships in the Ordinary Course and will not,
without the prior written consent of the Chief Executive Officer or Chief
Financial Officer of Acquirer, not to be unreasonably withheld, conditioned
or delayed:
(a) borrow any money other than pursuant to existing
lines of credit;
(b) enter into any capital expenditure by Target in
excess of $10,000 (in the case of transactions or commitments which are
neither made in the Ordinary Course nor contemplated by Target's current
capital expenditure budget) or $10,000 (in the case of transactions or
commitments made in the Ordinary Course);
(c) encumber or permit to be encumbered any of its
assets except in the Ordinary Course;
(d) dispose of any of its assets except in the
Ordinary Course;
(e) enter into any lease or contract for the purchase
or sale of any property, real or personal, tangible or intangible, except
in the Ordinary Course or enter into any agreement of the types described
in Section 2.11 to the extent involving amounts in excess of $10,000;
(f) fail to maintain its equipment and other assets in
good working condition and repair according to the standards it has
maintained to the date of this Agreement, subject only to ordinary wear and
tear;
(g) pay any bonus, royalty, increased salary (except
for annual increases in the Ordinary Course and disclosed to Acquirer in
writing and approved by Acquirer, such approval not to unreasonably be
withheld) or special remuneration to any officer, employee or consultant
(except pursuant to existing arrangements heretofore disclosed in writing
-24-
to Acquirer) or enter into any new employment or consulting or severance
agreement with any such person, or enter into any new agreement or plan of
the type described in Section 2.15.3;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock
dividend or other distribution in respect of capital stock, or, except as
contemplated in this Agreement, redeem or otherwise acquire any of its
capital stock excluding repurchases of unvested shares upon employee
termination;
(j) amend or terminate or settle any disputes under
any contract, agreement or license to which it is a party of a nature
required to be disclosed in Section 2.12;
(k) lend any amount to any person or entity, other
than advances for travel and expenses which are incurred in the Ordinary
Course and which are not material in amount, which travel and expenses
shall be reasonably documented by receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation
except for the endorsement of checks and other negotiable instruments in
the Ordinary Course and which are not material in amount;
(m) waive or release any material right or claim
except in the Ordinary Course;
(n) issue or sell any shares of its capital stock of
any class or any other of its securities, or issue, grant, modify or create
any warrants, obligations, subscriptions, options, convertible securities,
stock appreciation rights or other commitments to issue shares of capital
stock or accelerate the vesting of any outstanding option or other
security;
(o) split or combine the outstanding shares of its
capital stock of any class or enter into any recapitalization affecting the
number of outstanding shares of its capital stock of any class or affecting
any other of its securities;
(p) except for the Merger, merge, consolidate or
reorganize with, or acquire any entity;
(q) amend its Articles of Incorporation or Bylaws;
(r) agree to any audit assessment by any tax authority
or file any federal or state income or franchise tax return unless copies
of such returns have been delivered to Acquirer;
(s) license any of its technology or any Target
Intellectual Property, except in the Ordinary Course;
(t) change or terminate any insurance coverage;
(u) terminate the employment of any key employee
disclosed in Item 2.10; or
(v) agree to do any of the things described in the
preceding clauses 4.3(a) through 4.3(u).
-25-
4.4 Certain Agreements.
-------------------
Target will cause all present employees and consultants
of Target engaged in development activity who have not previously executed
Target's forms of assignments of copyright and other intellectual property
rights to Target to execute such forms.
4.5 Regulatory Approvals.
---------------------
Target will execute and file, or join in the execution
and filing, of any application or other document that may be necessary in
order to obtain the authorization, approval or consent of any governmental
body, federal, state, local or foreign, which may be reasonably required,
or which Acquirer may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Target
will use commercially reasonable efforts to obtain or assist Acquirer in
obtaining all such authorizations, approvals and consents.
4.6 Necessary Consents.
-------------------
Target will use commercially reasonable efforts to
obtain such written consents and waivers (including waivers of any
applicable refusal or co-sale rights that may apply to the transactions
hereby contemplated) and take such other actions as may be necessary or
appropriate for Target to facilitate and allow the consummation of the
transactions provided for herein and to facilitate and allow Acquirer to
carry on Target's business after the Closing Date.
4.7 Litigation.
-----------
Target will notify Acquirer in writing promptly after
learning of any material action, suit, proceeding or investigation by or
before any court, board or governmental agency, initiated by or against
Target or any Subsidiary or threatened against it or any Subsidiary.
4.8 No Other Negotiations.
----------------------
In consideration of the time and effort to be devoted to
the transactions contemplated by this Agreement, Target agrees that it will
not engage in discussions concerning a potential financing or an
acquisition of Target with any third party for a 45-day period beginning on
the date of this Agreement.
4.9 Access to Information.
----------------------
Until the Closing Date, Target will provide Acquirer and
its agents with reasonable access to the files, books, records and offices
of Target, including, without limitation, any and all information relating
to Target taxes, commitments, contracts, leases, licenses, real, personal
and intangible property and financial condition. Target will cause its
accountants to cooperate with Acquirer and its agents in making available
all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all
financial statements prepared or audited by such accountants.
4.10 Satisfaction of Conditions Precedent.
-------------------------------------
Target will use commercially reasonable efforts to
satisfy or cause to be satisfied all the conditions precedent which are set
forth in Section 9, and Target will use commercially reasonable efforts to
cause the transactions provided for in this Agreement to be consummated,
and, without limiting the generality of the foregoing, to obtain all
-26-
consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for
herein.
4.11 Blue Sky Laws.
--------------
Target shall use commercially reasonable efforts to
assist Acquirer to the extent necessary to comply with the securities and
Blue Sky laws of all jurisdictions applicable in connection with the
Merger.
4.12 Notification of Employee Problems.
----------------------------------
Target will promptly notify Acquirer if any of Target's
officers becomes aware that any of its key employees intends to leave its
employ.
