STOCK EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
THIS STOCK EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (this
"AGREEMENT") is made and entered into as of December 16, 1999, by and among
JENKON INTERNATIONAL, INC., a Delaware corporation ("JENKON"), MULTIMEDIA K.I.D.
- INTELLIGENCE IN EDUCATION, LTD., an Israeli corporation (the "COMPANY"), and
the holders of all of the outstanding capital stock of the Company listed in
EXHIBIT A to this Agreement (the "STOCKHOLDERS").
RECITALS
WHEREAS, each Stockholder is the record and beneficial owner
of that number of shares of the Common Stock of the Company set forth next to
such Stockholders's name on EXHIBIT A (the "STOCKHOLDER'S SHARES");
WHEREAS, Jenkon desires to acquire all of the outstanding
Common Stock of the Company ("COMPANY COMMON STOCK") in exchange for shares of
capital stock of Jenkon;
WHEREAS, Jenkon is willing to issue to each Stockholder, and
each Stockholder is willing to acquire from Jenkon, shares of capital stock of
Jenkon in exchange for such Stockholder's Shares so that: (i) the current
stockholders of the Company will be issued an aggregate of (a) 840,000 shares of
Jenkon Common Stock, $.001 par value ("JENKON COMMON STOCK"), of Jenkon, (b)
1,208,000 shares of Jenkon Series B Preferred Stock, $.001 par value ("SERIES B
PREFERRED"), and (c) 1,208,000 shares of Jenkon Series C Preferred Stock, $.001
par value ("SERIES C PREFERRED"); and (ii) Jenkon will acquire and own all of
the capital stock of the Company;
WHEREAS, the Board of Directors of Jenkon and the
Stockholders, deeming the above-described exchange in the manner contemplated
herein to be desirable and in the best interests of each of their corporations,
have authorized and approved such exchange subject to the terms and conditions
set forth herein and the execution and delivery of this Agreement by Jenkon and
each of the Stockholders; and
NOW, THEREFORE, in consideration of the promises and the
mutual covenants, representations, warranties and agreements set forth herein,
the parties hereto agree as follows:
ARTICLE I.
TERMS OF THE EXCHANGE OF STOCK
1.1 THE EXCHANGE OF STOCK. At the Closing (as defined below),
Jenkon shall
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convey, transfer, issue and deliver to each Stockholder the number of shares of
(i) Jenkon Common Stock, (ii) Series B Preferred, and (iii) Series C Preferred
set forth next to such Stockholder's name on EXHIBIT A in exchange for all of
the Stockholder's Shares set forth next to such Stockholder's name on EXHIBIT A,
and each Stockholder shall severally convey, transfer, assign and deliver to the
Company all of such Stockholder's Shares in exchange therefor (the "STOCK
EXCHANGE"). The Stockholder's Shares set forth on EXHIBIT A constitute all of
the issued and outstanding capital stock of the Company. Following such
exchange, no Stockholder or any other person or entity other than Jenkon shall
own any equity interest in the Company. At the Closing each of the Stockholders
shall deliver to Jenkon a photocopy of Deed of Transfer and the Notice of Share
Allotment evidencing the assignment of the shares of Company Common Stock owned
by such Stockholder; provided, however, that if no such document is delivered
despite such requirement, execution by the Stockholder of this Agreement shall
be deemed to be sufficient evidence of the assignment and transfer of such
Stockholders's shares of the Company to Jenkon. Promptly following the Closing,
Jenkon, the Company and the Stockholders shall cause a filing to be made with
the Registrar of Companies in Israel evidencing transfer of ownership of all
Company Shares to Jenkon. Within three (3) business days of receipt written
confirmation to Jenkon from the Company's Israeli counsel that all requisite
filings have been made with the Registrar of Companies to reflect that Jenkon is
the record owner of 5,375 ordinary shares of the Company, Jenkon shall deliver
to The Law Offices of Xxxxx Xxxxxx, as agent for the Stockholders ("STOCKHOLDERS
AGENT"), the certificates evidencing the shares of Jenkon Common Stock, Series B
Preferred and Series C Preferred to be issued to the Stockholders under this
Agreement. The Stockholders Agent shall promptly distribute such certificates to
the Stockholders; provided, however, that Jenkon's obligation to deliver such
stock to the Stockholders shall be deemed satisfied in full by delivery thereof
to the Stockholders Agent and each Stockholder agrees that Jenkon shall have no
liability to any Stockholder for the failure or delay of Stockholder Agent to
deliver the certificates to the Stockholders.
