AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENTREPORT CORPORATION
BRO MERGER CORP.,
BY REFERRAL ONLY, INC.
AND THE
SHAREHOLDERS OF BY REFERRAL ONLY, INC.
OCTOBER 25, 2000
TABLE OF CONTENTS
PAGE
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ARTICLE 1 THE MERGER; CONVERSION OF SHARES.....................................1
1.1 THE MERGER..............................................................1
1.2 EFFECTIVE TIME..........................................................1
1.3 CLOSING.................................................................2
1.4 CONVERSION OF SHARES....................................................2
1.5 DEPOSIT; RETAINED CONSIDERATION.........................................2
1.6 ADJUSTMENT TO MERGER CONSIDERATION......................................3
1.7 EXCHANGE OF COMPANY COMMON STOCK........................................3
1.8 CAPITALIZATION CHANGES..................................................4
1.9 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION..................4
1.10 BYLAWS OF THE SURVIVING CORPORATION...................................4
1.11 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION...................5
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS...5
2.1 DISCLOSURE SCHEDULE.....................................................5
2.2 CORPORATE ORGANIZATION, ETC.............................................5
2.3 CAPITALIZATION..........................................................5
2.4 AUTHORIZATION, ETC......................................................6
2.5 NON-CONTRAVENTION.......................................................6
2.6 CONSENTS AND APPROVALS..................................................7
2.7 FINANCIAL STATEMENTS....................................................7
2.8 ABSENCE OF UNDISCLOSED LIABILITIES......................................7
2.9 ABSENCE OF CERTAIN CHANGES..............................................8
2.10 ASSETS................................................................8
2.11 INVENTORIES...........................................................9
2.12 RECEIVABLES AND PAYABLES..............................................9
2.13 INTELLECTUAL PROPERTY RIGHTS..........................................9
2.14 LITIGATION...........................................................10
2.15 TAX MATTERS..........................................................10
2.16 INSURANCE............................................................12
2.17 EMPLOYEE BENEFIT PLANS...............................................13
2.18 BANK ACCOUNTS; POWERS OF ATTORNEY....................................13
2.19 CONTRACTS AND COMMITMENTS; NO DEFAULT................................13
2.20 ORDERS, COMMITMENTS AND RETURNS......................................14
2.21 LABOR MATTERS........................................................14
2.22 CUSTOMERS............................................................15
2.23 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS..............15
2.24 ENVIRONMENTAL MATTERS................................................15
2.25 BROKERS..............................................................16
2.26 SECURITIES LAW MATTERS...............................................16
2.27 ABSENCE OF CERTAIN BUSINESS PRACTICES................................16
2.28 BOOKS AND RECORDS....................................................17
2.29 BUSINESS GENERALLY; ACCURACY OF INFORMATION..........................17
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE MERGER
SUBSIDIARY..........................................................17
3.1 PARENT DISCLOSURE SCHEDULE.............................................17
3.2 CORPORATE ORGANIZATION, STANDING AND POWER.............................18
3.3 AUTHORIZATION..........................................................18
3.4 NON-CONTRAVENTION......................................................18
3.5 CAPITALIZATION.........................................................18
3.6 CONSENTS AND APPROVALS.................................................19
3.7 VALID ISSUANCE.........................................................19
3.8 NO BROKER OR FINDER....................................................19
3.9 SEC FILINGS; FINANCIAL STATEMENTS......................................19
3.10 ABSENCE OF CERTAIN CHANGES...........................................20
3.11 INTELLECTUAL PROPERTY RIGHTS.........................................20
3.12 LITIGATION...........................................................20
3.13 EMPLOYEE BENEFIT PLANS...............................................21
3.14 CONTRACTS AND COMMITMENTS; NO DEFAULT................................21
3.15 LABOR MATTERS........................................................21
ARTICLE 4 COVENANTS OF THE PARTIES............................................22
4.1 CONDUCT OF BUSINESS OF THE COMPANY.....................................22
4.2 NO COMPANY SOLICITATION OF ALTERNATE TRANSACTION.......................24
4.3 FULL ACCESS TO PARENT..................................................24
4.4 FULL ACCESS TO SHAREHOLDERS............................................24
4.5 CONFIDENTIALITY........................................................25
4.6 FILINGS; CONSENTS; REMOVAL OF OBJECTIONS...............................25
4.7 FURTHER ASSURANCES; COOPERATION; NOTIFICATION..........................26
4.8 SUPPLEMENTS TO DISCLOSURE SCHEDULE.....................................26
4.9 PUBLIC ANNOUNCEMENTS...................................................27
4.10 COVENANT NOT TO COMPETE; NON-SOLICITATION............................27
4.11 TAX MATTERS..........................................................28
4.12 REGISTRATION RIGHTS..................................................30
4.13 BOARD SEAT...........................................................31
4.14 INSOLVENCY; CEASE OF BUSINESS........................................31
4.15 SATISFACTION OF CONDITIONS PRECEDENT.................................32
ARTICLE 5 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY.......32
5.1 REPRESENTATIONS AND WARRANTIES TRUE....................................32
5.2 PERFORMANCE............................................................32
5.3 REQUIRED APPROVALS AND CONSENTS........................................32
5.4 AGREEMENTS AND DOCUMENTS...............................................33
5.5 NO PROCEEDING OR LITIGATION............................................33
5.6 LEGISLATION............................................................33
5.7 FINANCING..............................................................33
5.8 APPROPRIATE DOCUMENTATION..............................................33
ARTICLE 6 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS.......33
6.1 REPRESENTATIONS AND WARRANTIES TRUE....................................34
6.2 PERFORMANCE............................................................34
6.3 REQUIRED APPROVALS AND CONSENTS........................................34
6.4 AGREEMENTS AND DOCUMENTS...............................................34
6.5 NO PROCEEDING OR LITIGATION............................................34
6.6 LEGISLATION............................................................34
6.7 APPROPRIATE DOCUMENTATION..............................................34
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ARTICLE 7 TERMINATION AND ABANDONMENT.........................................35
7.1 TERMINATION BY MUTUAL CONSENT..........................................35
7.2 TERMINATION BY EITHER THE COMPANY OR PARENT............................35
7.3 TERMINATION BY PARENT..................................................35
7.4 TERMINATION BY THE COMPANY.............................................35
7.5 PROCEDURE AND EFFECT OF TERMINATION....................................35
ARTICLE 8 SURVIVAL AND INDEMNIFICATION........................................36
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INVESTIGATION...36
8.2 INDEMNIFICATION BY THE COMPANY AND THE PRINCIPAL SHAREHOLDERS..........36
8.3 INDEMNIFICATION BY PARENT..............................................37
8.4 CLAIMS FOR INDEMNIFICATION.............................................37
8.5 LIMITATIONS ON INDEMNIFICATION.........................................39
8.6 TAX EFFECT AND INSURANCE...............................................39
ARTICLE 9 MISCELLANEOUS PROVISIONS............................................39
9.1 EXPENSES...............................................................39
9.2 AMENDMENT AND MODIFICATION.............................................39
9.3 WAIVER OF COMPLIANCE; CONSENTS.........................................39
9.4 NO THIRD PARTY BENEFICIARIES...........................................40
9.5 NOTICES................................................................40
9.6 ASSIGNMENT.............................................................40
9.7 GOVERNING LAW..........................................................40
9.8 COUNTERPARTS...........................................................41
9.9 HEADINGS...............................................................41
9.10 ENTIRE AGREEMENT.....................................................41
9.11 REMEDIES AND INJUNCTIVE RELIEF.......................................41
9.12 ARBITRATION..........................................................41
9.13 DEFINITION OF MATERIAL ADVERSE EFFECT................................42
9.14 DEFINITION OF KNOWLEDGE..............................................42
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of October 25, 2000, by and among Entreport
Corporation, a Florida corporation ("PARENT"), BRO Merger Corp., a California
corporation and wholly-owned subsidiary of Parent ("MERGER SUBSIDIARY"), By
Referral Only, Inc., a California corporation (the "COMPANY"), and the
shareholders of the Company set forth on the signature page hereto (referred to
herein individually as a "SHAREHOLDER" and collectively as the "SHAREHOLDERS").
Messrs. Xxxxxxxx and Xxxxxx are sometimes referred to herein as the "PRINCIPAL
SHAREHOLDERS."
WHEREAS, the Company is in the business of providing online
teleclasses, seminars, coaching and productivity training (the "BUSINESS"); and
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of the Company with and into Merger Subsidiary
(the "MERGER") upon the terms and subject to the conditions set forth herein;
and
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(A) and (a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"CODE"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants, and agreements contained herein,
the parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
--------------------------------
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2 hereof), the Company will be
merged with and into Merger Subsidiary in accordance with the provisions of the
California Corporation Code (the "CALIFORNIA CODE"), whereupon the separate
corporate existence of the Company will cease, and Merger Subsidiary will
continue as the surviving corporation (the "SURVIVING CORPORATION"). From and
after the Effective Time, the Surviving Corporation will possess all the rights,
privileges, powers, and franchises and be subject to all the restrictions,
disabilities, and duties of the Company and Merger Subsidiary, all as more fully
described in the California Code.
1.2 EFFECTIVE TIME. As soon as practicable after each of the conditions
set forth in Article 5 and Article 6 has been satisfied or waived, the Company
and Merger Subsidiary will file, or cause to be filed, with the Secretary of
State of the State of California, the Agreement of Merger in substantially the
form attached hereto as Exhibit 1.2 (the "AGREEMENT OF MERGER"), together with
the required officers' certificates, in accordance with the applicable
provisions of the California Code. The Merger will become effective at the time
such filing is made or, if agreed to by Parent and the Company, such later time
or date set forth in the Agreement of Merger as filed (the "EFFECTIVE TIME").
1.3 CLOSING. Unless this Agreement has been terminated and the
transactions contemplated herein have been abandoned pursuant to Article 7
hereof the closing of the Merger (the "CLOSING"), will take place at a time and
on a date (the "CLOSING DATE") to be specified by the parties, which will be no
later than the earlier of (i) the fifth day following the closing of the
Financing (as defined in Section 5.7) or (ii) January 26, 2001; provided,
however, that all of the conditions provided for in Articles 6 and 7 hereof have
been satisfied or waived by such date. The Closing will be held at the offices
of Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP, 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000,
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, or such other place as the parties may agree,
at which time and place the documents and instruments necessary or appropriate
to effect the transactions contemplated herein will be exchanged by the parties.
Except as otherwise provided herein, all actions taken at the Closing will be
deemed to be taken simultaneously.
1.4 CONVERSION OF SHARES. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any share of capital stock of the Company or Merger
Subsidiary:
(a) Each share of common stock of the Company, par value $.01
per share ("COMPANY COMMON STOCK"), issued and outstanding immediately
prior to the Effective Time will be canceled and extinguished and
automatically converted into the right to receive the following
consideration (collectively, the "MERGER CONSIDERATION"):
(i) cash, in an amount determined by dividing
$4,000,000 by the total number of shares of Company Common
Stock outstanding immediately prior to the Effective Time (the
"CASH CONSIDERATION"); plus
(ii) a number of shares of common stock of the
Parent, $.001 par value ("PARENT COMMON STOCK"), determined by
dividing 2,250,000 Shares by the total number of shares of
Company Common Stock outstanding immediately prior to the
Effective Time (the "STOCK CONSIDERATION"), subject to
adjustment as provided in Section 1.6.
(b) Each share of any other class of capital stock of the
Company (other than Company Common Stock) will be canceled without
payment of any consideration therefor and without any conversion
thereof.
(c) Each share of common stock of Merger Subsidiary, par value
$.01 per share ("MERGER SUBSIDIARY COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time will continue to
remain outstanding as a share of the common stock of the Surviving
Corporation, par value $.01 per share ("SURVIVING CORPORATION COMMON
STOCK").
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1.5 DEPOSIT. Concurrently with the execution of this Agreement, and
pursuant to the terms and conditions of an escrow agreement in substantially the
form of EXHIBIT 1.5 hereto (the "ESCROW AGREEMENT"), Parent has deposited with
Xxxx, Forward, Xxxxxxxx & Scripps LLP, as escrow agent (in such capacity, the
"ESCROW AGENT"), cash in the amount of $130,000 and 100,000 shares of Parent
Common Stock (the "DEPOSIT") to be held by the Escrow Agent pending the Closing
or termination of this Agreement. At the Closing, the Escrow Agent will release
the Deposit to the Shareholders and the Deposit will be deemed included as part
of the Merger Consideration.
1.6 RETAINED CONSIDERATION. Notwithstanding the Merger Consideration
that would otherwise be payable to the Shareholders upon consummation of the
Merger, the Parent will deposit with a third party escrow agent pursuant to an
escrow agreement mutually acceptable to the parties, $100,000 of the Cash
Consideration and 250,000 of the Shares comprising the Stock Consideration
(collectively, the "RETAINED CONSIDERATION") to offset any claims made by the
Parent for indemnification pursuant to Article 8 hereof. Parent will offset any
such indemnification claims first against the cash portion of the Retained
Consideration. The Retained Consideration will remain in the escrow account for
a period of 180 days after the Effective Time (the "ESCROW PERIOD"). Any portion
of the Retained Consideration that has not been used to offset any such
indemnification claims as of the expiration of the Escrow Period will be
distributed to the Shareholders in accordance with Section 1.8(b) and the Escrow
Agreement. Nothing in this Section 1.5 will in any way limit Parent's rights to
indemnification under Article 8 hereof or any other rights of the Parent at law
or in equity.