4.13 Benefit Plans; Cash Compensation.
---------------------------------
As soon as practicable after the execution of this
Agreement, Acquirer and Target shall confer and work together in good faith
to agree upon mutually acceptable employee benefit and compensation
arrangements for Target's employees following the Merger. Target shall
take such actions as are necessary to terminate its participation in such
Employee Plans as is requested by Acquirer, provided that Acquirer shall
take such steps as are commercially and administratively reasonable to
ensure that (i) those Target employees who are eligible to participate in
each such Employee Plan shall be entitled to participate, on terms
comparable to those of their current participation, in comparable employee
benefit plans maintained by Acquirer effective immediately following the
Effective Date and (ii) such employees shall be credited with prior periods
of employment with Target for purposes of participation in and vesting
under Acquirer's employee benefit plans, including, without limitation,
participation in and vesting under all employee pension benefit plans (as
defined in Section 3(2) of ERISA), participation in and satisfaction of
deductibles and co-pays under employee welfare benefit plans (as defined in
Section 3(1) of ERISA), vacation and sick leave entitlement where service
is a factor. Base compensation and, if applicable, eligibility for bonus
compensation (with appropriate adjustment to milestones to track the
combined business) will remain unchanged for Target's officers and
employees, or if Acquirer so elects will be adjusted as mutually agreed.
4.14 Shareholder Approval.
---------------------
Prior to Closing, Target will obtain the approval of
this Agreement, the Merger and related matters from the Target Shareholder
in compliance with all applicable legal requirements.
4.15 Sale of Shares Pursuant to Regulation D or Section 4(2).
--------------------------------------------------------
The parties hereto acknowledge and agree that the shares
of Acquirer Common Stock issuable pursuant to Section 1 hereof shall
constitute "restricted securities" within the meaning of the Securities
Act. The certificates of Acquirer Common Stock shall bear the legends set
forth in Section 1. It is acknowledged and understood that Acquirer is
relying on certain written representations made by each shareholder of
Target. Target will exercise reasonable best efforts to cause each Target
shareholder to execute and deliver to Acquirer an Investor Representation
Certificate in the form attached hereto as Exhibit 4.15.
-27-
5. ACQUIRER PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, or such later time as provided herein, Acquirer covenants
to and agrees with Target as follows:
5.1 Access to Information.
----------------------
Until the Closing Date, Acquirer will allow Target and
its agents reasonable access to its management and officers and material
information regarding Acquirer, including without limitation, material
information relating to Acquirer's business and financial condition.
Acquirer will cause its accountants to cooperate with Target's accountants
in making available all financial information reasonably requested to
evaluate Acquirer's financial statements.
5.2 Satisfaction of Conditions Precedent.
-------------------------------------
Acquirer will use all commercially reasonable efforts to
satisfy or cause to be satisfied all the conditions precedent which are set
forth in Section 8, and Acquirer will use all commercially reasonable
efforts to cause the transactions provided for in this Agreement to be
consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all
filings with, and give all notices to, third parties that may be necessary
or reasonably required on its part in order to effect the transactions
provided for herein.
5.3 Regulatory Approvals.
---------------------
Acquirer will execute and file, or join in the execution
and filing, of any application or other document that may be necessary in
order to obtain the authorization, approval or consent of any governmental
body, federal, state, local or foreign, which may be reasonably required,
or which Target may reasonably request, in connection with the consummation
of the transactions provided for in this Agreement. Acquirer will use all
reasonable efforts to obtain all such authorizations, approvals and
consents.
5.4 Indemnification.
----------------
From and after the Effective Time, Acquirer agrees to
indemnify and hold harmless each current and former director and officer of
Target against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities incurred in
connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of
matters existing or occurring at or prior to the Effective Time, asserted
or claimed after the Effective Time, to the fullest extent that Target
would have been permitted under its organizational documents and applicable
law in effect on the date hereof to indemnify such person (and in
connection therewith Acquirer shall advance expenses as incurred to the
fullest extent provided for under Acquirer's organizational documents and
applicable law as from time to time in effect, provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to
indemnification). Target represents that there is no current basis for any
indemnity claim under this Section 5.4, except as set out in Item 5.4.
-28-
5.5 Cooperation in Obtaining Necessary Consents.
--------------------------------------------
Acquirer will cooperate with Target as reasonably
requested by Target in order to assist Target to obtain such written
consents as are contemplated by Section 4.6 hereof.
5.6 Closing Deliverables.
---------------------
Prior to Closing, Acquirer shall deliver to Target true
and accurate copies of the following items: (i) Acquirer's Certificate of
Incorporation, as amended to date; (ii) a Certificate of Good Standing from
the Oklahoma Secretary of State, of recent date, regarding Acquirer; (iii)
a certified copy of the resolutions of the Acquirer's Board of Directors
approving this Agreement and the issuance of shares of Acquirer capital
stock hereby contemplated; and (iv) a certificate of the transfer agent of
Acquirer of recent date reflecting the number of outstanding shares of
capital stock of Acquirer; and (v) a copy of the letter from Acquirer's
counsel to Acquirer's transfer agent confirming that the shares of Acquirer
stock issued pursuant to this Agreement are duly issued.
5. ACQUIRER POST-CLOSING OBLIGATIONS
6.1 Target Loans.
-------------
Acquirer shall repay One Hundred Six Thousand Two
Hundred Nine and 84/100 US Dollars ($106,209.84) of Target's outstanding
loans from the directors of Target (the "Director Loans") upon the earlier
to occur of (i) the first anniversary of the Closing Date and (ii) the
closing of an equity financing of Acquirer in which the net proceeds of
such equity financing, when combined with the net proceeds of all such
financings from and after the date hereof, equal or exceed Three Million
Dollars ($3,000,000). Should Three Million Dollars be so raised prior to
the Closing Date, then Acquirer shall cause Newco to satisfy its
obligations under this Section at the Closing.