1.2 AMOUNT OF CONSIDERATION.
(a) In consideration for all of the outstanding
capital stock of the Company, Jenkon shall issue to the Stockholders an
aggregate of: (i) 840,000 shares of Jenkon Common Stock, (ii) 1,208,000 shares
of Series B Preferred, and (iii) 1,208,000 shares of Series C Preferred Stock
(the "CONSIDERATION"), which Consideration shall be distributed to the
Stockholders in accordance with EXHIBIT A. In no event shall Jenkon be required
to issue to securityholders of the Company (including the Stockholders) a number
of shares in excess of the Consideration. In the event that, for any reason, the
Stockholders are not owners of all of the capital stock and options or warrants
to acquire capital stock of the Company (1) the Consideration shall not be
increased but shall be allocated among the Stockholders and such additional
holders in accordance with their relative ownership percentages (calculated on
an as-converted basis) and (2) Jenkon shall have the right, without obtaining
the consent of any Stockholder, to issue stop-transfer instructions and/or
cancel certificates issued as Consideration and reissue new certificates
representing the correct ownership of shares.
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(b) The sum of the 840,000 shares of Jenkon Common
Stock issued to the Stockholders and the maximum number of shares of Jenkon
Common Stock issuable upon conversion of the Series B Preferred and the Series C
Preferred issued to the Stockholders shall be 25,000,000 shares of Jenkon Common
Stock, which shall represent no less than seventy-nine percent (79%) of the
total number of shares of Jenkon Common Stock issued and outstanding on a
fully-diluted basis immediately following the Closing. However, for purposes of
calculating such ownership percentage, the total number of shares of Jenkon
Common Stock issued and outstanding on a fully-diluted basis immediately
following the Closing shall not include the shares of Jenkon Common Stock issued
or to be issued upon conversion of the convertible debt described in Section 7.1
below.
1.3 PREFERRED STOCK. Attached hereto as Exhibits B and C
respectively are the Certificate of Designation, Preferences and Rights for the
Series B Preferred and the Series C Preferred, each as filed with the Delaware
Secretary of State and currently in effect. Such Certificates of Designation are
sometimes referred to herein a "CERTIFICATE OF DESIGNATION" and collectively as
the "CERTIFICATES OF DESIGNATION."
1.4 POST-CLOSING STRUCTURE OF ENTITIES. Immediately following
the Closing, the Company shall be a wholly-owned subsidiary of Jenkon and from
and after the Closing shall be maintained as a separate operating unit of
Jenkon. From and after the Closing, Jenkon's existing business shall be
maintained as a separate operating unit through Jenkon's existing operating
subsidiary, Jenkon International, Inc., a Washington corporation.
1.5 CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated by this Agreement (the
"CLOSING") shall take place (a) at the offices of Jeffer, Mangels, Xxxxxx &
Marmaro LLP, 2121 Avenue of the Stars, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx at
8:00 a.m., local time, on December 16, 1999 or on such later date as the last
condition to Closing specified in this Agreement shall have been satisfied or
waived, or (b) at such later place, time, date or method as Jenkon and the
Company shall mutually agree. The date on which the Closing occurs is
hereinafter referred to as the "CLOSING DATE".