1.7 ADJUSTMENT TO MERGER CONSIDERATION. If, after the date of this
Agreement and prior to the Closing, the Parent sells shares of Parent Common
Stock in a single transaction or series of related transactions resulting in
aggregate gross proceeds to the Parent of at least $5,000,000 for a purchase
price per Share of less than $3.00, then the total number of Shares comprising
the Stock Consideration will be the number obtained by multiplying $6,750,000 by
the quotient obtained by dividing (A) the number of shares of Parent Common
Stock outstanding immediately after such sale by (B) the sum of (i) the result
obtained by multiplying the number of shares of Parent Common Stock outstanding
immediately prior to such sale by $3.00, and (ii) the consideration received by
the Parent upon such sale.
1.8 EXCHANGE OF COMPANY COMMON STOCK.
(a) At the Closing, the Company will arrange for each holder
of record of a certificate or certificates that immediately prior to
the Effective Time represented outstanding shares of Company Common
Stock ("COMPANY CERTIFICATES") to deliver to the Parent such holder's
Company Certificates, together with appropriate stock powers signed by
such holders, in exchange for the amount of Cash Consideration (other
than the portion attributable to the Retained Consideration) and Stock
Consideration into which such shares have been converted as provided in
Section 1.4(a) and the Company Certificate(s) so surrendered will be
canceled.
(b) After the expiration of the Escrow Period, each holder of
record of Company Certificates surrendered pursuant to Section 1.6(a)
will receive, without further action by such holder, in addition to the
Merger Consideration received pursuant to Section 1.6(a), the
proportion of the Retained Consideration to which they otherwise would
have been entitled pursuant to Section 1.6(a), less any portion used to
offset any indemnification claims of the Parent.
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(c) The Cash Consideration paid plus all shares of Parent
Common Stock issued upon the surrender for exchange of Company Common
Stock in accordance with the terms hereof (including any cash paid for
fractional shares pursuant to Section 1.8(e) hereof) will be deemed to
have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock.
(d) As of the Effective Time, the holders of Company
Certificates representing shares of Company Common Stock will cease to
have any rights as shareholders of the Company, except such rights, if
any, as they may have pursuant to the California Code. Except as
provided above, until such Company Certificates are surrendered for
exchange, each such Company Certificate will, after the Effective Time,
represent for all purposes only the right to receive the amount of cash
and the number of whole shares of Parent Common Stock into which the
shares of Company Common Stock have been converted pursuant to the
Merger as provided in Section 1.4(a) hereof and the right to receive
the cash value of any fraction of a share of Parent Common Stock as
provided in Section 1.8(e) hereof.
(e) No fractional shares of Parent Common Stock will be issued
upon the surrender for exchange of Company Certificates, no dividend or
other distribution of Parent will relate to any fractional share, and
such fractional share interests will not entitle the owner thereof to
vote or to any rights of a shareholder of Parent. All fractional shares
of Parent Common Stock to which a holder of Company Common Stock
immediately prior to the Effective Time would otherwise be entitled, at
the Effective Time, will be aggregated if and to the extent multiple
Company Certificates of such holder are submitted together to Parent.
If a fractional share results from such aggregation, then (in lieu of
such fractional share) Parent will pay to each holder of shares of
Company Common Stock who otherwise would be entitled to receive such
fractional share of Parent Common Stock an amount of cash (without
interest) equal to the value of such fraction of a share based on the
value per share of $4.00.
1.9 CAPITALIZATION CHANGES. If, between the date of this Agreement and
the Effective Time, the outstanding shares of Parent Common Stock are changed
into a different number of shares or a different class by reason of any
reclassification, stock-split, combination, exchange of shares, stock dividend
or similar change in the capitalization of Parent, all per-share price amounts
and calculations set forth in this Agreement will be appropriately adjusted.
1.10 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately prior
to the Effective Time, will be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law;
provided, however, that upon the Effective Time, Article 1 of the Articles of
Incorporation of the Surviving Corporation will be amended to read in its
entirety as follows: "The name of the corporation will be By Referral Only,
Inc."
1.11 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, will be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
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1.12 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of Merger Subsidiary immediately prior to the Effective Time will
be the directors and officers, respectively, of the Surviving Corporation until
their respective successors are duly elected and qualified.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
AND THE SHAREHOLDERS
--------------------
The Company and the Shareholders, jointly and severally, hereby
represent and warrant to Parent as follows; provided, that unless otherwise
provided or qualified herein, each Shareholder is making representations and
warranties as to the personal facts and circumstances of that Shareholder and as
to the Company without qualification, but only making representations and
warranties regarding the personal facts and circumstances of any other
Shareholder as to the representing Shareholder's actual knowledge regarding the
other Shareholder:
2.1 DISCLOSURE SCHEDULE. The disclosure schedule attached hereto as
Exhibit 2.1 (the "DISCLOSURE SCHEDULE") is divided into sections that correspond
to the sections of this Article 2. The Disclosure Schedule comprises a list of
exceptions to the truth and accuracy of, and disclosures or descriptions
required by, the representations and warranties set forth in the remaining
sections of this Article 2. Nothing in the Disclosure Schedule will be deemed
adequate to disclose an exception to a representation or warranty made herein,
unless the Disclosure Schedule identifies the exception with reasonable
particularity and, unless the exception is incorporated in a written document
identified by way of the exception, describes the relevant facts in reasonable
detail.
2.2 CORPORATE ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California with the requisite corporate power and corporate authority to carry
on its business as it is now being conducted and to own, operate and lease its
properties and assets, is duly qualified or licensed to do business as a foreign
corporation in good standing in every other jurisdiction in which the character
or location of the properties and assets owned, leased or operated by it or the
conduct of its business requires such qualification or licensing, except in such
jurisdictions in which the failure to be so qualified or licensed and in good
standing would not have a Material Adverse Effect (as defined below) on the
Company taken as a whole. The Disclosure Schedule contains a list of all
jurisdictions in which the Company is qualified or licensed to do business and
includes complete and correct copies of the Company's articles of incorporation
and bylaws. The Company does not own or control any capital stock of any
corporation or any interest in any partnership, joint venture or other entity.
2.3 CAPITALIZATION. The authorized capital stock of the Company is set
forth in the Disclosure Schedule. The number of shares of the capital stock of
the Company outstanding, as of the date of this Agreement and as set forth in
the Disclosure Schedule, represent all of the issued and outstanding capital
stock of the Company. All issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are without, and were not issued in violation of, preemptive rights. The
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Shareholders represent and warrant that the shares of Company Common Stock
listed on the Disclosure Schedule as being owned by the Shareholders are owned
beneficially and of record by the Shareholders free and clear of any pledge,
lien, security interest, restriction, option, claim or charge of any kind
whatsoever ("ENCUMBRANCES"), and, except as set forth on the Disclosure
Schedule, there are no agreements relating to any of the Shareholders' ownership
of such shares. There are no shares of capital stock or other equity securities
of the Company outstanding or any securities convertible into or exchangeable
for such shares, securities or rights. Other than as set forth on the Disclosure
Schedule and pursuant to this Agreement, there is no subscription, option,
warrant, call, right, contract, agreement, commitment, understanding or
arrangement to which the Company or the Shareholders are a party, or by which
any of them are bound, with respect to the issuance, sale, delivery or transfer
of the capital stock of the Company, including any right of conversion or
exchange under any security or other instrument. The Company has no
subsidiaries.
2.4 AUTHORIZATION, ETC. The Company has all requisite corporate power
and corporate authority to enter into, execute, deliver, and perform its
obligations under this Agreement. Each Shareholder is a natural person with the
legal capacity to enter into this Agreement and to carry out the transactions
contemplated hereby, including, without limitation, the legal capacity to
execute, deliver and perform the agreements or contracts, if any, required to be
executed and delivered by the Shareholders hereunder. This Agreement has been
duly and validly executed and delivered by the Company and the Shareholders and
is the valid and binding legal obligation of the Company and the Shareholders
enforceable against the Company and the Shareholders in accordance with its
terms, subject to bankruptcy, moratorium, principles of equity and other
limitations limiting the rights of creditors generally.
2.5 NON-CONTRAVENTION. Except as set forth in the Disclosure Schedule,
neither the execution, delivery and performance of this Agreement, and each
other agreement to be entered into in connection with this Agreement, nor the
consummation of the transactions contemplated herein will:
(a) violate, contravene or be in conflict with any provision
of the articles of incorporation or bylaws of the Company;
(b) be in conflict with, or constitute a default (or an event
which, with the giving of due notice or lapse of time, or both, would
constitute such a default), under, or cause or permit the acceleration
of the maturity of, or give rise to any right of termination,
cancellation, imposition of fees or penalties under any debt, note,
bond, lease, mortgage, indenture, license, obligation, contract,
commitment, franchise, permit, instrument or other agreement or
obligation to which the Company or any Shareholder is a party or by
which the Company or any Shareholder or any of the Company's or any
Shareholder's properties or assets is or may be bound;
(c) result in the creation or imposition of any Encumbrances
upon any property or assets of the Company or any Shareholder under any
debt, obligation, contract, agreement or commitment to which the
Company or any Shareholder is a party or by which the Company or any
Shareholder or any of the Company's or any Shareholder's assets or
properties are bound; or
-6-
(d) materially violate any statute, treaty, law, judgment,
writ, injunction, decision, decree, order, regulation, ordinance or
other similar authoritative matters (referred to herein individually as
a "LAW" and collectively as "LAWS") of any foreign, federal, state or
local governmental or quasi-governmental, administrative, regulatory or
judicial court, department, commission, agency, board, bureau,
instrumentality or other authority (referred to herein individually as
an "AUTHORITY" and collectively as "AUTHORITIES").
2.6 CONSENTS AND APPROVALS. Except as set forth in the Disclosure
Schedule, with respect to the Company and the Shareholders, no consent,
approval, order or authorization of or from, or registration, notification,
declaration or filing with ("CONSENT") any individual or entity, including
without limitation any Authority, is required in connection with the execution,
delivery or performance of this Agreement by the Company or the Shareholders or
the consummation by the Company or the Shareholders of the transactions
contemplated herein.
2.7 FINANCIAL STATEMENTS. The Disclosure Schedule contains a copy of
the unaudited balance sheet of the Company as of December 31, 1999, together
with a copy of the unaudited balance sheet of the Company as of September 30,
2000 (the "MOST RECENT BALANCE SHEET") and an unaudited statement of income for
the Company for the twelve-month period ended December 31, 1999, together with
an unaudited statement of income for the nine months ended September 30, 2000
(the "MOST RECENT INCOME STATEMENT") and the Company's unaudited balance sheets
as of December 31, 1998 and December 31, 1997 and unaudited statements of income
for the fiscal years then ended (collectively, the "FINANCIAL STATEMENTS").
Except as disclosed therein or in the Disclosure Schedule: (i) the Most Recent
Balance Sheet and Most Recent Income Statement are in accordance with the books
and records of the Company and have been prepared in conformity with GAAP
(except as stated therein or in the notes thereto); and (ii) the aforesaid
Financial Statements are true, complete and accurate in all material respects
and fairly present the financial position of the Company as of the respective
dates thereof, and the income or loss for the periods then ended. Except for the
Financial Statements relating to the fiscal year ended December 31, 1997, to the
knowledge of the Company and the Shareholders, the Financial Statements and
related books and records are auditable in accordance with United States
generally accepted auditing standards.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
liabilities, obligations or claims of any kind whatsoever, whether secured or
unsecured, accrued or unaccrued, fixed or contingent, matured or unmatured,
known or unknown, direct or indirect, contingent or otherwise and whether due or
to become due (referred to herein individually as a "LIABILITY" and collectively
as "LIABILITIES"), other than: (a) Liabilities that are fully reflected or
reserved for in the Most Recent Balance Sheet; (b) Liabilities that are set
forth on the Disclosure Schedule; (c) Liabilities incurred by the Company in the
ordinary course of business after the date of the Most Recent Balance Sheet and
in an amount not to exceed $10,000 individually or $50,000 in the aggregate
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement or
violation of Law) unless such amounts are disclosed on the Disclosure Schedule;
or (d) Liabilities for express executory obligations to be performed after the
Closing under the contracts described in Section 2.19 of the Disclosure Schedule
(other than any express executory obligations that might arise due to any
default or other failure of performance by the Company or the Shareholders prior
to the Closing Date).
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2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure
Schedule, since the date of the Most Recent Balance Sheet, the Company has owned
and operated its assets, properties and Business in the ordinary course of
business and consistent with past practice. Without limiting the generality of
the foregoing, subject to the aforesaid exceptions:
(a) the Company has not experienced any change that has had a
Material Adverse Effect on the Company or experienced any event or
failed to take any action that reasonably could be expected to result
in a Material Adverse Effect on the Company;
(b) the Company has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers, which
had or may reasonably be expected to result in a Material Adverse
Effect on the Company; and
(c) no event has taken place which if consummated following
the date hereof would constitute a violation of Section 4.1 hereof.
2.10 ASSETS. Except as set forth in the Disclosure Schedule, the
Company has good and marketable title to all of its assets and properties,
whether or not reflected in the Most Recent Balance Sheet or acquired after the
date thereof (except for properties sold or otherwise disposed of since the date
thereof in the ordinary course of business and consistent with past practices),
that relate to or are necessary for the Company to conduct the Business and
operations as currently conducted, including, without limitation, all (i) of the
Company's training course software and content and all intellectual property
rights related to such software and content, (ii) furniture, fixtures, equipment
and other personal property, and (iii) books, records, brochures, pamphlets and
other marketing materials (collectively, the "ASSETS"), free and clear of any
mortgage, pledge, lien, security interest, conditional or installment sales
agreement, encumbrance, claim, easement, right of way, tenancy, covenant,
encroachment, restriction or charge of any kind or nature (whether or not of
record) (a "LIEN"), other than (i) liens securing specific Liabilities shown on
the Most Recent Balance Sheet with respect to which no breach, violation or
default exists; (ii) mechanics', carriers', workers' or other like liens arising
in the ordinary course of business; (iii) minor imperfections of title that do
not individually or in the aggregate, impair the continued use and operation of
the Assets to which they relate in the operation of the Company as currently
conducted; and (iv) liens for current taxes not yet due and payable or being
contested in good faith by appropriate proceedings ("PERMITTED LIENS"). The
Company has full right and power to, and at the Closing will, deliver to Parent
good and marketable title to all of the Assets, free and clear of any Lien,
other than Permitted Liens. Except as set forth in the Disclosure Schedule, the
equipment, vehicles and other personal property used by the Company (whether or
not reflected on the Most Recent Balance Sheet or acquired after the date
thereof) are in good operating condition and repair (except for ordinary wear)
and fit for the intended purposes thereof, and no material maintenance,
replacement or repair has been deferred or neglected.