6.2 Private Placement.
------------------
Acquirer shall use commercially reasonable efforts to
close an equity financing in which the net proceeds, when combined with the
net proceeds of all such financings from and after the date hereof, equal
between One Million Dollars ($1,000,000) and Three Million Dollars
($3,000,000). Not less than One Million Five Hundred Thousand Dollars
($1,500,000) shall, within the subsequent twelve (12) months thereafter, be
contributed as working capital to the Surviving Corporation.
6.3 Advisors.
---------
Acquirer shall use commercially reasonable efforts to,
within 90 days of Closing, engage Kings Peak Advisors, LLC, and European
American Securities, [Inc.] as its financial advisors and investment
bankers, respectively.
6.4 Post-Closing Capitalization.
----------------------------
Until such time as the Company has raised an aggregate
amount of $3,500,000 in gross proceeds through debt and/or equity
financings (including the $500,000 financing referenced in Section 8.9)
(the "Initial Financings"), the Total Acquirer Shares shall represent at
least ten percent (10%) of the Company's outstanding Capital Stock on a
Fully Diluted Basis. For purposes of this Section 6.4, a "Fully Diluted
Basis" shall include, at the time of such financings, all shares of
-29-
outstanding capital stock of the Company, shares issuable upon the
conversion of any debt instrument, and shares issuable upon the exercise of
all outstanding warrants. In the event that Target Shareholders shares
represent less than ten percent (10%) of the outstanding capital stock of
the Company on a Fully Diluted Basis at any time up to and including the
closing of the Initial Financings, Acquirer shall issue to Target
Shareholder such number of shares of Acquirer Common Stock as is necessary
to make the total number of shares of Acquirer Common capital stock held by
Target Shareholder equal ten percent (10%) of the total outstanding capital
stock of Acquirer on a Fully Diluted Basis.
6.5 Reports Under the 1934 Act.
---------------------------
With a view to making available to the Target
Shareholder the benefits of Rule 144 promulgated under the Securities Act
of 1 ("SEC Rule 144") and any other rule or regulation of the SEC that may
at any time permit the Target Shareholder to sell shares of Acquirer Common
Stock to the public without registration, Acquirer agrees that it shall:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all
reports and other documents required of Acquirer under the Act and the
Securities Exchange Act of 1934, as amended;
(c) furnish to the Target Shareholder forthwith
upon request so long as the Target Shareholder holds any shares of Acquirer
Common Stock, whenever applicable (i) a written statement by Acquirer that
it has compiled with its reporting requirements under SEC Rule 144, the
1933 Act, and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of Acquirer and such other reports and documents filed by
Acquirer with the SEC, and (iii) such other information as may be
reasonably requested in availing the Target Shareholder of any current rule
or regulation of the SEC (or any future rule or regulation containing
issuer information requirements comparable to or less burdensome than
current SEC Rule 144) which permits the selling of any such securities
without registration; and
(d) in the event that at any time after the first
anniversary of the Closing, Target Shareholder requests to transfer any
Acquirer Common Stock in accordance with the provisions of SEC Rule 144,
Acquirer will advise its transfer agent that the holding period for such
shares, as determined pursuant to Rule 144(d), commenced on the Closing
Date, and, assuming that all other conditions to SEC Rule 144 are met, that
such shares will be transferable by the Target Shareholder pursuant to SEC
Rule 144 from and after one year from such date.
7. CLOSING MATTERS
7.1 The Closing.
------------
Subject to termination of this Agreement as provided in
Section 10 below, the closing of the transactions provided for herein (the
"Closing") will take place at the offices of Xxxxxxx, Xxxxx & Xxxxxxx, 000
Xxxxx 000 Xxxx, Xxxxx 000, Xxxxxx, Xxxx 00000 at 10:00 a.m., Mountain Time
on the first business day following the last to be satisfied of the
conditions to closing or such other date as the parties agree (the "Closing
Date"). Prior to or concurrently with the Closing, the Articles of Merger,
and such officers' certificates or other documents as may be required to
effectuate the Merger will be filed with the Secretary of State.
Accordingly, the Merger will become effective at the Effective Time.
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7.2 Exchange of Certificates.
-------------------------
7.2.1 As of the Effective Time, all shares of Target
Stock that are outstanding immediately prior thereto will, by virtue of the
Merger and without further action, cease to exist, and all such shares will
be converted into the right to receive from Acquirer the number of shares
of Acquirer Common Stock as set forth in Section 1.1, subject to Sections
1.2 and 1.3 hereof, and (b) the Convertible Note.
7.2.2 At and after the Effective Time, each certificate
representing outstanding shares of Target Stock will represent the number
of shares of Acquirer Common Stock into which such shares of Target Stock
have been converted, and such shares of Acquirer Common Stock will be
deemed registered in the name of the holder of such certificate. As soon
as practicable after the Effective Time, each holder of shares of Target
Stock will surrender (a) the certificates for such shares (the "Target
Certificates") to Acquirer for cancellation or (b) an affidavit of lost
certificate (or non-issued certificate) with appropriate indemnification
(the "Affidavit") in form reasonably satisfactory to Acquirer. At the
Effective Time, provided Acquirer has received the Target Certificates
and/or the Affidavit (or any lost certificate bond required by the transfer
agent if the transfer agent will not accept the indemnification in the
Affidavit in lieu of the bond), Acquirer will cause its transfer agent to
issue to such surrendering holder certificate(s) for the number of shares
of Acquirer Common Stock to which such holder is entitled pursuant to
Section 1.1, subject to Section 1.2 hereof, less such holder's pro rata
portion of the Escrow Shares deposited into escrow pursuant to Section 1.3
hereof.
7.2.3. At or before the Effective Time, Acquirer shall
execute and deliver to the Target Shareholder the Convertible Note together
with the Security Agreement and the Target Shareholder shall execute and
deliver to Acquirer the Security Agreement.
7.2.4 All shares of Acquirer Common Stock delivered upon
the surrender of Target Certificates in accordance with the terms hereof
will be delivered to the registered holder or placed in escrow with the
Escrow Agent, as applicable. After the Effective Time, there will be no
further registration of transfers of the shares of Target Stock on the
stock transfer books of Target. If, after the Effective Time, Target
Certificates are presented for transfer or for any other reason, they will
be canceled and exchanged and certificates and cash therefor will be
delivered or placed in escrow as provided in this Section 7.2.