1.6 APPOINTMENT OF STOCKHOLDERS AGENT. By executing this
Agreement, each Stockholder hereby designates and appoints the Stockholders
Agent as such Stockholder's representative and attorney-in-fact for and on
behalf of such Stockholder with full power of substitution to: (i) receive and
accept service of any and all notices under this Agreement on such Stockholder's
behalf, (ii) waive on behalf of such Stockholder any of the conditions to
Closing set forth in Article VIII hereof and (iii) to receive and accept stock
certificates representing the Consideration or any shares of Common Stock into
which any portion of such Consideration may be converted.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the following representations and
warranties to and for the benefit of Jenkon, subject to the exceptions set forth
in the Company's Disclosure Schedules (which exceptions shall specifically
identify a Section, Subsection or clause of a single Section or Subsection
hereof and which specific exceptions shall only apply to such identified
Section, Subsection or clause) that:
2.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and is current in all filings
relating to its corporate existence under the laws of Israel. The Company has
the corporate power to own, lease and operate its properties and to carry on its
business as now being conducted. The Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have, or would reasonably be expected to have,
a material adverse effect on the business, financial condition, results of
operations, assets (including intangible assets), liabilities or prospects of
the Company (hereinafter referred to as a "MATERIAL ADVERSE EFFECT").
2.2 ARTICLES OF INCORPORATION; BYLAWS. The Company has
furnished or made available to Jenkon complete and correct copies (with English
translations) of the Articles of Incorporation and the Bylaws or the equivalent
organizational documents, in each case as amended or restated to the date
hereof, of the Company. The Company is not in violation of any of the provisions
of its Articles of Incorporation or Bylaws or equivalent organizational
documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company
consists entirely of (i) 23,000 registered ordinary shares of the Company, 1 NIS
par value ("COMPANY SHARES"), of which 5,375 shares are to be issued and
outstanding immediately following the Closing Date. The Stockholder's Shares
constitute all of the issued and outstanding Company Shares. The outstanding
Company Shares are held of record by the Stockholders, with the addresses of
record and in the amounts set forth in EXHIBIT A. The Stockholders are the only
stockholders of record of the Company and all transfers or issuances of Company
Shares occurring prior to the Closing Date have been reported to and recorded by
the Israeli Registrar of Companies. All outstanding Company Shares are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws,
or equivalent organizational documents, of the Company, or any agreement to
which the Company is a party or by which it is bound.
(b) No Company Shares or other securities of the
Company are
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reserved for issuance, and there are no contracts, agreements, commitments or
arrangements obligating the Company to offer, sell, issue or grant any shares
of, or any options, warrants or rights of any kind to acquire any shares of, or
any securities that are convertible into or exchangeable for any shares of,
capital stock of the Company, to redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding shares of, or any outstanding options,
warrants or rights of any kind to acquire any shares of, or any outstanding
securities that are convertible into or exchangeable for any shares of, capital
stock of the Company or to grant any mortgage, pledge, security interest,
attachment, encumbrance, lien, claim or charge of any kind (collectively,
"LIENS") on any shares of capital stock of the Company.
(c) Immediately following the Closing, Jenkon shall
be the beneficial and record owner of 5,375 ordinary shares of the Company, free
and clear of any and all Liens.
2.4 SUBSIDIARIES. The Company does not have and has never had
any subsidiaries or affiliated companies and does not otherwise own and has
never otherwise owned any shares of capital stock or any interest in, or
control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity.
2.5 AUTHORITY.
(a) The Stockholders have unanimously approved the
Stock Exchange and this Agreement, and the Company has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company. The
Company's Board of Directors has unanimously approved the Stock Exchange and
this Agreement and has executed all necessary Protocols or other consents
required in order to evidence such approval. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
(b) Except as set forth on SCHEDULE 2.5(b), the
execution and delivery of this Agreement by the Company does not, and, as of the
Closing Date, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (any
such event, a "CONFLICT") (i) any provision of the Articles of Incorporation or
Bylaws, or equivalent organizational documents, of the Company, or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise,
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license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, except with respect to
the preceding clause (ii) for any Conflict which could not reasonably be
expected to have a Material Adverse Effect. No consent, waiver, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other domestic or foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party (so as not to trigger any Conflict) is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (i) such
consents, waivers, authorizations, filings, approvals and registrations which
are set forth on SCHEDULE 2.5(b), and (ii) where the failure to obtain or make
any such consent, waiver, approval, order, authorization, registration,
declaration or filing could not reasonably be expected to have a Material
Adverse Effect.