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2.11 INVENTORIES. Except as set forth in the Disclosure Schedule, the
inventories of the Company, whether reflected in the Most Recent Balance Sheet
or otherwise, (a) consist of a quality and quantity useable in the ordinary
course of business, and the present quantities of all inventory are reasonable
in the present circumstances of the Business as currently conducted or as
proposed to be conducted and (b) are transferable to Parent.
2.12 RECEIVABLES AND PAYABLES.
(a) Except as set forth on the Disclosure Schedule:
(i) The Company has good right, title and interest in
and to all its respective receivables reflected in the Most
Recent Balance Sheet and those acquired and generated since
the date of the Most Recent Balance Sheet (except for those
paid since the date of the Most Recent Balance Sheet);
(ii) None of such receivables is subject to any Lien
other than a Permitted Lien;
(iii) All of the receivables owing to the Company
constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of business, and there are
no known claims, refusals to pay or other rights of set-off
against any thereof;
(iv) No account or note debtor is delinquent in
payment by more than sixty (60) days beyond the due date;
(v) The aging schedule of receivable accounts of the
Company previously furnished to Parent is complete and
accurate;
(vi) The reserve established by the Company on the
Most Recent Balance Sheet is adequate to cover any doubtful
accounts; and
(vii) There is no reason why any receivable will not
be collected in accordance with its terms.
(b) Except as set forth on the Disclosure Schedule, all
payables by the Company arose in bona fide transactions in the ordinary
course of business and no such payable is delinquent by more than sixty
(60) days beyond the due date in its payment.
2.13 INTELLECTUAL PROPERTY RIGHTS. The Company owns or has the
unrestricted right to use, and the Disclosure Schedule contains a detailed
listing of, all patents, patent applications, patent rights, registered and
unregistered trademarks, trademark applications, tradenames, service marks,
service xxxx applications, copyrights, computer programs and other computer
software, inventions, know-how, trade secrets, technology, proprietary
processes, trade dress, software and formulae (collectively, "INTELLECTUAL
PROPERTY RIGHTS") used in, or necessary for, the operation of the Business as
-9-
currently conducted. Except as set forth on the Disclosure Schedule, the use of
all Intellectual Property Rights necessary or required for the conduct of the
Business as presently conducted does not infringe or violate the Intellectual
Property Rights of any person or entity. Except as described on the Disclosure
Schedule: (a) the Company does not own or use any Intellectual Property Rights
pursuant to any written license agreement; (b) the Company has not granted any
person or entity any rights, pursuant to a written license agreement or
otherwise, to use the Intellectual Property Rights; and (c) the Company owns,
has unrestricted right to use and has sole and exclusive possession of and has
good and valid title to, all of the Intellectual Property Rights, free and clear
of all Liens and Encumbrances. All license agreements relating to Intellectual
Property Rights are enforceable in accordance with their respective terms and
the Company is not in default under any of such licenses nor does any
circumstance exist which with notice or lapse of time, or both, would constitute
a default, or would constitute a basis for a claim of non-performance, on the
part of the Company or, to the knowledge of the Company, any other party
thereto.
2.14 LITIGATION. Except as set forth in the Disclosure Schedule, there
is no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind, or any
judgment, decree, decision, injunction, writ or order (collectively, "LEGAL
PROCEEDING") pending, noticed, scheduled, or, to the knowledge of the Company
and Shareholders, threatened or contemplated by or against or involving the
Company, its assets, properties or business or its directors, officers, agents
or employees (but only in their capacity as such), whether at law or in equity,
before or by any person or entity or Authority, or which questions or challenges
the validity of this Agreement or any action taken or to be taken by the parties
hereto pursuant to this Agreement or in connection with the transactions
contemplated herein.
2.15 TAX MATTERS. For purposes of this Agreement, the term "TAXES"
means all federal, state, local, foreign and other net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, real or personal property, windfall
profits, customs, duties or other taxes, fees, assessments, charges or levies of
any kind whatever, together with any interest and any penalties, additions to
tax or additional amounts with respect thereto, and the term "TAX" means any one
of the foregoing Taxes. In addition, the term "TAX RETURNS" means all returns,
declarations, reports, statements and other documents required to be filed with
any Authority in respect of Taxes, and the term "TAX RETURN" means any one of
the foregoing Tax Returns. Except as set forth in the Disclosure Schedule, the
Company and the Shareholders hereby represent and warrant the following with
respect to the Company:
(a) FILING OF TAX RETURNS. There have been properly completed
and duly filed on a timely basis and in correct form all Tax Returns
required to be filed on or prior to the date hereof by the Company or
the Shareholders with respect to Taxes arising from the Company's
operations. As of the time of filing, the foregoing Tax Returns
correctly reflected the facts regarding the income, business, assets,
operations, activities, status or other matters of the Company or any
other information required to be shown thereon. To the knowledge of the
Company and the Shareholders, there is no material omission,
deficiency, error, misstatement or misrepresentation, whether innocent,
intentional or fraudulent, in any Tax Return filed by the Company for
any period. Any Tax Returns filed after the date hereof, but on or
before the Closing Date, will conform with the provisions of this
subsection 2.15(a).
-10-
(b) PAYMENT OF TAXES. With respect to all amounts in respect
of Taxes imposed upon the Company or the Shareholders with respect to
Taxes arising from the Company's operations, or for which the Company
or the Shareholders are or could be liable, whether to taxing
authorities (as, for example, under Law) or to other persons or
entities (as, for example, under tax allocation agreements), with
respect to all taxable periods or portions of periods ending on or
before the Closing Date, all applicable Tax Laws and agreements have
been or will be complied with in all material respects, and all such
amounts of Taxes required to be paid by the Company or the Shareholders
(whether or not shown on any Tax Return) to taxing authorities or
others on or before the date hereof have been duly paid or will be paid
on or before the Closing Date or adequate provision has been made
therefor in the Most Recent Balance Sheet at Closing; the reserves for
all such Taxes reflected in the Most Recent Balance Sheet at Closing
are, or will be, adequate to offset any Taxes payable by the Company in
any post-Closing Date period for any pre-Closing Date Taxes, including
without limitation an appropriate accrual for all AD VALOREM Taxes
including real and personal property Taxes for assessment periods that
include the Closing Date.
(c) AUDITS AND EXTENSIONS. Neither the federal Tax Returns of
the Company nor any state or local Tax Returns of the Company have
been, to the Company's knowledge, examined by the Internal Revenue
Service or any similar state or local authority and there are no
pending examinations currently being made by any authority nor has
there been any written or oral notification to the Company or
Shareholder of any intention to make an examination of any Taxes by any
Authority. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Return for any
period.
(d) INDEPENDENT CONTRACTORS AND EMPLOYEES. For purposes of
computing Taxes and the filing of Tax Returns, the Company has not
failed to treat as "employees" any individual providing services to the
Company, as the case may be, who would be classified as an "employee"
under the applicable rules or regulations of any authority with respect
to such classification.
(e) WITHHOLDING. The Company has complied in all material
respects with all applicable laws relating to the withholding of Taxes
and the payment thereof (including, without limitation, withholding of
Taxes under Sections 1441 and 1442 of the Code, or similar provisions
under any foreign laws), and timely and properly withheld from
individual employee wages and paid over to the proper governmental
entity all amounts required to be so withheld and paid over under all
applicable laws.
(f) TAX LIENS. Except as set forth in the Disclosure Schedule,
there are no liens for Taxes upon any assets of the Company, except
liens for Taxes not yet due.
(g) ADDITIONAL TAXES. The Company and the Shareholders do not
expect the assessment of any additional Taxes of the Company and are
not aware of any unresolved questions, claims or disputes concerning
the liability of the Company for Taxes that would exceed the estimated
reserves established on its books and records. The Company is not a
party to any Tax allocation or sharing agreement.
-11-
(h) EXTENSIONS. The Company has not requested any extension of
time within which to file any Tax Return, which Tax Return has not
since been filed.
(i) SECTION 481 ADJUSTMENTS. The Company is not required to
include in income any adjustment under Section 481 (a) of the Code by
reason of a voluntary change in accounting method initiated by the
Company and the Company has no knowledge that the Internal Revenue
Service has proposed any such adjustment or change in accounting
method.
(j) DISCLOSURE OF TAX POSITIONS. All transactions that could
give rise to an understatement of federal income tax (within the
meaning of Section 6661 of the Code as it applied prior to repeal) or
an underpayment of tax (within the meaning of Section 6662 of the Code)
were reported in a manner for which there is substantial authority or
were adequately disclosed (or, with respect to Tax Returns filed on or
before the Closing Date, will be reported in such a manner or
adequately disclosed) on the Tax Returns required in accordance with
Sections 6661 (b)(2)(B) and 6662(d)(2)(B) of the Code.
(k) COLLAPSIBLE CORPORATION ELECTIONS. The Company has not
made an election under Section 341(f) of the Code for any taxable years
not yet closed for statute of limitation purposes.
(l) SECTION 1374. The Company has never been liable for any
Tax under Section 1374 of the Code (relating to "built-in gains"), has
not acquired the assets of a C-corporation in a carryover basis
transaction and the Shareholders are not aware of any facts that may
result in the Company being liable in the future for any Tax under
Section 1374 of the Code.
(m) SECTION 280G. The Company has not made any payments that
would be nondeductible under Section 280G of the Code, or does the
Company have any liability for any related excise tax imposed by Code
Section 4999.
(n) ACCRUAL BASIS. The Company is an accrual basis taxpayer
and it has recognized revenue, on or prior to the Closing Date, with
respect to all accounts receivable set forth in its balance sheet on
the day prior to the Closing Date.
2.16 INSURANCE. The Disclosure Schedule contains an accurate and
complete list of all policies of fire and other casualty, auto, liability,
general liability, theft, life, workers' compensation, health, directors and
officers, business interruption and other forms of insurance owned or held by
the Company, specifying the insurer, the policy number, the term of coverage, a
description of any retroactive premium adjustments or other loss-sharing
arrangements and, in the ease of any "claims made" coverage, the same
information as to predecessor policies for the past five years. With respect to
each such insurance policy: (a) to the knowledge of the Company and the
Shareholders, the policy is legal, valid, binding, enforceable, and in full
force and effect; (b) neither the Company, nor to the knowledge of the Company
and the Shareholders, any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and, to the knowledge of the Company and the Shareholders, no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the policy;
and (c) no party to the policy has repudiated any provision thereof. The
Disclosure Schedule also describes any self-insurance arrangements affecting the
Company.
-12-
2.17 EMPLOYEE BENEFIT PLANS. There are no facts or circumstances which
could, directly or indirectly, subject Parent or any of its affiliates to any
Liability of any nature with respect to any employee pension, welfare,
incentive, perquisite, paid time off, severance or other employee benefit plan,
policy, practice or agreement sponsored, maintained or contributed to by the
Company or any affiliate of the Company, whether or not administered by the
Company (collectively, "BENEFIT PLANS"), to which the Company or any affiliate
of the Company is a party or with respect to which the Company or any affiliate
of the Company could have any Liability. The Disclosure Schedule contains a list
of all Benefit Plans. Such Benefit Plans were established and have been
executed, managed and administered without exception in accordance with all
applicable requirements of the Code and the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and of all other applicable Laws.
2.18 BANK ACCOUNTS; POWERS OF ATTORNEY. The Disclosure Schedule sets
forth: (a) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which the Company maintains
accounts, deposits, safe deposit boxes of any nature, and the account numbers
and names of all persons authorized to draw thereon or make withdrawals
therefrom; (b) the terms and conditions thereof and any limitations or
restrictions as to use, withdrawal or otherwise; and (c) the names of all
persons or entities holding general or special powers of attorney from the
Company and a summary of the terms thereof.
2.19 CONTRACTS AND COMMITMENTS; NO DEFAULT.
(a) Except as set forth in the Disclosure Schedule, neither
the Company nor the Shareholders is a party to, nor are any of the
Assets bound by, any written or oral:
(i) employment, non-competition, consulting or
severance agreement, collective bargaining agreement, or
pension, profit-sharing, incentive compensation, deferred
compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay or retirement plan or
agreement;
(ii) indenture, mortgage, note, installment
obligation, agreement or other instrument relating to the
borrowing of money by the Company;
(iii) contract, agreement, lease (real or personal
property) or arrangement that (A) is not terminable on less
than 30 days' notice without penalty, (B) is not over one year
in length of obligation of the Company, or (C) involves an
obligation of more than $25,000 over its term;
(iv) contract, agreement, commitment or license
relating to Intellectual Property Rights or contract,
agreement or commitment of any other type, whether or not
fully performed, not otherwise disclosed pursuant to this
Section 2.19;
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(v) obligation or requirement to provide funds to or
make any investment (in the form of a loan, capital
contribution or otherwise) in any person or entity;
(vi) outstanding sales or purchase contracts,
commitments or proposals that will result in any material loss
upon completion or performance thereof after allowance for
direct distribution expenses, or bound by any outstanding
contracts, bids, sales or service proposals quoting prices
that are not reasonably expected to result in a normal profit;
or
(vii) contract, commitment, agreement or arrangement
with any "disqualified individual" (as defined in Section
280G(c) of the Code) which contains any severance or
termination pay liabilities which would result in a
disallowance of the deduction for any "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) under
Section 280G of the Code.