7.2.5 Until Target Certificates representing Target
Stock outstanding prior to the Merger are surrendered pursuant to Section
7.2.2 above, such certificates will be deemed, for all purposes, to
evidence ownership of (a) the number of shares of Acquirer Common Stock
into which the shares of Target Stock will have been converted as set forth
in Section 1.1, subject to the obligation to place a portion thereof in
escrow as required hereby, and as set forth in Section 1.2 hereof.
8. CONDITIONS TO OBLIGATIONS OF TARGET
Target's obligations hereunder are subject to the fulfillment
or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Target):
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8.1 Accuracy of Representations and Warranties.
-------------------------------------------
The representations and warranties of Acquirer set forth
in Section 3 shall be accurate in all material respects and Target shall
have received a certificate to such effect executed on behalf of Acquirer
by its Chief Executive Officer and its Chief Financial Officer.
8.2 Covenants.
----------
Acquirer shall have performed and complied in all
material respects with all of its covenants contained in Section 5 on or
before the Closing Date, and Target shall have received a certificate to
such effect executed on behalf of Acquirer by its Chief Executive Officer
or Chief Financial Officer.
8.3 Compliance with Law.
--------------------
There shall be no order, decree, or ruling by any court
or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents.
--------------------
There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been
taken such other actions, as may be required to consummate the Merger by
any regulatory authority having jurisdiction over the parties and the
actions herein proposed to be taken, including but not limited to
satisfaction of all requirements under applicable federal and state
securities laws.
8.5 No Litigation.
--------------
No litigation or proceeding initiated by a party other
than Target or the Target Shareholder shall be pending which will have the
probable effect of enjoining or preventing the consummation of any of the
transactions provided for in this Agreement.
8.6 Shareholder Approval.
---------------------
The principal terms of this Agreement shall have been
approved and adopted by the Target Shareholder, as required by applicable
law and Target's Articles of Incorporation and by-laws.
8.7 Requisite Approvals.
--------------------
The principal terms of this Agreement shall have been
approved and adopted by Acquirer and Newco, as required by applicable law
and by their respective Boards of Directors.
8.8 Employment Agreements.
----------------------
Each of Xxxxxxx and Scammell shall have entered into
two-year employment agreements in a form attached as Exhibit 8.8.
8.9 Equity Raised.
--------------
Acquirer shall have raised, from and after the date
hereof, at least $500,000 in net proceeds from one or more new debt or
equity financings.
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8.10 Ancillary Agreements.
---------------------
Acquirer and Newco shall have executed and delivered (i)
a Stock Purchase Agreement with Xxxxxxx in respect of his shares of
Competency Based Learning, Pty. Ltd., a registered company under the
Corporations Law of South Australia; and (ii) a Stock Purchase Agreement
with Xxxxxxx and Scammell in respect of their shares of ACN 000 000 000
Pty. Ltd., a registered company under the Corporations Law of South
Australia, concurrently with the execution and delivery of this Agreement.
9. CONDITIONS TO OBLIGATIONS OF ACQUIRER
The obligations of Acquirer hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the
following conditions (any one or more of which may be waived by Acquirer):
9.1 Accuracy of Representations and Warranties.
-------------------------------------------
The representations and warranties of Target set forth
in Section 2 shall be accurate in all material respects and Acquirer shall
have received a certificate to such effect executed on behalf of Target by
its Chief Executive Officer and its Chief Financial Officer.
9.2 Covenants.
----------
Target shall have performed and complied in all material
respects with all of its covenants contained in Section 4 on or before the
Closing and Acquirer shall have received a certificate to such effect
signed on behalf of Target by its Chief Executive Officer and its Chief
Financial Officer.
9.3 Compliance with Law.
--------------------
There shall be no order, decree, or ruling by any court
or governmental agency in effect that would prohibit or render illegal the
transactions provided for in this Agreement.
9.4 Government Consents.
--------------------
There shall have been obtained at or prior to the
Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to satisfaction of
all requirements under applicable federal and state securities laws.
9.5 Consents.
---------
Acquirer shall have received all written consents,
assignments, waivers, authorizations or other certificates necessary to
provide for the continuation in full force and effect of any and all
contracts and leases of Target which if not continued would have a Material
Adverse Effect on Target.
9.6 Absence of Material Adverse Change.
-----------------------------------
Since the Balance Sheet Date, there shall not have been
any Material Adverse Change with respect to Target.
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9.7 Requisite Approvals.
--------------------
The principal terms of this Agreement shall have been
approved and adopted by the Target Shareholder, as required by applicable
law and Target's Articles of Incorporation and Bylaws, and by Target's
Board of Directors.
9.8 No Litigation.
--------------
No litigation or proceeding shall be threatened or
pending which will have the probable effect of enjoining or preventing the
consummation of any of the transactions provided for in this Agreement or
which have had or could reasonably be expected to have Material Adverse
Effect on Target.
9.9 Escrow.
-------
Acquirer shall have received the Escrow Agreement,
executed by the Target Shareholder and the Escrow Agent, which agreement
provides for the escrow of the Escrow Shares on the terms and conditions of
the Escrow Agreement.
9.10 Shareholder Approval.
---------------------
All of Target's shareholders shall have approved this
Agreement, the Merger and related matters.
9.11 Employment Agreements.
----------------------
Each of Xxxxxxx and Xxxxxxxx shall have entered into
two-year employment agreements in a form attached as Exhibit 8.8.
9.12 Investor Representation Certificate.
------------------------------------
Each of the Target Shareholders shall have executed and
delivered to Acquirer an Investor Representation Certificate in the form
attached hereto as Exhibit 4.15.
9.13 Ancillary Agreements.
---------------------
Xxxxxxx and Scammell shall have executed and delivered
(i) a Stock Purchase Agreement by and between Xxxxxxx, Acquirer and Newco
in respect of Xxxxxxx'x shares of Competency Based Learning, Pty. Ltd., a
registered company under the Corporations Law of South Australia; and (ii)
a Stock Purchase Agreement by and between Kennedy, Scammell, Acquirer and
Newco in respect of Xxxxxxx'x and Xxxxxxxx'x shares of ACN 000 000 000 Pty.
Ltd., a registered company under the Corporations Law of South Australia,
concurrently with the execution and delivery of this Agreement.
10. TERMINATION OF AGREEMENT
10.1 Termination.
------------
This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the
shareholders of Target:
(a) by the mutual written consent of Acquirer and Target;
(b) Upon notice by either party, if the Merger shall not
have been consummated by October 15, 2002 (the "Final Date") other than as
the result of a breach of this Agreement by the terminating party;
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(c) by Target, if there has been a breach by Acquirer of any
representation, warranty, covenant or agreement set forth in this Agreement
on the part of Acquirer which has or can reasonably be expected to have a
Material Adverse Effect on Acquirer and which Acquirer fails to cure within
a reasonable time, not to exceed thirty (30) days, after written notice
thereof (except that no cure period will be provided for a breach by
Acquirer which by its nature cannot be cured);
(d) by Acquirer, if there has been a breach by Target
of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Target which has or can reasonably be expected to
have a Material Adverse Effect on Target and which Target fails to cure
within a reasonable time not to exceed thirty (30) days after written
notice thereof (except that no cure period will be provided for a breach by
Target which by its nature cannot be cured) );
(e) by Acquirer, if Target breaches its obligations
under Section 4.8 or Section 4.14; or
(f) by either party, if a permanent injunction or other
order by any federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the Merger will have been issued
and will have become final and nonappealable.
Any termination of this Agreement under this Section 10.1 will be
effective by the delivery of written notice of the terminating party to the
other party hereto.
10.2 Certain Continuing Obligations.
-------------------------------
Following any termination of this Agreement pursuant to this
Section 10, the parties hereto will continue to perform their respective
obligations under Sections 12.11 and 12.15 but will not be required to
continue to perform their other covenants under this Agreement, except as
provided in Section 10.1(c) and (d).
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS
11.1 Survival of Representations.
----------------------------
The representations and warranties of the parties hereto
contained in this Agreement or in any writing delivered pursuant hereto or
at the Closing shall survive the Closing and the consummation of the
transactions contemplated hereby (and any examination or investigation by
or on behalf of any party hereto) until the first anniversary of the
Closing Date (the "Indemnification Period"); provided, that the
Indemnification Period for representations and warranties contained in
Section 2.8, Section 2.15 and Section 2.19 shall not terminate until the
expiration of any applicable statute of limitations; provided, further,
that the Indemnification Period for representations and warranties
contained in Sections 2.2.1, 2.3, 2.5, 2.12, 2.22, and 3.6 shall not
terminate but shall continue indefinitely. Notwithstanding the foregoing,
each Subparagraph under this Section 11 shall not be so limited and shall
survive until any claims under this Agreement are resolved in accordance
with this Agreement. The covenants contained in Section 6 shall survive in
accordance with their terms.
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11.2 Target Shareholder Indemnification.
-----------------------------------
(a) Target and the Target Shareholder shall jointly and
severally indemnify and hold harmless Acquirer, Newco, and each of their
respective officers, shareholders, directors, agents, affiliates and
employees (the "Acquirer Indemnified Parties"), against and in respect of
all actions, damages, claims, losses, liabilities and expenses (including,
without limitation, reasonable attorneys' fees and disbursements) incurred
by an Acquirer Indemnified Party (all such amounts being hereinafter
sometimes referred to as "Damages") arising out of or related to (i) any
misrepresentation or breach of any warranty made by Target or Target
Shareholder pursuant to Section 2, (ii) the nonperformance or breach of any
covenant, agreement or obligation of Target or Target Shareholder contained
in this Agreement, or (iii) any failure of the Target Shareholder to have
good, valid and marketable title to the issued and outstanding Target
Common Stock held by him, free and clear of all liens, claims, pledges,
options, adverse claims, assessments and charges of any nature whatsoever,
or to have the full right, capacity and authority to vote said Target
Common Stock in favor of the Merger and the other transaction anticipated
hereby. There shall be no liability for indemnification under this
Section 11.2 unless the aggregate amount of Damages hereunder exceeds Ten
Thousand Dollars ($10,000), and then only to the extent such aggregate
amount of Damages exceeds $10,000. The total liability of the Target
Shareholder for Damages hereunder shall be satisfied solely from the (1)
Escrow Shares with respect to representations and warranties with a one-
year Indemnification Period and (2) Total Acquirer Shares and amounts paid
or payable to Target Shareholder under the Convertible Note with respect to
representations and warranties with an Indemnification Period of longer
than one year. The total liability of the Target Shareholder for Damages
hereunder shall not exceed the value of the Escrow Shares with respect to
clause (1) above or the Total Acquirer Shares plus amounts paid or payable
to Target Shareholder under the Convertible Note with respect to clause (2)
above. The Total Acquirer Shares and amounts paid or payable under the
Convertible Note shall be the exclusive source of indemnification for
Damages as provided by Section 11.2. The foregoing limitation shall not
apply to breaches resulting from fraud or intentional misrepresentation.
The value of the Total Acquirer Shares shall be the Fair Market Value (as
defined in Section 11.5) thereof as determined at on the date any such
Damages become due and payable.
(b) Acquirer shall be entitled to indemnification from the
Escrow Shares, the Total Acquirer Shares and from amounts paid and payable
under the Convertible Note in the following order:
(i) First, from the Escrow Shares deposited in escrow
pursuant to Section 1.3;
(ii) Second, in the event the aggregate Damages exceeds
the value of the Escrow Shares, from a set-off against principal and
accrued interest then outstanding under the Convertible Note;
(iii) Third, in the event the aggregate Damages exceeds
the value of the Escrow Shares and the principal and accrued interest
outstanding under the Convertible Note, the shares of Acquirer Common Stock
received by Target Shareholder on the Closing Date; and
(iv) Fourth, in the event the aggregate Damages exceeds
the value of the Total Acquirer Shares and the principal and accrued
interest outstanding under the Convertible Note, from amounts previously
paid to Target Shareholder under the terms of the Convertible Note that
shall be returned by the Target Shareholder as full and complete
satisfaction of his liabilities for indemnification under this Section 11.