(b) True and complete copies (or summaries, in the case of
oral items) of all agreements disclosed pursuant to this Section 2.19
(the "COMPANY CONTRACTS") have been provided to Parent for review.
Except as set forth in the Disclosure Schedule, all of the Company
Contracts items are valid and enforceable by and against the Company in
accordance with their terms, and are in full force and effect. Except
as otherwise specified in the Disclosure Schedule, none of the Company
Contracts contains a provision requiring the consent of any party with
respect to the consummation of the transactions contemplated by this
Agreement. The Company is not in breach, violation or default, however
defined, in the performance of any of its obligations under any of the
Company Contracts, and no facts and circumstances exist which, whether
with the giving of due notice, lapse of time, or both, would constitute
such breach, violation or default thereunder or thereof, and to the
knowledge of the Company and the Shareholders no other parties thereto
are in a breach, violation or default, however defined, thereunder or
thereof, and to the knowledge of the Company and the Shareholders no
facts or circumstances exist which, whether with the giving of due
notice, lapse of time, or both, would constitute such a breach,
violation or default thereunder or thereof.
2.20 ORDERS, COMMITMENTS AND RETURNS. All accepted and unfulfilled
orders for the sale of the Company's services were made in bona fide
transactions in the ordinary course of business. There are no claims against the
Company or the Shareholders for any unsatisfactory services or otherwise.
2.21 LABOR MATTERS. Except as set forth in the Disclosure Schedule: (a)
the Company is and has been in compliance in all material respects with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation any
such Laws respecting employment discrimination and occupational safety and
health requirements, and has not and is not engaged in any unfair labor
practice; (b) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims therefor have occurred
-14-
or have been threatened; (c) no collective bargaining agreement is binding and
in force against the Company or currently being negotiated by the Company; (d)
the Company has not experienced any significant labor difficulty; (e) the
Company is not delinquent in payments to any persons for any wages, salaries,
commissions, bonuses or other direct or indirect compensation for any services
performed by them or amounts required to be reimbursed to such persons,
including without limitation any amounts due under any Benefit Plans; (f) upon
termination of the employment of any person, neither the Company nor Parent
will, by reason of anything done prior to or as of the Closing Date, be liable
to any of such persons for so-called "severance pay" or any other payments; and
(g) within the twelve-month period prior to the date hereof there has not been
any expression of intention to the Company by any officer or key employee of any
such entity to terminate such employment.
2.22 CUSTOMERS. Except as set forth in the Disclosure Schedule, there
has not been in the twelve-month period prior to the date hereof any dispute
with any customer or user of the Company's products or services that could
reasonably be anticipated to have a Material Adverse Effect, nor any set of
circumstances that is reasonably anticipated to have a Material Adverse Effect,
on any relationship between the Company and any such customer or user of the
Company's products or services. All of the Company's relationships with its
customers are good, and the Company is not aware of any circumstances that could
materially adversely affect the ability of any customer of the Company to
continue doing business with Parent in the manner in which such business has
been conducted in the past. The Company is not aware of any facts or
circumstances that would cause the Company to believe that any customer intends
to terminate its relationship with the Company as a result of the transactions
contemplated by this Agreement.
2.23 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS. Except as
set forth in the Disclosure Schedule, and without limiting the scope of any
other representations or warranties contained in this Agreement, but without
intending to duplicate the scope of such other representations and warranties,
the Assets, properties, Business and operations of the Company are and have been
in compliance in all material respects with all Laws applicable to the Company's
assets, properties, Business and operations taken as a whole. Except as set
forth in the Disclosure Schedule, the Company does not require the Consent of
any Authority to permit it to operate in the manner in which its business is
presently being operated. To the knowledge of the Company and the Shareholders,
the Company possesses all permits, licenses and other authorizations from all
Authorities necessary to permit it to operate its business in the manner in
which it presently is conducted and the consummation of the transactions
contemplated by this Agreement will not prevent the Company from being able to
continue to use such permits and operating rights. Except as set forth in the
Disclosure Schedule, the Company is not restricted by agreement from carrying on
its business or any part thereof anywhere in the world or from competing in any
line of business with any person or entity. Neither the Company nor the
Shareholders has received notice of any violation of any such applicable Law,
and is not in default with respect to any order, writ, judgement, award,
injunction or decree of any Authority.
2.24 ENVIRONMENTAL MATTERS. Except as set forth in the Disclosure
Schedule, the operation of the Business does not involve the handling,
manufacture, treatment, storage, use, generation, emission, release, discharge,
refining, dumping or disposal of any pollutant, contaminant, or toxic or
hazardous substance, material or waste (a "Hazardous Substance") (whether legal
or illegal, accidental or intentional, direct or indirect). To the knowledge of
the Company and the Shareholders, there are no facts or circumstances that
-15-
could, directly or indirectly, subject the Company, or any of its affiliates or
successors to any Liability of any nature whatsoever arising out of or related
to any pollution or threat to human health or the environment or violation of
any environmental or occupational safety or health law that is related in any
way to the operation of the Business by the Company or any affiliate or any
previous owner's or operator's management, use, control, ownership, or operation
of the Assets, any property, or the Business or any affiliate, including without
limitation any on-site or off-site activities involving any Hazardous Substance,
and that occurred, existed, arose out of conditions or circumstances that
occurred or existed, or was caused, in whole or in part, on or before the date
hereof.
2.25 BROKERS. Neither the Company, the Shareholders nor any of the
Company's directors, officers or employees has employed any broker, finder,
investment banker or financial advisor or incurred any liability for any
brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to the Company for any such fee or commission to be claimed by any person
or entity.
2.26 SECURITIES LAW MATTERS. The Shareholders represent to Parent that
they have such knowledge and experience in financial and business matters that
they are capable of evaluating the merits and risks of accepting Parent Common
Stock. The Shareholders further agree with and represent and warrant to Parent
that: (a) they are acquiring Parent Common Stock hereby for their own account
and not on behalf of any other person or person(s); (b) they are acquiring
Parent Common Stock for investment purposes; (c) Parent Common Stock may not be
sold, transferred, assigned or otherwise disposed of except pursuant to an
effective registration statement or upon receipt of an opinion of counsel
reasonably satisfactory to Parent that the transfer is exempt from registration
under applicable state and federal securities laws; and (d) they have been
informed that Parent Common Stock certificates will bear the following or
substantially similar legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM
REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
2.27 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company, the
Shareholders nor any director, officer, employee or agent of the Company, nor
any other person acting on its behalf, has, directly or indirectly, within the
past five years given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) that: (a) would subject the
Company, the Shareholders or Parent to any damage or penalty in any civil,
criminal or governmental litigation proceeding; (b) if not given in the past,
-16-
would have had a Material Adverse Effect on the assets, Business or operations
of the Company as reflected in the financial statements described in Section
2.7; or (c) if not continued in the future, would have a Material Adverse Effect
on the Company's assets, Business, operations or prospects or that might subject
the Company, the Shareholders or Parent to suit or penalty in any private or
governmental litigation or proceeding.
2.28 BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to Parent, are complete and correct in all material respects and have
been maintained in accordance with reasonable business practices. The minute
books of the Company contain accurate and complete records of all formal
meetings held of, and corporate action taken by, the shareholders, the Board of
Directors, and committees of the Board of Directors of the Company. At the
Closing, all of those books and records will be in the possession of the
Company.
2.29 BUSINESS GENERALLY; ACCURACY OF INFORMATION. Except as set forth
in the Disclosure Schedule, there has been no event, transaction or information
that has come to the attention of the Company or the Shareholders that, as it
relates directly to the Company, would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company. No
representation or warranty made by the Company or the Shareholders in this
Agreement, the Disclosure Schedule, or in any document, agreement or certificate
furnished or to be furnished to Parent at the Closing by or on behalf of the
Company or the Shareholders in connection with any of the transactions
contemplated by this Agreement contains or will contain any untrue statement of
material fact or omit or will omit to state any material fact necessary in order
to make the statements herein or therein not misleading in light of the
circumstances in which they are made, and all of the foregoing completely and
correctly present the information required or purported to be set forth herein
or therein. To the knowledge of the Company and the Shareholders, there is no
material fact as of the date hereof that has not been disclosed in writing to
Parent related to the Company, its operations, properties, financial condition
or prospects, taken as a whole, that has a Material Adverse Effect or, to the
knowledge of the Company or the Shareholders, in the future may have a Material
Adverse Effect on the Company. The representations and warranties contained in
this Article 2 or elsewhere in this Agreement or any document delivered pursuant
hereto will not be affected or deemed waived by reason of the fact that Parent
or its representatives knew or should have known that any such representation or
warranty is or might be inaccurate in any respect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PARENT
--------------------------------------------
AND THE MERGER SUBSIDIARY
-------------------------
Parent and the Merger Subsidiary represent and warrant to the
Shareholders as follows:
3.1 PARENT DISCLOSURE SCHEDULE. The disclosure schedule of the Parent
attached hereto as EXHIBIT 3.1 (the "PARENT DISCLOSURE SCHEDULE") is divided
into sections that correspond to the sections of this Article 3. The Disclosure
Schedule comprises a list of all exceptions to the truth and accuracy of, and of
all disclosures or descriptions required by, the representations and warranties
set forth in the remaining sections of this Article 3.
-17-
3.2 CORPORATE ORGANIZATION, STANDING AND POWER. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida. Merger Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. Each of
Parent and Merger Subsidiary has all corporate power and corporate authority to
own its properties and to carry on its business as now being conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on
Parent and Merger Subsidiary.
3.3 AUTHORIZATION. Each of Parent and Merger Subsidiary has all the
requisite corporate power and corporate authority to enter into this Agreement
and to carry out the transactions contemplated herein. The Board of Directors of
Parent and the Merger Subsidiary, and Parent as the sole shareholder of the
Merger Subsidiary have taken all action required by law, their respective
articles of incorporation and bylaws or otherwise to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and no action of the shareholders of Parent is
required. This Agreement is the valid and binding legal obligation of Parent and
the Merger Subsidiary enforceable against each of them in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws that affect creditors' rights
generally.
3.4 NON-CONTRAVENTION. Neither the execution, delivery and performance
of this Agreement nor the consummation of the transactions contemplated herein
will: (a) violate any provision of the articles of incorporation or bylaws of
Parent or Merger Subsidiary; or (b) except for such violations, conflicts,
defaults, accelerations, terminations, cancellations, impositions of fees or
penalties, mortgages, pledges, liens, security interests, encumbrances,
restrictions and charges which would not, individually or in the aggregate, have
a Material Adverse Effect on Parent, (A) violate, be in conflict with, or
constitute a default, however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a default), under, or
cause or permit the acceleration of the maturity of, or give rise to, any right
of termination, cancellation, imposition of fees or penalties under, any debt,
note, bond, lease, mortgage, indenture, license, obligation, contract,
commitment, franchise, permit, instrument or other agreement or obligation to
which Parent or Merger Subsidiary is a party or by which Parent or Merger
Subsidiary or any of their respective properties or assets is or may be bound
(unless with respect to which defaults or other rights, requisite waivers or
consents will have been obtained at or prior to the Closing) or (B) result in
the creation or imposition of any mortgage, pledge, lien, security interest,
encumbrance, restriction, adverse claim or charge of any kind, upon any property
or assets of Parent or Merger Subsidiary under any debt, obligation, contract,
agreement or commitment to which Parent or Merger Subsidiary is a party or by
which Parent or Merger Subsidiary or any of their respective assets or
properties is or may be bound; or (C) violate any Law of any Authority.
3.5 CAPITALIZATION. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, of which there are 11,681,213 shares
of Parent Common Stock issued and outstanding as of the date of this Agreement.
The authorized capital stock of Merger Subsidiary consists of 1,000 shares of
Merger Subsidiary Common Stock, all of which are issued and outstanding and
owned by Parent. All issued and outstanding shares of Parent Common Stock are
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duly authorized, validly issued, fully paid and non-assessable and are without,
and were not issued in violation of, preemptive rights. There are 1,621,000
shares of Parent Common Stock underlying common stock options and purchase
warrents, including options granted to employees, a detailed description of
which has been provided to the Company. Other than the options and warrants
described above, there are no subscription, option, warrant, call, right,
contract, agreement, commitment, understanding or arrangement to which Parent is
a party, or by which it is bound, with respect to the issuance, sale, delivery
or transfer of Parent Common Stock, including any right of conversion or
exchange under any security or any instrument.
3.6 CONSENTS AND APPROVALS. No Consent is required by any person or
entity, including without limitation any Authority, in connection with the
execution, delivery and performance by Parent or Merger Subsidiary of this
Agreement, or the consummation of the transactions contemplated herein, other
than any Consent which, if not made or obtained, will not, individually or in
the aggregate, have a Material Adverse Effect on the business of Parent.
3.7 VALID ISSUANCE. The Parent Common Stock to be used in connection
with the Merger is duly authorized and, when issued, delivered and paid for as
provided in this Agreement, will be validly issued, fully paid and
non-assessable.