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(c) If an Acquirer Indemnified Party believes it has
incurred any Damages which are subject to indemnification under Section
11.2, it shall promptly provide written notice thereof to the Target
Shareholder. The Total Acquirer Shares and amounts paid or payable under
the Convertible Note shall be the exclusive source of indemnification for
Damages as provided by Section 11.2.
(d) With respect to claims or demands by third parties,
whenever an Acquirer Indemnified Party shall have received notice that such
a claim or demand has been asserted or threatened, which, if true, would
result in indemnification under Section 11.2, the Acquirer Indemnified
Party shall as soon as reasonably practicable, and in any event within
thirty (30) days of receipt of such notice, notify the Target Shareholder
of such claim or demand and of all relevant facts within its knowledge
which relate thereto. The Target Shareholder shall then have the right to
undertake the defense of any such claims or demands utilizing counsel he
selects and approved by Acquirer, which approval shall not be unreasonably
withheld, conditioned or delayed; provided however, that the Target
Shareholder shall not settle or otherwise compromise any such action
without the prior written consent of the Acquirer Indemnified Party unless
such settlement affords the Acquirer Indemnified Party a full release. In
the event that the Target Shareholder shall fail to give notice of his
intention to undertake the defense of any such claim or demand within
twenty (20) days after receiving notice that it has been asserted or
threatened, the Acquirer Indemnified Party shall have the right to satisfy
and discharge the same by payment, compromise or otherwise.
(e) If an Acquirer Indemnified Party believes it has
incurred any Damages which are subject to indemnification under Section
11.2(a) and such Damages do not involve a third party claim or demand
described in Section 11.2(d), it shall forward notice thereof to the Target
Shareholder and shall state therein the amount of Damages it believes it
has suffered, and shall provide, in reasonable detail the facts alleged as
the basis for such claim and the section or sections of this Agreement
alleged to have been violated (a "Damages Notice"). No later than thirty
(30) days after receipt of a Damages Notice from an Acquirer Indemnified
Party, the Target Shareholder shall deliver to Acquirer either a notice
accepting such claim for Damages or a notice that the Target Shareholder
disputes the claim for Damages. A failure to provide the Acquirer
Indemnified Party with notice disputing a claim for Damages within thirty
(30) days of receipt of a Damages Notice from an Acquirer Indemnified Party
shall be deemed acceptance of such claim.
11.3 Acquirer Indemnification.
-------------------------
(a) Acquirer shall indemnify and hold harmless Target
Shareholder and his spouse, heirs, representatives, successor and assigns
(together the "Target Shareholder Indemnified Parties"), against and in
respect of all actions, damages, claims, loses, liabilities and expenses
(including, without limitation, reasonable attorneys' fees and
disbursements) incurred by a Target Shareholder Indemnified Party within
the Indemnification Period, arising out of or related to (i) any
misrepresentation or breach of any warranty made by Acquirer or Newco
pursuant to Section 3, or (ii) the nonperformance or breach of any
covenant, agreement or obligation of Acquirer or Newco contained in this
Agreement. If any Damages are incurred by a Target Shareholder Indemnified
Party in connection with clause (i) or (ii) above, then such
misrepresentation, breach or nonperformance shall constitute an event of
default under the Convertible Note and the Security Agreement if (1) Target
Shareholder Indemnified Parties shall have complied with the requirements
of this Section 11.3 and (2) the Damages have not been paid by Acquirer
-37-
within ten (10) days of becoming due and payable in accordance with this
Section 11.3. Damages shall become due and payable by Acquirer upon
Acquirer's acceptance of claim for Damages as provided in Subsection
11.3(e) or, if the Damages are disputed by Acquirer, upon a final decision
of an arbitrator pursuant to Section 12.19 or a final judgment by a court
of competent jurisdiction. There shall be no liability for indemnification
under this Section 11.3 unless the aggregate amount of Damages hereunder
exceeds Ten Thousand Dollars ($10,000), and then only to the extent such
aggregate amount of Damages exceeds $10,000.
(b) Target Shareholder's rights in the event of a default
under the Convertible Note and the Security Agreement and the remedies
available thereunder shall be the sole source of indemnification for
Damages as provided by Section 11.3 and shall operate as a full and
complete satisfaction of all liabilities of Acquirer and Newco for
indemnification under this Section 11.
(c) If a Target Shareholder Indemnified Party believes it
has incurred any Damages that are subject to indemnification under Section
11.3, it shall promptly provide written notice thereof to Acquirer.
(d) With respect to claims or demands by third parties,
whenever a Target Shareholder Indemnified Party shall have received notice
that such a claim or demand has been asserted or threatened, which, if
true, would result in indemnification under Section 11.3, the Target
Shareholder Indemnified Party shall as soon as reasonably practicable, and
in any event within thirty (30) days of receipt of such notice, notify
Acquirer of such claim or demand and of all relevant facts within its
knowledge which relate thereto. Acquirer shall then have the right to
undertake the defense of any such claims or demands utilizing counsel
selected by it and approved by the Target Shareholder, which approval shall
not be unreasonably withheld, conditioned or delayed, provided however,
that Acquirer shall not settle or otherwise compromise any such action
without the prior written consent of the Target Shareholder Indemnified
Party unless such settlement affords the Target Shareholder Indemnified
Party a full release. In the event that Acquirer shall fail to give notice
of its intention to undertake the defense of any such claim or demand
within twenty (20) days after receiving notice that it has been asserted or
threatened, the Target Shareholder Indemnified Party shall have the right
to satisfy and discharge the same by payment, compromise or otherwise.