3.8 NO BROKER OR FINDER. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
3.9 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered or made available to the Company
accurate and complete copies (excluding copies of exhibits) of each
report, registration statement and definitive proxy statement filed by
Parent with the SEC since January 1, 1999 (collectively, with all
information incorporated by reference therein or deemed to be
incorporated by reference therein, the "PARENT SEC DOCUMENTS"). All
statements, reports, schedules, forms and other documents required to
have been filed by Parent with the SEC have been so filed on a timely
basis. As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing): (i) each of the Parent SEC Documents complied in
all material respects with the applicable requirements of the
Securities Act or the Exchange Act; and (ii) none of the Parent SEC
Documents contained any untrue statement of a material fact or omitted
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.
(b) The consolidated financial statements contained in the
Parent SEC Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered (except as may be indicated in the
notes to such financial statements and, in the case of unaudited
statements, as permitted by Form 10-QSB of the SEC, and except that
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unaudited financial statements may not contain footnotes and are
subject to normal and recurring year-end audit adjustments which will
not, individually or in the aggregate, be material in amount); and
(iii) fairly present, in all material respects, the consolidated
financial position of Parent and its consolidated subsidiaries as of
the respective dates thereof and the consolidated results of operations
of Parent and its consolidated subsidiaries for the periods covered
thereby. All adjustments considered necessary for a fair presentation
of the financial statements have been included.
3.10 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Parent SEC
Documents, the Company has owned and operated its assets, properties and
business in the ordinary course of business and consistent with past practice.
Without limiting the generality of the foregoing, subject to the aforesaid
exceptions:
(a) the Parent has not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
Parent;
(b) the Parent has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers, which
had or may reasonably be expected to result in a Material Adverse
Effect on the Parent.
3.11 INTELLECTUAL PROPERTY RIGHTS. Except as disclosed in the Parent
SEC Documents or in the Parent Disclosure Schedule, the Parent owns or has the
unrestricted right to use all Intellectual Property Rights used in, or necessary
for, the operation of its business as currently conducted or proposed to be
conducted. Except as disclosed in the Parent SEC Documents or in the Parent
Disclosure Schedule, the use of all Intellectual Property Rights necessary or
required for the conduct of the business of the Parent as presently conducted
and as proposed to be conducted does not infringe or violate the Intellectual
Property Rights of any person or entity. Except as disclosed in the Parent SEC
Documents or in the Parent Disclosure Schedule: (a) the Parent does not own or
use any Intellectual Property Rights pursuant to any written license agreement;
(b) the Parent has not granted any person or entity any rights, pursuant to a
written license agreement or otherwise, to use the Intellectual Property Rights;
and (c) the Parent owns, has unrestricted right to use and has sole and
exclusive possession of and has good and valid title to, all of the Intellectual
Property Rights, free and clear of all Liens and Encumbrances. All license
agreements relating to Intellectual Property Rights are valid and effective and
there is not, under any of such licenses, any existing default or event of
default (or event which with notice or lapse of time, or both, would constitute
a default, or would constitute a basis of a claim on non-performance) on the
part of the Parent or, to the knowledge of the Parent, any other party thereto.
3.12 LITIGATION. Except as disclosed in the Parent SEC Documents, there
is no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind, or any
judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled, or, to the knowledge of the Parent or the Merger Subsidiary,
threatened or contemplated by or against or involving the Parent, its assets,
properties or business or its directors, officers, agents or employees (but only
in their capacity as such), whether at law or in equity, before or by any person
or entity or Authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
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3.13 EMPLOYEE BENEFIT PLANS. There are no facts or circumstances which
could, directly or indirectly, subject the Parent or any of its affiliates to
any Liability of any nature with respect to any Benefit Plans to which the
Parent or any affiliate is a party or with respect to which the Parent or any
affiliate could have any Liability. The Parent's Benefit Plans were established
and have been executed, managed and administered without exception in accordance
with all applicable requirements of the Code, ERISA and of all other applicable
Laws.
3.14 CONTRACTS AND COMMITMENTS; NO DEFAULT. Except as set forth on the
Parent Disclosure Schedule, the Parent is not a party to, nor are any of its
Assets bound by, any material contract that is not disclosed in the Parent SEC
Documents and that is or will be required to be disclosed in the Parent SEC
Documents pursuant to Item 601(b)(10) of Regulation S-K. Except as disclosed in
the Parent SEC Documents, none of the Parent Contracts contains a provision
requiring the consent of any party with respect to the consummation of the
transactions contemplated by this Agreement. The Parent is not in breach,
violation or default, however defined, in the performance of any of its
obligations under any of the Parent Contracts, and no facts and circumstances
exist which, whether with the giving of due notice, lapse of time, or both,
would constitute such breach, violation or default thereunder or thereof, and,
to the knowledge of the Parent, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no facts or
circumstances exist which, whether with the giving of due notice, lapse of time,
or both, would constitute such a breach, violation or default thereunder or
thereof. None of the Parent Contracts is subject to renegotiation with any
Authority.
3.15 LABOR MATTERS. Except as disclosed in the Parent SEC Documents:
(a) the Parent is and has been in material compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Laws
respecting employment discrimination and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice; (b)
no grievance or any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claims therefor exist or have been
threatened; (c) no collective bargaining agreement is binding and in force
against the Parent or currently being negotiated by the Parent; (d) the Parent
has not experienced any significant labor difficulty; (e) the Parent is not
delinquent in payments to any persons for any wages, salaries, commissions,
bonuses or other direct or indirect compensation for any services performed by
them or amounts required to be reimbursed to such persons, including without
limitation any amounts due under any Benefit Plans; (f') upon termination of the
employment of any person, the Parent will not, by reason of anything done prior
to or as of the Closing Date, be liable to any of such persons for so-called
"severance pay" or any other payments; and (g) within the twelve-month period
prior to the date hereof there has not been any expression of intention to the
Parent by any officer or key employee of the Parent to terminate employment.
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ARTICLE 4
COVENANTS OF THE PARTIES
------------------------
4.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, the Shareholders will cause the Company to conduct its business and
operations according to its ordinary and usual course of business consistent
with past practices, to preserve substantially intact its business organizations
and to preserve substantially intact its current relationships with customers,
employees, suppliers and other persons with which it has significant business
relations. Without limiting the generality of the foregoing, and, except as
otherwise expressly provided in this Agreement or as otherwise disclosed on the
Disclosure Schedule, prior to the Closing Date, without the prior written
consent of Parent, the Shareholders agree that the Company will not:
(a) amend its articles of incorporation or bylaws;
(b) issue, reissue, sell, deliver or pledge or authorize or
propose the issuance, reissuance, sale, delivery or pledge of shares of
capital stock of any class, or securities convertible into capital
stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock;
(c) adjust, split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities;
(d) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, redeem or otherwise acquire
any shares of its capital stock or other securities, alter any term of
any of its outstanding securities;
(e) (i) except as required under any employment agreement,
increase in any manner the compensation of any of its directors,
officers or other employees; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or
permitted by any existing plan, agreement or arrangement to any such
director, officer or employee, whether past or present; (iii) except in
connection with any written arrangement approved by Parent, commit
itself to any additional pension, profit-sharing, bonus, incentive,
deferred compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or to any employment agreement
or consulting agreement (arising out of prior employment) with or for
the benefit of any person, or, except to the extent required to comply
with applicable law, amend any of such plans or any of such agreements
in existence on the date of this Agreement; or (iv) pay Xxxxxx Xxxxxx
and Xxxxx Xxxxxxxx any amounts exceeding an $100,000 and $40,000,
respectively (for an aggregate of $140,000), during any thirty-day
period after the date hereof, including without limitation any salary,
bonuses, dividends, distributions, advances or other forms of
consideration;
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(f) hire any additional personnel, except in the ordinary
course of business;
(g) incur, assume, suffer or become subject to, whether
directly or by way of guarantee or otherwise, except in the ordinary
course of business, any Liabilities which, individually or in the
aggregate, would have a Material Adverse Effect on the Company;
(h) pay, discharge or satisfy any Liabilities other than the
payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice;
(i) sell, transfer, or otherwise dispose of any of its Assets
or license to others the use of any of its technology, other than in
the ordinary course of business and consistent with past practice;
(j) permit or allow any of its Assets to be subjected to any
Encumbrance, except for Permitted Liens;
(k) write down the value of any inventory or write off, as
uncollectible, any receivables, except for immaterial write-downs and
write-offs in the ordinary course of business and consistent with past
practice;
(l) cancel any debts or waive any claims or rights, in each
case, of substantial value;
(m) dispose of or permit to lapse any Intellectual Property
Rights, or dispose of or disclose (except as necessary in the conduct
of its business) to any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or, as
applicable, any other entity ("PERSON") other than representatives of
Parent, any Intellectual Property Rights not theretofore a matter of
public knowledge;
(n) make or enter into any commitment for capital expenditures
in excess of $25,000 in any one case;
(o) pay, lend or advance any amount to, or sell, transfer or
lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate or associate of any of its
officers or directors;
(p) terminate, enter into or amend in any material respect any
contract, agreement, lease, license or commitment identified in Section
2.19 of the Disclosure Schedule, or take any action or omit to take any
action which will cause a breach, violation or default (however
defined) under any such items, except in the ordinary course of
business and consistent with past practice;
(q) acquire any of the business or assets of any other person
or entity;
(r) permit any of its current insurance (or reinsurance)
policies to be cancelled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination,
cancellation or lapse, replacement policies providing coverage equal to
or greater than coverage remaining under those cancelled, terminated or
lapsed are in full force and effect;
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(s) suffer any adverse change in its relationship with a
material customer, including the loss of any such customer or a
contract with such customer;
(t) enter into other material agreements, commitments or
contracts not in the ordinary course of business or in excess of
current requirements;
(u) settle or compromise any suit, claim or dispute or
threatened suit, claim or dispute;
(v) make any change in its accounting methods, principles or
practices except as required by GAAP; or
(w) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty
in this Agreement untrue or incorrect in any material respect.
4.2 NO COMPANY SOLICITATION OF ALTERNATE TRANSACTION. The Shareholders
will not, and will ensure that, the Company, the Company's directors, officers
and employees, independent contractors, consultants, counsel, accountants,
investment advisors and other representatives and agents will not, directly or
indirectly, solicit, initiate or entertain offers from, or participate in any
way in negotiations with, provide any nonpublic information to, enter into any
agreement with, or in any manner encourage, discuss, accept or consider any
proposal of, any third party relating to the acquisition of the Company, its
assets or business, in whole or in part, whether through a tender offer
(including a self tender offer), exchange offer, merger, consolidation, sale of
substantial assets or of a significant amount of assets, sale of securities,
acquisition of the Company's securities, liquidation, dissolution or similar
transactions involving the Company or any division of the Company (such
proposals, announcements or transactions being called herein "ACQUISITION
PROPOSALS"). The Company will promptly inform Parent of any inquiry (including
the terms thereof and the identity of the third party making such inquiry) that
it may receive in respect of an Acquisition Proposal and furnish to Parent a
copy of any such written inquiry.
4.3 FULL ACCESS TO PARENT. Throughout the period prior to Closing, the
Shareholders will cause the Company to afford to Parent and its directors,
officers, employees, counsel, accountants, investment advisors and other
authorized representatives and agents, reasonable access to the facilities,
properties, books and records of the Company in order that Parent may have full
opportunity to make such investigations as it will desire to make of the affairs
of the Company. The Company will furnish such additional financial and operating
data and other information as Parent will, from time to time, reasonably
request, including without limitation access to the working papers of its
independent certified public accountants; PROVIDED, HOWEVER, that any such
investigation will not affect or otherwise diminish or obviate in any respect
any of the representations and warranties of the Shareholders herein.
-24-
4.4 FULL ACCESS TO SHAREHOLDERS. Throughout the period prior to
Closing, Parent will afford to Shareholders and their counsel, accountants,
investment advisors and other authorized representatives and agents, reasonable
access to the facilities, properties, books and records of Parent in order that
the Shareholders may have full opportunity to make such investigations as they
may desire to make of the affairs of Parent. Parent will furnish such additional
financial and operating data and other information as the Shareholders will,
from time to time, reasonably request, including without limitation access to
the working papers of Parent's independent certified public accountants;
PROVIDED, HOWEVER, that any such investigation will not affect or otherwise
diminish or obligate in any respect any of Parent's representations and
warranties herein. The access described herein will include access to all
information Parent possesses with respect to Xxxxxxxxxx.xxx, subject to the
approval of Xxxxxxxxxx.xxx and the execution by the Shareholders of a
confidentiality agreement with Xxxxxxxxxx.xxx, and except as may be limited by
any contractual obligations of confidentiality on the part of the Parent.
4.5 CONFIDENTIALITY. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to any other party
hereto furnished to it in connection with the transactions contemplated herein
("INFORMATION") in a manner or for a purpose detrimental to such other party or
otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible (collectively, "DISCLOSE"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their respective directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of Law; PROVIDED, HOWEVER, that prior to
any Disclosure of any Information permitted hereunder, the disclosing party will
first obtain the recipients' undertaking to comply with the provisions of this
Section with respect to such information. The term "INFORMATION" as used herein
will not include any information relating to a party that the party disclosing
such information can show: (i) to have been in its possession prior to its
receipt from another party hereto; (ii) to be now or to later become generally
available to the public through no fault of the disclosing party; (iii) to have
been available to the public at the time of its receipt by the disclosing party;
(iv) to have been received separately by the disclosing party in an unrestricted
manner from a person entitled to disclose such information; or (v) to have been
developed independently by the disclosing party without regard to any
information received in connection with this transaction. Each party hereto also
agrees to promptly return to the party from whom it originally received such
information all original and duplicate copies of written materials containing
Information should the transactions contemplated herein not occur. A party
hereto will be deemed to have satisfied its obligations to hold the Information
confidential if it exercises the same care as it takes with respect to its own
similar information.