(e) If a Target Shareholder Indemnified Party believes it
has incurred any Damages which are subject to indemnification under Section
11.3(a) and such Damages do not involve a third party claim or demand
described in Section 11.3(d), it shall forward a Damages notice to
Acquirer. No later than thirty (30) days after receipt of a Damages Notice
from a Target Shareholder Indemnified Party, Acquirer shall deliver to
Target Shareholder Indemnified Party either a notice accepting such claim
for Damages or a notice that Acquirer disputes the claim for Damages. A
failure to provide the Target Shareholder Indemnified Party with notice
disputing a claim for Damages within thirty (30) days of receipt of a
Damages Notice from a Target Shareholder Indemnified Party shall be deemed
acceptance of such claim.
11.4 Insurance Recoveries; Tax Benefits.
-----------------------------------
Any indemnity payment made by the Target Shareholder to any
Acquirer Indemnified Party, on the one hand, or by Acquirer to any Target
Shareholder Indemnified Party, on the other hand, pursuant to this
Section 11 in respect of any claim (i) shall be net of an amount equal to
(x) any insurance proceeds realized by and paid to the respective Target
Shareholder Indemnified Parties or Acquirer Indemnified Parties minus (y)
-38-
any related costs and expenses, including the aggregate cost of pursuing
any related insurance claims plus any correspondent increases in insurance
premiums or other chargebacks, and (ii) shall be (A) reduced by an amount
equal to the tax benefits, if any, attributable to such claim and (B)
increased by an amount equal to the taxes, if any, attributable to the
receipt of such indemnity payment, but only to the extent that such tax
benefits are actually realized, or such taxes are actually paid, as the
case may be, by the Target Shareholder Indemnified Parties or Acquirer
Indemnified Parties or any consolidated, combined or unitary group of which
such Target Shareholder Indemnified Parties or Acquirer Indemnified Parties
are a member.
11.5 Fair Market Value.
------------------
For purposes of this Section 11, "Fair Market Value"
shall mean:
(i) if the Acquirer's Common Stock is traded on
an exchange or are quoted on the NASDAQ National Market, the average of the
closing or last sale price reported for the ten business days immediately
preceding the date of net issuance exercise;
(ii) if Acquirer's Common Stock is not traded on
an exchange or on the NASDAQ National market, but is traded in the over-
the-counter market, the average of the closing bid and asked prices
reported for the ten market days immediately preceding the date of net
issuance exercise; and,
(iii) in all other cases, the fair market value
as determined in good faith by Acquirer's Board of Directors.
12. MISCELLANEOUS
12.1 Governing Law.
--------------
Except to the extent for corporate matters governed by
the internal laws of California and Utah, the internal laws of the State of
Utah (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties
hereto.
12.2 Assignment; Binding Upon Successors and Assigns.
------------------------------------------------
No party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other party
hereto. This Agreement will be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
12.3 Severability.
-------------
If any provision of this Agreement, or the application
thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of the void or unenforceable
provision.
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12.4 Counterparts.
-------------
This Agreement may be executed in counterparts, each of
which will be an original as regards any party whose name appears thereon
and all of which together will constitute one and the same instrument.
This Agreement will become binding when one or more counterparts hereof,
individually or taken together, bear the signatures of all parties
reflected hereon as signatories.
12.5 Amendment and Waivers.
----------------------
Any term or provision of this Agreement may be amended,
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by a writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof or default in the performance
hereof will not be deemed to constitute a waiver of any other default or
any succeeding breach or default. The parties hereto may amend this
Agreement at any time before or after approval of the Target Shareholder.
12.6 No Waiver.
----------
The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of
the right to enforce any of the provisions hereof on any occasion will not
be construed to be a waiver of the right of such party to enforce such
provision on any other occasion.
12.7 Notices.
--------
Any notice or other communication required or permitted
to be given under this Agreement will be in writing, will be delivered
personally or by mail or express delivery, postage prepaid, and will be
deemed given upon actual delivery or, if mailed by registered or certified
mail, on the third business day following deposit in the mails, addressed
as follows:
(i) If to Acquirer:
Trinity Companies, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxx, President
with a copy to:
Xxxxxxx, Xxxxx & Xxxxxxx
000 Xxxxx 000 Xxxx, Xxxxx 000
Xxxxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
(ii) If to Target:
Competency Based Learning, Inc.
_____________________
_____________________
Attention: _____________
Phone: ______________
Fax: _______________
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with a copy to:
Xxxxxx Xxxxxxxx Xxxxxxx & Share LLP
Xxxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 12.7.
12.8 Construction of Agreement.
--------------------------
The language hereof will not be construed for or against
any party based solely on that party being the drafting party. A reference
to an article, section or exhibit will mean an article or section in, or an
exhibit to, this Agreement, unless otherwise explicitly set forth. The
titles and headings in this Agreement are for reference purposes only and
will not in any manner limit the construction of this Agreement. For the
purposes of such construction, this Agreement will be considered as a
whole.
12.9 No Joint Venture.
-----------------
Nothing contained in this Agreement will be deemed or
construed as creating a joint venture or partnership between the parties
hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other, and the
parties' status is, and at all times, will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself
out as having any authority or relationship in contravention of this
Section.
12.10 Further Assurances.
-------------------
Each party agrees to cooperate fully with the other
party and to execute such further instruments, documents and agreements and
to give such further written assurances as may be reasonably requested by
the other party to evidence and reflect the transactions provided for
herein and to carry into effect the intent of this Agreement.
12.11 Public Announcement.
--------------------
Acquirer and Target will issue a press release approved
by both parties announcing the Merger as soon as practicable following the
execution of this Agreement. Acquirer may issue such press releases, and
make such other disclosures regarding the Merger, as it determines to be
required or appropriate under applicable securities laws. Target will not
make any other public announcement or disclosure of the transactions
contemplated by this Agreement until such time as Acquirer has issued such
press releases, and made such other disclosures regarding the Merger
required under applicable securities laws or the time period designated by
federal securities laws for making such disclosures has lapsed. Target
will take all reasonable precautions to prevent any trading in the
securities of Acquirer by officers, directors, employees and agents of
-41-
Target having knowledge of any material information regarding Acquirer
provided hereunder, including, without limitation, the existence of the
transactions contemplated by this Agreement (the "Acquirer Material
Information"), until the information in question has been publicly
disclosed. The Target agrees to cause the Target Shareholder not to trade
in the securities of Acquirer until the Acquirer Material Information has
been disclosed.
12.12 Time is of the Essence.
-----------------------
The parties hereto acknowledge and agree that time is of
the essence in connection with the execution, delivery and performance of
this Agreement, and that they will each utilize reasonable best efforts to
satisfy all the conditions to Closing.
12.13 Certain Definitions.
--------------------
12.13.1 "Material Adverse Effect" and "Material
Adverse Change" For purposes of this Agreement, the terms "Material
Adverse Effect" and "Material Adverse Change" mean or refer to, with
respect to any entity, any adverse change, circumstance or effect that,
individually or in the aggregate with all other adverse changes,
circumstances and effects, is or is reasonably likely to be materially
adverse to the financial condition, properties, assets, liabilities,
material Intellectual Property rights, business, or operating results of
such entity, and its subsidiaries if any, taken as a whole, except for
those changes, circumstances or events that are caused by (i) general
business or economic conditions, (ii) conditions affecting the market in
which such entity competes, (iii) conditions resulting from the
announcement of this Agreement or the pendency of the consummation of the
transactions contemplated herein and (iv) conditions resulting from or
relating to the taking of any action contemplated by this Agreement or
otherwise agreed to by Acquirer.
12.13.2 "Person" shall mean any individual, Entity
or Governmental Body.
12.13.3 "Entity" shall mean any corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization or entity.
12.13.4. "Governmental Body" shall mean any: (a)
nation, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or quasi-
governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization,
unit, body or Entity and any court or other tribunal).
12.14 Expenses.
---------
All expenses incurred in connection with the Merger on
behalf of Target and Target Shareholder, including, but not limited to, all
accounting, legal and investment banking and other Merger related fees,
shall be paid by Target's current shareholders, and not by Target or
Acquirer.
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12.15 Absence of Third Party Beneficiary Rights.
------------------------------------------
No provisions of this Agreement are intended, nor will
be interpreted, to provide or create any third party beneficiary rights or
any other rights of any kind in any client, customer, affiliate, partner or
employee of any party hereto or any other person or entity, except as
specifically otherwise provided to be for the benefit of officers,
directors, employees or shareholders of Target in Sections 4.13 and 5.4
(as to officers and directors) and 10.3 (as to shareholders), and, except
as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.
12.16 Entire Agreement.
-----------------
This Agreement and the exhibits hereto constitute the
entire understanding and agreement of the parties hereto with respect to
the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or
implied, written or oral, between the parties with respect to the subject
matter hereof. The express terms hereof control and supersede any course
of performance or usage of trade inconsistent with any of the terms hereof.
12.17 Sole Remedy.
------------
The parties' sole and exclusive remedy for breach of any
representation, warranty or covenant herein shall be the indemnification
provision of Article 11.
12.18 Arbitration.
------------
Any dispute arising out of this Agreement under the
Commercial Arbitration Rules (the "AAA Rules") of the American Arbitration
Association (the "AAA"). This arbitration provision is expressly made
pursuant to and shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-14. The Parties agree that pursuant to Section 9 of the Federal
Arbitration Act, a judgment of a United States District Court of competent
jurisdiction shall be entered upon the award made pursuant to the
arbitration. A single arbitrator, who shall have the authority to allocate
the costs of any arbitration initiated under this paragraph, shall be
selected according to the AAA Rules within ten (10) days of the submission
to the AAA of the response to the statement of claim or the date on which
any such response is due, whichever is earlier. The arbitrator shall be
required to furnish to the parties to the arbitration a preliminary
statement of the arbitrator's decision that includes the legal rationale
for the arbitrator's conclusion and the calculations pertinent to any
damage award being made by the arbitrator. The arbitrator shall then
furnish each of the parties to the arbitration the opportunity to comment
upon and/or contest the arbitrator's preliminary statement of decision
either, in the discretion of the arbitrator, through briefs or at a
hearing. The arbitrator shall render a final decision following any such
briefing or hearing. The arbitrator shall conduct the arbitration in
accordance with the Federal Rules of Evidence. The arbitrator shall decide
the amount and extent of pre-hearing discovery which is appropriate. The
arbitrator shall have the power to enter any award of monetary and/or
injunctive relief (including the power to issue permanent injunctive relief
and also the power to reconsider any prior request for immediate injunctive
relief by any party and any order as to immediate injunctive relief
previously granted or denied by a court in response to a request therefor
by any party), including the power to render an award as provided in Rule
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43 of the AAA Rules. The arbitrator shall have the power to award the
prevailing party its costs and reasonable attorneys' fees; provided,
however, that the arbitrator shall not award attorneys' fees to a
prevailing party if the prevailing party received a settlement offer unless
the arbitrator's award to the prevailing party is greater than such
settlement offer without taking into account attorneys' fees in the case of
the settlement offer or the arbitrator's award. In addition to the above
courts, the arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration.
12.19. Governmental Charges.
----------------------
Acquirer shall pay all sales tax or other governmental
charges resulting from the transactions contemplated by this Agreement
except as provided in Section 1.7 and excluding any other income taxes
assessed against Target or Target Shareholder as a result of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ACQUIRER TARGET
Trinity Companies, Inc. Competency Based Learning, Inc.
By: By:
Name: Name:
Title: Title:
NEWCO
CBL Acquisition Corp.
By:
Name:
Title:
Target Shareholder hereby signs as an individual and guarantees and
indemnifies the obligations of Target under this Agreement for purposes of
Section 11 of this Agreement.
__________________________________
Name:
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF REORGANIZATION
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