4.6 FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. Subject to the terms and
conditions herein provided, the parties hereto will use their best efforts to
take or cause to be taken all actions and do or cause to be done all things
reasonably necessary, proper or advisable under applicable Laws to consummate
and make effective, as soon as reasonably practicable, the transactions
contemplated hereby, including without limitation obtaining all Consents of any
person or entity, whether private or governmental, required in connection with
the consummation of the transactions contemplated herein. In furtherance, and
not in limitation of the foregoing, it is the intent of the parties to
consummate the transactions contemplated herein at the earliest practicable
time, and they respectively agree to exert commercially reasonable efforts to
that end, including without limitation: (i) the removal or satisfaction, if
possible, of any objections to the validity or legality of the transactions
contemplated herein; and (ii) the satisfaction of the conditions to consummation
of the transactions contemplated hereby.
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4.7 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) Each party hereto will, before, at and after Closing,
execute and deliver such instruments and take such other actions as the
other party or parties, as the case may be, may reasonably require in
order to carry out the intent of this Agreement. Without limiting the
generality of the foregoing, at any time after the Closing, at the
reasonable request of Parent and without further consideration, the
Company and the Shareholders will execute and deliver such instruments
of sale, transfer, conveyance, assignment and confirmation and take
such action as Parent may reasonably deem necessary or desirable in
order to more effectively consummate the transactions contemplated
hereby.
(b) The Shareholders will cause the Company to cooperate with
Parent to promptly develop plans for the management of the business
after the Closing, including without limitation plans relating to
productivity, marketing, operations and improvements, and the Company
will further cooperate with Parent to provide for the implementation of
such plans as soon as practicable after the Closing. Subject to
applicable Law, the Company will confer on a regular and reasonable
basis with one or more representatives of Parent to report on
operational matters and the general status of ongoing operations.
(c) Each party will promptly notify the other in writing in
accordance with Section 9.5 of this Agreement if it becomes actually
aware prior to Closing of the need to amend the Disclosure Schedule or
the Parent Disclosure, as the case may be, regarding a representation,
warranty, covenant or agreement on the part of the party providing the
notification ("PRE-CLOSING AMENDMENT"). Any such notice of a
Pre-Closing Amendment will be clearly and prominently labeled as a
"Notice of Amendment " and will identify the section(s) of this
Agreement that are the subject of the Pre-Closing Amendment and will
describe the facts and circumstances constituting such amendment with
reasonable particularity. Any Pre-Closing Amendment that a party
discloses pursuant to this Section 4.7(c) may not be the basis for any
indemnification Claim under Section 8 or the basis for asserting a
post-Closing default or breach by such party.
4.8 SUPPLEMENTS TO DISCLOSURE SCHEDULE. Prior to the Closing, the
Shareholders will supplement or amend the Disclosure Schedule with respect to
any event or development which, if existing or occurring at or prior to the date
of this Agreement, would have been required to be set forth or described in the
Disclosure Schedule or which is necessary to correct any information in the
Disclosure Schedule or in any representation and warranty of the Company or the
Shareholders which has been rendered inaccurate by reason of such event or
development. For purposes of determining the accuracy as of the date hereof of
the representations and warranties of the Company or the Shareholders contained
in Article 2 hereof in order to determine the fulfillment of the conditions set
forth herein, the Disclosure Schedule will be deemed to exclude any information
contained in any supplement or amendment hereto delivered after the delivery of
the Disclosure Schedule.
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4.9 PUBLIC ANNOUNCEMENTS. None of the parties hereto will make any
public announcement with respect to the transactions contemplated herein without
the prior written consent of the other parties, which consent will not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the parties
hereto may at any time make any announcements that are required by applicable
Law so long as the party so required to make an announcement promptly upon
learning of such requirement notifies the other parties of such requirement and
discusses with the other parties in good faith the exact proposed wording of any
such announcement.
4.10 COVENANT NOT TO COMPETE; NON-SOLICITATION.
(a) In order that Parent may have and enjoy the benefit of the
transactions contemplated in this Agreement, each of the Principal
Shareholders covenants and agrees that, for a period of two years
following the termination of such Principal Shareholder's employment
agreement with the Company, such Principal Shareholder will not, and
will not permit any of his agents or affiliated entities to, directly
or indirectly, (i) engage in, (ii) have any ownership or equity
interest exceeding 5% in any business, firm, corporation, joint venture
or other entity engaged in, or (iii) consult with or assist any person
or entity who or which is engaged in, any business that competes with
the Business or Parent anywhere in North America; provided, however,
that nothing in this Section 4.10 will prohibit any of the Principal
Shareholders, following termination of employment, from providing
one-on-one personal consulting services to less than fifty persons in
an industry segment in which Parent or the Business competes, provided
such persons have not been customers of Parent or the Business at any
time after the date of this Agreement.
(b) The invalidity or unenforceability of any provision of
this Section 4.10, in whole or by virtue of the following sentence in
part, will not affect the validity or enforceability of any other
provision of this Section 4.10 or of any other provision of this
Agreement, all of which will to the full extent consistent with
applicable law continue in full force and effect. In addition, if any
provision of Subsection 4.10(a) will be adjudged to be excessively
broad as to duration, geographical scope, activity or subject, the
parties intend that such provision will be deemed modified to the
minimum degree necessary to make such provision valid and enforceable
under applicable law and that such modified provision will thereafter
be enforced to the fullest extent possible. The Shareholders
acknowledge that any violation of any of the provisions of Subsection
4.10(a) is likely to cause irreparable damage to Parent and it is
agreed that Parent will be entitled to equitable relief, including
injunction and specific performance, in the event of any violation of
such provision.
(c) Each Shareholder agrees that, for a period of two years
following the Closing Date, he will not, whether directly or
indirectly, and he will not permit any of his affiliates to, solicit
the employment of or employ any person who was as of the date of this
Agreement or the Closing Date employed by or providing employment
services to the Company.
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4.11 TAX MATTERS.
(a) The Shareholders will cause to be filed, on or prior to
the due date thereof, all Tax Returns required to be filed by the
Company for all Tax periods or portions thereof ending on or before the
Closing Date (including Tax Returns filed after the Closing Date for
pre-Closing Date periods); PROVIDED, HOWEVER, that the Company or
Shareholders will not file any such Tax Returns, or other returns,
elections, claims for refund or information statements with respect to
any liabilities for Taxes (other than federal, state or local sales,
use, property, withholding or employment tax returns or statements) for
any Tax period without the prior written consent of Parent. Such Tax
Returns will be prepared at the direction of the Shareholders and will
be signed by the Shareholders.
(b) Parent will file (or cause to be filed) all Tax Returns of
the Company for all Tax periods or portions thereof ending after the
Closing Date. After the Closing Date, Parent, to the extent permitted
by applicable laws, will have the right to amend, modify or otherwise
change all Tax Returns of the Company for all Tax periods.
(c) Promptly after receipt by Parent of a written notice of
any demand, claim or circumstance which, after the lapse of time, would
or might give rise to a claim or the commencement (or threatened
commencement) of any action, proceeding or investigation with respect
to which indemnification may be sought by Parent or its Affiliates in
respect of any matter concerning Taxes, but not including the receipt
of a request for information ("ASSERTED TAX LIABILITY"), Parent will
give written notice thereof (the "TAX CLAIM NOTICE") to the
Shareholders.
(i) A Tax Claim Notice will contain factual
information (to the extent reasonable and available to Parent)
generally describing the Asserted Tax Liability in question
and will include copies of any notice or other document
received from any taxing authority in respect of such Asserted
Tax Liability. Failure by Parent to give Shareholders prompt
notice of an Asserted Tax Liability will not reduce or
otherwise affect Parent's right to seek indemnification
hereunder; PROVIDED, HOWEVER, that if such failure to give
prompt notice results in a material detriment to the
Shareholders, then any amount that Parent otherwise may be
entitled to as indemnification hereunder with respect to such
Asserted Tax Liability will be reduced by the amount that is
solely and directly attributable to such failure to give
prompt notice.
(ii) In the event that the Shareholders have
furnished Parent with an opinion of independent tax counsel
satisfactory to Parent to the effect that there is a
reasonable basis for contesting an Asserted Tax Liability,
then the Shareholders may elect to direct through counsel of
their own choosing, and at their own expense, a compromise or
contest, either administratively or in the courts, of any
Asserted Tax Liability; PROVIDED, HOWEVER, that the foregoing
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will apply only if the Shareholders have, notwithstanding any
other provision hereof to the contrary, acknowledged in
writing an obligation to indemnify Parent in accordance with
this Agreement with respect to such an Asserted Tax Liability,
and PROVIDED FURTHER that Parent, in its sole and absolute
discretion, may notify the Shareholders at any time that any
such compromise or contest must be immediately terminated, in
which case the foregoing obligation to make indemnity payments
hereunder with respect to such Asserted Tax Liability will
thereupon terminate.
(iii) If, in accordance with the foregoing, the
Shareholders elect to direct the compromise or contest of any
Asserted Tax Liability, they will, within 30 calendar days
after receiving the Tax Claim Notice with respect to such
Asserted Tax Liability (or sooner if the nature of the
Asserted Tax Liability so requires) notify Parent of their
intent to do so, and Parent will cooperate, at the
Shareholders' sole expense, in the compromise or contest of
such Asserted Tax Liability.
(iv) The Shareholders may enter into a settlement
agreement with respect to or otherwise resolve any Asserted
Tax Liability but only with the prior written consent of
Parent, which consent may not unreasonably be withheld.
(v) In the event that, and in accordance with the
foregoing, the Shareholders attempt to compromise or contest
any Asserted Tax Liability, Parent may participate at its own
expense in all proceedings, either administratively or in the
courts. For all purposes hereof, the right to participate in
all proceedings, either administratively or in the courts,
relating to an Asserted Tax Liability will include the right
to attend and be kept fully informed of all such proceedings.
(vi) Notwithstanding any attempt to compromise or
contest any Asserted Tax Liability, Parent may reasonably
determine not to release or disclose to the Shareholders or
their advisors, representatives and agents any information
relating to matters arising after the Closing Date that it
determines is of a confidential nature, and such information,
in the best interests of Parent, will not be disclosed to the
Shareholders or the foregoing parties unless the Shareholders
and the foregoing parties agree in writing to protect the
confidential nature of such information and to use or disclose
such information solely to the extent necessary to contest an
Asserted Tax Liability.
(vii) The procedures set forth in this Section with
respect to matters concerning Taxes will apply in the event of
any conflict between the provisions of this Section and those
of Article 8.
(viii) Following the Merger, Parent and the Surviving
Corporation will, upon reasonable request, afford to the
Shareholders and their authorized representatives reasonable
access during normal business hours to the books, records and
other data of or relating to the Surviving Corporation, and
permit the Shareholders and their authorized representatives
to make copies thereof at their own expense, with respect to
periods or portions thereof ending prior to the Merger, to the
extent that such access may be reasonably required by the Tax
Return preparer to prepare the federal, state, local and
foreign tax returns referred to in Section 4.11(a) or by the
Shareholders to defend an Asserted Tax Liability.
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(ix) The Parent agrees to retain all books and
records with respect to Tax matters pertinent to the Surviving
Corporation until 90 days after the expiration of the relevant
statute of limitations (and any extensions thereof) of the
respective taxable periods or portions thereof ending on or
prior to the Closing Date, and to abide by all record
retention agreements entered into with any taxing authority.
(x) Notwithstanding any provision in this Section
4.11 to the contrary, the terms and conditions of Article 8
(to the extent not inconsistent with this Section 4.11) will
apply to any indemnification obligation of the Shareholders
with respect to the Tax matters described in this Section
4.11.
4.12 REGISTRATION RIGHTS.
(a) If the Parent at any time proposes to register any of its
securities under the Securities Act for sale to the public, whether for
its own account or for the account of other security holders or both
(except with respect to registration statements on Forms X-0, X-0 or
another form not available for registering the Parent Common Stock for
sale to the public), it will give written notice to the Shareholders of
its intention to do so and will give such notice not later than 20 days
prior to the filing of any such registration statement. Upon the
written request of any Shareholder, received by the Parent within 10
days after the giving of any such notice by the Parent, to register any
of the Parent Common Stock held by such Shareholder that was issued as
Stock Consideration ("REGISTRABLE SECURITIES"), the Parent will use its
best efforts to cause the Registrable Securities as to which
registration is so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the
Parent, all to the extent requisite to permit the sale or other
disposition by such Shareholder (in accordance with its written
request) of the Registrable Securities so registered ("PIGGY-BACK
REGISTRATION RIGHTS"). The foregoing provisions notwithstanding, (i)
the Parent may withdraw any registration statement referred to herein
without thereby incurring any liability to the Shareholders; (ii) the
inclusion of shares of the Registrable Securities under such Piggy-Back
Registration Rights is subject to the cut-back provisions of sections
4.12(b) hereof; and (iii) the Piggy-Back Registration Rights will
terminate one year following the Closing Date. The registration rights
provided herein may not be assigned or transferred.
(b) If, in connection with a registration that involves an
underwriting, the representative(s) of the underwriters advises the
Parent in writing that marketing factors require a limitation on the
number of securities to be included in such underwriting, the amount of
Registrable Securities to be offered will be reduced (or eliminated
entirely) to the extent necessary to reduce the total number of
Registrable Securities to be included in such offering to the amount
recommended by such representative(s) of the underwriters.
(c) If any registration pursuant to this Section 4.12 is
underwritten in whole or in part, the Parent will so advise the
Shareholders in writing. The right of any Shareholders to include the
Registrable Securities in any underwritten registration pursuant to
this Section 4.12 will be conditioned upon such Shareholder's
participation in such underwriting and the inclusion of such
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Shareholder's shares in the underwriting. All Shareholders proposing to
distribute their shares of Registrable Securities through such
underwriting (together with the Parent and any other selling
shareholders) will enter into an underwriting agreement in customary
form with the underwriter or underwriters selected.
(d) In connection with each registration hereunder, the
Shareholders will furnish to the Parent in writing such information
with respect to itself and the proposed distribution by it as
reasonably will be necessary in order to assure compliance with the
Securities Act and other applicable federal and state securities laws.
In addition, each Shareholder agrees that, following the effective date
of a Piggy-Back Registration, for the period of time and to the extent
reasonably requested by the Parent or the representative(s) of any
underwriters, such Shareholder will not sell, offer to sell, contract
to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any securities
of the Parent held by it, directly or indirectly, except securities
covered by the registration statement and transfers to donees who agree
to be similarly bound.
(e) All expenses incurred by the Parent in complying with this
Section 4.12, including without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the
Parent and independent public accountants for the Parent, fees and
expenses, including counsel fees, incurred in connection with complying
with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and costs of insurance are called
"REGISTRATION EXPENSES." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, are
called "SELLING EXPENSES." The Parent will pay all Registration
Expenses in connection with each registration statement relating to
such Piggy-Back Registration Rights, provided that the participating
sellers will pay the fees and expenses of their own counsel or
accountants. All Selling Expenses in connection with each registration
statement under this Section 4.12 will be borne by the participating
sellers with respect to the number of shares sold by each.
4.13 BOARD SEAT. The Parent will take such actions as may be reasonably
necessary to cause Xx. Xxxxxx Xxxxxx to be appointed as a member of the Parent's
Board of Directors effective as of the Effective Time. Until the three-year
anniversary of the Closing or the termination of Xx. Xxxxxx'x employment with
the Parent or the Company for cause, the Parent will take such actions as may be
reasonably necessary to nominate and recommend a vote in favor of Xx. Xxxxxx or
one person designated by the Shareholders for election as a member of the
Parent's Board of Directors.
4.14 INSOLVENCY; CEASE OF BUSINESS. In the event that Parent (i) files
for protection under the federal bankruptcy laws, (ii) ceases to do business for
a period of sixty (60) days or (iii) is determined by a court of competent
jurisdiction to have breached its obligations under Section 1.7 and 1.8 of this
Agreement, then (a) any Shareholder may elect to voluntarily terminate any
employment and non-competition agreement between such Shareholder and the
Company or Parent, in which case such Shareholder will not be subject to any
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continuing noncompetition obligation notwithstanding anything in such agreement
to the contrary and (b) the Parent and the Company will take such actions and
execute such documents as are necessary and appropriate to transfer to such
Shareholder (subject to the rights of any other Shareholder) the tradename "By
Referral Only" and all customer lists, trademark registrations or applications
therefore and other materials relating to the By Referral Only business.
4.15 SATISFACTION OF CONDITIONS PRECEDENT. Each party will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are applicable to them, and to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all material consents and authorizations
of third parties and to make filings with, and give all notices to, third
parties that are reasonably necessary or reasonably required on its part in
order to effect the transactions contemplated hereby.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY
-------------------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing, or waiver by Parent, of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company and the Shareholders contained in this Agreement,
including without limitation in the Disclosure Schedule initially delivered to
Parent as Exhibit 2.1 (and not including any changes or additions delivered to
Parent pursuant to Section 4.7), will be true, complete and accurate as of the
date when made and as of the Closing Date as though such representations and
warranties were made at and as of such time, except for changes specifically
permitted or contemplated by this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a particular date
or period, in which case they will be true and correct at the Closing with
respect to such date or period.
5.2 PERFORMANCE. The Company and the Shareholders will have performed
and complied in all material respects with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by the Shareholders on or prior to the Closing.
5.3 REQUIRED APPROVALS AND CONSENTS.
(a) All action required by law and otherwise to be taken by
the Shareholders to authorize the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby will have been duly and validly taken, and no holders of any
capital stock of the Company will have validly exercised any
dissenters' or appraisal rights available under the California Code.
(b) All Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein, will have been
delivered, made or obtained, and Parent will have received copies
thereof.
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5.4 AGREEMENTS AND DOCUMENTS. Parent and Merger Subsidiary will have
received the following agreements and documents, each of which will be in full
force and effect:
(a) an employment agreement in the form of Exhibit 5.4(a)(i)
executed by Xxxxxx Xxxxxx and in the form of Exhibit 5.4(a)(ii)
executed by Xxxxx Xxxxxxxx.
(b) confidentiality, inventions, non-disclosure agreements in
the form of Exhibit 5.4(b)(i) executed by Xxxxxx Xxxxxx and Xxxxx
Xxxxxxxx and in the form of Exhibit 5.4(b)(ii) executed by each other
person reasonably required by the Parent.
(c) a legal opinion from Xxxx, Forward, Xxxxxxxx & Scripps
LLP, counsel to the Company and the Shareholders, dated the Closing
Date, substantially in the form and substance set forth as Exhibit
5.4(c) hereto.
(d) an opinion from Xxxx, Forward, Xxxxxxxx & Scripps LLP that
the transactions contemplated by this Agreement qualify as a tax-free
reorganization under Sections 368(a)(1)(A) and (a)(2)(D) of the Code.
(e) a certificate executed on behalf of the Company by its
Chief Executive Officer confirming that the conditions set forth in
Sections 5.1, 5.2, 5.3, 5.5, and 5.6 have been duly satisfied.
5.5 NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will have
been instituted or threatened which delays or questions the validity or legality
of the transactions contemplated hereby or which, if successfully asserted,
would, in the reasonable judgment of Parent, individually or in the aggregate,
otherwise have a Material Adverse Effect on the Company's business, financial
condition, prospects, assets or operations or prevent or delay the consummation
of the transactions contemplated by this Agreement.
5.6 LEGISLATION. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby or
any of the conditions to the consummation of such transaction.
5.7 FINANCING. Parent will have received gross proceeds of $5,000,000
from a debt or equity financing (the "FINANCING").
5.8 APPROPRIATE DOCUMENTATION. The Parent will have received, in a form
and substance reasonably satisfactory to Parent, dated the Closing Date, all
certificates and other documents, instruments and writings to evidence the
fulfillment of the conditions set forth in this Article 5 as Parent may
reasonably request.
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
-------------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company and the Shareholders to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing of each of the following conditions:
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6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Parent contained in this Agreement will be true, complete and
accurate as of the date when made and at and as of the Closing, as though such
representations and warranties were made at and as of such time, except for
changes permitted or contemplated in this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a particular date
or period, in which case they will be true and correct at the Closing with
respect to such date or period.
6.2 PERFORMANCE. The Parent will have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Parent at or
prior to the Closing.
6.3 REQUIRED APPROVALS AND CONSENTS. All action required to be taken by
the Board of Directors of Parent to authorize the execution, delivery and
performance of this Agreement by Parent and the consummation of the transactions
contemplated hereby will have been duly and validly taken and all material
consents of, or from, all Authorities required to consummate the transactions
contemplated herein, will have been obtained, and Shareholders will have
received copies thereof.
6.4 AGREEMENTS AND DOCUMENTS. Company and the Shareholders will have
received the following agreements and documents, each of which will be in full
force and effect:
(a) Employment and Non-Competition Agreements in the form of
Exhibit 5.4(a) executed by Parent;
(b) A legal opinion from Xxxxxxxxxxx Xxxxx and Xxxxxxxx LLP,
counsel to Parent, dated the Closing Date, substantially in the form
and substance set forth as Exhibit 6.4(b) hereto; and
(c) A certificate executed on behalf of Parent by its Chief
Executive Officer confirming that the conditions set forth in Sections
6.1, 6.2, 6.3 and 6.5 have been duly satisfied.
6.5 NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will have
been instituted or threatened which delays or questions the validity or legality
of the transactions contemplated hereby or which, if successfully asserted,
would individually or in the aggregate, otherwise have a Material Adverse Effect
on Parent's business, financial condition, prospects, assets or operations.
6.6 LEGISLATION. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby or
any of the conditions to the consummation of such transaction.
6.7 APPROPRIATE DOCUMENTATION. The Shareholders will have received, in
a form and substance reasonably satisfactory to the Shareholders, dated as of
the Closing Date, all certificates and other documents, instruments and writings
to evidence the fulfillment of the conditions set forth in this Article 6 as the
Shareholders may reasonably request.
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6.8 FINANCING. Parent will have received the Financing.
ARTICLE 7
TERMINATION AND ABANDONMENT
---------------------------
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the written consent of the Company and Parent.
7.2 TERMINATION BY EITHER THE COMPANY OR PARENT. This Agreement may be
terminated by either the Company or Parent if the Closing is not consummated by
January 26, 2001 (provided that the right to terminate this Agreement under this
Section 7.2 will not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date).
7.3 TERMINATION BY PARENT. This Agreement may be terminated at any time
prior to the Closing Date by Parent if: (i) the Company or the Shareholders have
failed to comply in any material respect with any of the covenants, conditions
or agreements contained in this Agreement required to be performed or complied
with by the Company or the Shareholders prior to the Closing Date; (ii) any
representation or warranty of the Company or any of the Shareholders contained
in this Agreement is or becomes untrue or incorrect in any material respect
(except for changes permitted by this Agreement and those representations which
address matters only as of a particular date that remain true and correct as of
such date).
7.4 TERMINATION BY THE COMPANY. This Agreement may be terminated prior
to the Closing Date by action of the Company if: (i) Parent or the Merger
Subsidiary has failed to comply in any material respect with any of the
covenants, conditions or agreements contained in this Agreement required to be
performed on or complied with by Parent or the Merger Subsidiary prior to the
Closing Date; or (ii) any representation or warranty of Parent or the Merger
Subsidiary contained in this Agreement is or becomes untrue or incorrect in any
material respect (except for changes permitted by this Agreement and those
representations which address matters as of a particular date that remain true
and correct as of such date). This Agreement may be terminated by the Company as
of the Closing Date if Parent has not received the Financing.
7.5 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby by the
Company or Parent pursuant to this Article 7, written notice thereof will be
given to all other parties and this Agreement will terminate (except to the
extent provided in Section 8.1 hereof) and the transactions contemplated hereby
will be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) Each of the parties will, upon request, redeliver all
documents, workpapers and other material of the other parties relating
to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing the same;
(b) No party will have any liability for a breach of any
representation, warranty, agreement, covenant or the provision of this
Agreement, unless such breach was due to a willful or bad faith action
or omission of such party or any representative, agent, employee or
independent contractor thereof, and except for such representations,
warranties and covenants that will survive termination of this
Agreement pursuant to Section 8.1; and
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(c) All filings, applications and other submissions made
pursuant to the terms of this Agreement will, to the extent
practicable, be withdrawn from the agency or other person to which
made.
(d) The Deposit will be released by the Escrow Agent in
accordance with the provisions of the Escrow Agreement.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
----------------------------
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INVESTIGATION. The representations, warranties and covenants of each of the
parties hereto will survive the Closing for a period of one year (1) year
thereafter, except that the representations and warranties of the Company and
the Shareholders contained in Section 2.15, 2.17 and 2.24 and the right of
indemnification based on the Xxxxxxxxx Litigation (defined below) will survive
until the expiration of all applicable statutory of limitations periods. The
right to indemnification or any other remedy based on representations,
warranties, covenants and obligations in this Agreement will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification or any
other remedy based on such representations, warranties, covenants, and
obligations.
8.2 INDEMNIFICATION BY THE COMPANY AND THE PRINCIPAL SHAREHOLDERS. The
Company and the Principal Shareholders, jointly and severally, agree to
indemnify Parent and the Merger Subsidiary and each of their respective
shareholders, officers, directors, employees and agents (collectively, the
"PARENT INDEMNITEES") from and against any and all losses, liabilities,
obligations, demands, judgments, settlements, damages, or expenses (including,
but not limited to, interest, penalties, fees, and reasonable professional fees
and expenses) and against all claims in respect thereof (including, without
limitation, amounts paid in settlement and costs of investigation) or diminution
in value, whether or not involving a third-party claim (referred to in this
Article 8 collectively as "LOSSES" or individually as a "LOSS") that any of the
Parent Indemnitees may incur, directly or indirectly, as a result from or in
connection with: (i) any untrue representation or breach of warranty by the
Company or the Shareholders in any part of this Agreement; (ii) the breach of or
nonfulfillment of any covenant, agreement or undertaking of the Company or the
Shareholders in this Agreement, notice of which is given to the Company or the
Shareholders, as applicable, on or prior to the relevant expiration date; (iii)
any debt, liability or obligation, direct or indirect, known or unknown, fixed
contingent or otherwise that relates to the Company and is based upon or arises
from any act or omission, transaction, circumstance, state of facts or other
condition occurring or existing on or before the Closing Date and not disclosed
on the Most Recent Balance Sheet or on the Disclosure Schedule, whether or not
then known, due or payable; (iv) any obligation for Taxes of the Company or the
Shareholders for any period (or portion thereof) prior to the Closing Date; and
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(v) any Legal Proceeding relating to Xxxxx Xxxxxxxxx, the Estate of Xxxxx
Xxxxxxxxx, Money Making, Inc. or Knowledge Labs, Inc. (the "XXXXXXXXX
LITIGATION"). The Principal Shareholders acknowledge that if a representation or
warranty that is qualified by materiality (including a Material Adverse Effect)
is breached after giving effect to such materiality qualification then the
Losses incurred by Parent resulting from such breach will include all Losses
resulting from a breach of such representation or warranty and not solely the
portion of such Losses in excess of such materiality qualifier. The Shareholders
further acknowledge that upon the Closing, the Company will cease to have any
indemnification obligations pursuant to this Section 8.2 and that the Principal
Shareholders will bear such obligations and will have no right of contribution
from the Company with respect to their indemnification obligations.
8.3 INDEMNIFICATION BY PARENT.
(a) Parent agrees to indemnify, defend and hold the
Shareholders harmless from and against any and all Loss or Losses that
any of the Shareholders may incur, directly or indirectly, as a result
from or in connection with: (i) any untrue representation of, or breach
of warranty by, Parent or the Merger Subsidiary in any part of this
Agreement; (ii) any nonfulfillment of any covenant, agreement or
undertaking of Parent or the Merger Subsidiary in any part of this
Agreement, notice of which is given to Parent on or prior to the
relevant expiration date.
(b) After the Effective Time, Parent will indemnify and hold
harmless any of the Shareholders and the heirs, executors and
administrators of any such person, to the extent authorized or
permitted by the Company's Articles of Incorporation or Bylaws or
provided pursuant to the Florida Business Corporation Act in effect
immediately prior to the Effective Time, against any Losses imposed
upon or reasonably incurred by such person in his or her capacity as,
or arising out of his status as, or because of his or her having been a
director or officer of the Company at any time prior to the Effective
Time, provided that in each such case, the act or omission giving rise
to such Loss does not constitute a breach of any provision of this
Agreement and such director or officer reasonably believed that he
acted in the interest of the Company and did not violate his fiduciary
duty to the Company. Such obligations shall apply to any action, suit
or proceeding commenced or threatened before or after the Effective
Time period.
8.4 CLAIMS FOR INDEMNIFICATION.
(a) GENERAL. The parties intend that all indemnification
claims be made as promptly as practicable by the party seeking
indemnification (the "INDEMNIFIED PARTY"). Whenever any claim arises
for indemnification hereunder the Indemnified Party will promptly
notify the party from whom indemnification is sought (the "INDEMNIFYING
PARTY") of the claim and, when known, the facts constituting the basis
for such claim. The failure to so notify the Indemnifying Party will
not relieve the Indemnifying Party of any liability that it may have to
the Indemnified Party except to the extent the Indemnifying Party
demonstrates that the defense of such action is prejudiced thereby. The
Parent will have the right to set-off any indemnification claims
against amounts it owes, now or in the future, to the Shareholders,
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including without limitation the Retained Consideration, pursuant to
the terms of this Agreement or any ancillary agreement, if any, entered
into between the Parent and any Shareholder, except for amounts owing
to the Shareholders as salary, bonuses or other compensation for
employment with the Parent or the Company following the Merger.
(b) CLAIMS BY THIRD PARTIES. With respect to claims made by
third parties, the Indemnifying Party will be entitled to assume
control of the defense of such action or claim with counsel reasonably
satisfactory to the Indemnified Party; provided, however, that:
(i) the Indemnified Party will be entitled to
participate in the defense of such claim and to employ counsel
at its own expense to assist in the handling of such claim;
(ii) no Indemnifying Party will consent to (A) the
entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by
each claimant or plaintiff to each Indemnified Party of a
release from all liability in respect of such claim or (B) if,
pursuant to or as a result of such consent or settlement,
injunctive or other equitable relief would be imposed against
the Indemnified Party or such judgment or settlement could
materially interfere with the business, operations or assets
of the Indemnified Party; and
(iii) if the Indemnifying Party does not assume
control of the defense of such claim in accordance with the
foregoing provisions within three days after receipt of notice
of the claim, the Indemnified Party will have the right to
defend such claim in such manner as it may deem appropriate at
the cost and expense of the Indemnifying Party, and the
Indemnifying Party will promptly reimburse the Indemnified
Party therefore in accordance with this Article 8, provided
that the Indemnified Party will not be entitled to consent to
the entry of any judgment or enter into any settlement of such
claim that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnifying
Party of a release from all liability in respect of such claim
without the prior written consent of the Indemnifying Party
if, pursuant to or as a result of such consent or settlement,
injunctive or other equitable relief would be imposed against
the Indemnifying Party or such judgment or settlement could
materially interfere with the business, operations or assets
of the Indemnifying Party.
(c) REMEDIES CUMULATIVE. The remedies provided herein will be
cumulative and will not preclude assertion by any party of any rights
or the seeking of any other remedies against any other party. The
Shareholders hereby agree that they will not make any claim for
indemnification against Parent or the Company by reason of the fact
that any such Shareholder was a director, officer, employee, or agent
of the Company or was serving at the request of any such entity as a
partner, trustee, director, officer, employee or agent of another
entity (whether such claim is for judgments, damages, penalties, fines,
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costs, amounts paid in settlement, losses, expenses or otherwise and
whether such claim is pursuant to any statute, charter document, bylaw,
agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim or demand brought by Parent against such Shareholders
(whether such action, suit, proceeding, complaint, claim or demand is
pursuant to this Agreement, applicable law, or otherwise).
8.5 LIMITATIONS ON INDEMNIFICATION. Except for the unconditional and
unlimited indemnification obligations of the Shareholders with respect to the
Xxxxxxxxx Litigation, no party will be entitled to indemnification for any
Losses arising out of matters referred to in Sections 8.2 or 8.3, as applicable,
unless such Losses exceed $50,000, in which case the Indemnified Party will be
entitled to indemnification for all such Losses. In addition, the
indemnification obligations of the Shareholders pursuant to Section 8.2 will be
limited to the return and cancellation of shares of Parent Common Stock issued
to the Shareholders as the Stock Consideration, the value of which, for the
purposes of satisfying the Shareholders' indemnification obligations, will based
on the Average Closing Price of such shares as of the date the claim is settled
or final judgment with no right of appeal is entered.
8.6 TAX EFFECT AND INSURANCE. The liability of an Indemnifying Party
with respect to any indemnification claim will be reduced by the tax benefit
actually realized and any insurance proceeds actually received by the
Indemnified Party as a result of any Losses upon which such indemnification
claim is based, and will include any tax detriment actually suffered by the
Indemnified Party as a result of such Losses. The amount of any such tax benefit
or detriment will be determined by taking into account the effect, if any, and
to the extent determinable, of timing differences resulting from the
acceleration or deferral of items of gain or loss resulting from such Losses and
will otherwise be determined so that payment by the Indemnifying Party of the
indemnification claim, as adjusted to give effect to any such tax benefit or
detriment, will make the Indemnified Party as economically whole as is
reasonably practical with respect to the Losses upon which the indemnification
claim is based.
ARTICLE 9
MISCELLANEOUS PROVISIONS
------------------------
9.1 EXPENSES. The Parent and the Company (including the Shareholders)
will each bear their own costs and expenses relating to the transactions
contemplated hereby, including without limitation, fees and expenses of legal
counsel, accountants, investment bankers, brokers or finders, printers, copiers,
consultants or other representatives for the services used, hired or connected
with the transactions contemplated hereby.
9.2 AMENDMENT AND MODIFICATION. Subject to applicable Law, this
Agreement may be amended or modified by the parties hereto at any time with
respect to any of the terms contained herein; PROVIDED, HOWEVER, that all such
amendments and modifications must be in writing duly executed by all of the
parties hereto.
9.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition will not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No single or partial exercise
of a right or remedy will preclude any other or further exercise thereof or of
any other right or remedy hereunder. Whenever this Agreement requires or permits
the consent by or on behalf of a party, such consent will be given in writing in
the same manner as for waivers of compliance.
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9.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement will
entitle any person or entity (other than a party hereto and his, her or its
respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind.
9.5 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder will be made in writing and will be deemed to
have been duly given and effective: (i) on the date of delivery, if delivered
personally; (ii) on the earlier of the fourth (4th) day after mailing or the
date of the return receipt acknowledgement, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date of
transmission, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment, or to such other person or address as the
Company will furnish to the other parties hereto in writing in accordance with
this subsection.
If to the Company or any Shareholder to: With a copy to:
By Referral Only, Inc. Xxxx, Forward, Xxxxxxxx & Scripps LLP
0000 Xxxxxxxx Xxxxxx, #000. 000 Xxxx Xxxxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000 Xxx Xxxxx, XX 00000
Attn: Xxxxxx Xxxxxx Attn: Xxxxxxx X. Xxxxxxxx
Fax: (000) 000-0000 Fax: (000) 000-0000
or to such other person or address as either the Company or the Shareholders
will furnish to the other parties hereto in writing in accordance with this
subsection.
If to Parent to: With a copy to:
Entreport Corporation Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP
0000 Xxxxxxxx Xxxx Xxxxx, Xxxxx X 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxx Attn: Xxxxxx X. Xxxxxxx
Fax: (000) 000-0000 Fax: (000) 000-0000
or to such other person or address as Parent will furnish to the other parties
hereto in writing in accordance with this subsection.
9.6 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by any of the
parties hereto without the prior written consent of the other parties.
9.7 GOVERNING LAW. This Agreement and the legal relations among the
parties hereto will be governed by and construed in accordance with the internal
substantive laws of the State of California (without regard to the laws of
conflict that might otherwise apply) as to all matters, including without
limitation matters of validity, construction, effect, performance and remedies.
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9.8 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.9 HEADINGS. The table of contents and the headings of the sections
and subsections of this Agreement are inserted for convenience only and will not
constitute a part hereof.
9.10 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the
exhibits and other writings referred to in this Agreement or in the Disclosure
Schedule or any such exhibit or other writing are part of this Agreement,
together they embody the entire agreement and understanding of the parties
hereto in respect of the transactions contemplated by this Agreement and
together they are referred to as this "Agreement" or the "Agreement." There are
no restrictions, promises, warranties, agreements, covenants or undertakings,
other than those expressly set forth or referred to in this Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the transaction or transactions contemplated by this Agreement,
including, but not limited to, the letter of intent dated August 30, 2000.
Provisions of this Agreement will be interpreted to be valid and enforceable
under applicable Law to the extent that such interpretation does not materially
alter this Agreement; PROVIDED, HOWEVER, that if any such provision becomes
invalid or unenforceable under applicable Law such provision will be stricken to
the extent necessary and the remainder of such provisions and the remainder of
this Agreement will continue in full force and effect.
9.11 REMEDIES AND INJUNCTIVE RELIEF. It is expressly agreed among the
parties hereto that monetary damages would be inadequate to compensate a party
hereto for any breach by any other party of its covenants in Article 4 hereof.
Accordingly, the parties agree and acknowledge that any such violation or
threatened violation will cause irreparable injury to the other and that, in
addition to any other remedies which may be available, such party will be
entitled to injunctive relief against the threatened breach of Article 4 hereof
or the continuation of any such breach without the necessity of proving actual
damages and may seek to specifically enforce the terms thereof.
Notwithstanding anything contained in this Agreement to the contrary,
the Company and the Shareholders, on the one hand, and Parent and the Merger
Subsidiary, on the other hand, will only have the right to make a claim against
the other for damages (other than an indemnification claim pursuant to Article 8
herein) if the non-claiming party has willfully and materially breached any of
its representations, covenants or agreements set forth in this Agreement. For
purposes of this provision, a party will be deemed to have willfully breached
any of its representations, covenants or agreements set forth in this Agreement
if such party has intentionally and knowingly taken, or intentionally and
knowingly failed to take, any action that causes a breach of any of its
covenants or agreements set forth in this Agreement. No party hereto will be
entitled to rescind this Agreement after the Closing.
9.12 ARBITRATION. For any and all controversies or claims arising out
of, resulting from or in any way related to this Agreement or any transactions
provided for or contemplated herein, or the breach thereof, other than a claim
for injunctive relief, or a claim for specific performance prior to the Closing
Date, will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA") in effect
at the time demand for arbitration is made by any party hereto. Notwithstanding
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any rule of the AAA to the contrary, any dispute submitted to arbitration
pursuant to the terms of this Section 9.12 will be submitted to a single
arbitrator mutually appointed by the parties hereto. In the event that the
parties hereto cannot agree on a single arbitrator, then the dispute will be
submitted to a panel of three arbitrators selected in accordance with the rules
of the AAA. Persons eligible to serve as arbitrators will be members of the AAA
Large, Complex Case Panel. Arbitration will occur in San Diego, California, or
such other location as is unanimously agreed by the parties hereto. The
arbitrators will conduct the arbitration with reasonable dispatch. The decision
of all or a majority of the arbitrators will be final and binding upon the
parties hereto. Each party to the arbitration will bear its own attorneys' fees
and its share of the arbitration costs.
9.13 DEFINITION OF MATERIAL ADVERSE EFFECT. "MATERIAL ADVERSE EFFECT"
with respect to Parent or the Company means an individual or cumulative adverse
change in or effect on the business, customers, customer relations, operations,
properties, working capital, financial condition, assets, properties or
liabilities taken as a whole that is reasonably expected to be materially
adverse to the business, properties, working capital condition (financial or
otherwise), assets, or liabilities of Parent or the Company taken as a whole or
would prevent Parent or the Company or the Shareholders, as the case may be,
from consummating the transactions contemplated hereby.
9.14 DEFINITION OF KNOWLEDGE. "KNOWLEDGE" and the phrase "to the best
knowledge" mean with respect to a person, actual knowledge, information and
belief following reasonable investigation, and with respect to the Company or
Parent, actual knowledge, information and belief of executive officers and
directors following such reasonable investigation and review as reasonably
prudent executive officers or directors would conduct in light of the prevailing
facts and circumstances.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ENTREPORT CORPORATION BY REFERRAL ONLY, INC.
By: /S/ XXXXX X'XXXXXXXXX. By: W. XXXXX XXXXXXXX
-------------------------------- ------------------------
Its: VICE PRESIDENT
-----------------------
SHAREHOLDERS
/S/ W. XXXXX XXXXXXXX
---------------------------
/S/ XXXXXX X. XXXXXX
---------------------------
/S/ XXXXX XXXXX
--------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
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