2.6 COMPANY FINANCIAL STATEMENTS.
(a) SCHEDULE 2.6 sets forth the Company's audited
balance sheets as of December 31, 1997 and December 31, 1998 (the "BALANCE
SHEETS") and the related audited statements of operations, shareholders' equity
and cash flows for the twelve-month periods then ended and the footnotes thereto
as well as the Company's unaudited balance sheet as of June 30, 1999 (the
"INTERIM BALANCE SHEET") and the related unaudited statements of operations for
the six-month period then ended (collectively, the "COMPANY FINANCIALS"). The
Company Financials are correct in all material respects and have been prepared
in accordance with Israel generally accepted accounting principles ("ISRAEL
GAAP") applied on a basis consistent throughout the periods indicated and
consistent with each other. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject to normal year-end adjustments in the case of
unaudited financial statements, which such adjustments will not be material in
amount or significance.
(b) The Company maintains a system of internal
accounting control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with United States generally accepted
accounting principles ("US GAAP") and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences; and (v) the Company's financial
statements can be audited, without unreasonable effort or expense, by an
independent public accountant in accordance with US GAAP and the requirements of
the Securities and Exchange Commission with respect to reporting companies under
the Securities Exchange Act of 1934, as amended.
2.7 NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 2.7, as of
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the Closing Date the Company does not have any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (which would
be required to be reflected in financial statements in accordance with US GAAP),
which individually or in the aggregate, has not been reflected in the Interim
Balance Sheet.
2.8 NO CHANGES. Except as set forth in SCHEDULE 2.8, since the
date of the Interim Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary
course of business as conducted on the date of the Interim Balance Sheet and
consistent with past practices;
(b) amendments or changes to the Articles of
Incorporation or Bylaws, or equivalent organizational documents, of the Company;
(c) capital expenditure or commitment by the Company,
either individually or in the aggregate, exceeding $50,000;
(d) destruction of, damage to or loss of any material
assets, business or customer of the Company (whether or not covered by
insurance);
(e) labor trouble or claim of wrongful discharge or
other unlawful labor practice or action;
(f) change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by the
Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a
dividend or other distribution with respect to the capital stock of the Company,
or any direct or indirect redemption, purchase or other acquisition by the
Company of any capital stock, or any split, combination or reclassification in
respect of any shares of capital stock, or any issuance or authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock;
(i) increase in the salary or other compensation
payable or to become payable by the Company to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
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(j) sale, lease, license or other disposition of any
of the assets or properties of the Company, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(k) amendment or termination of any material
contract, agreement or license to which the Company is a party or by which it is
bound;
(l) loan by the Company to any person or entity,
incurrence by the Company of any indebtedness, guaranteeing by the Company of
any indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, or creation of any security
interest in any of the Company's assets or properties, except for advances to
employees for travel and business expenses in the ordinary course of business,
consistent with past practices;
(m) waiver or release of any right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company;
(n) commencement or notice or threat of commencement
of any lawsuit or proceeding against or investigation of the Company or its
affairs, or any reasonable basis for any of the foregoing;
(o) notice of any claim or potential claim of
ownership by a third party of Company Intellectual Property Rights (as defined
in Section 2.12 below) or of infringement by the Company of any third party's
intellectual property rights;
(p) change in pricing or royalties set or charged by
the Company to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Company Intellectual Property Rights to the
Company;
(q) event or condition of any character that has or
could be reasonably expected to have a Material Adverse Effect on the Company;
or
(r) negotiation or agreement by the Company or any
officer or employees thereof to do any of the things described in the preceding
clauses (a) through (q) (other than negotiations with Jenkon and its
representatives regarding the transactions contemplated by this Agreement).
2.9 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this
Agreement, "TAX" or, collectively, "TAXES", means any and all Israeli or United
States (federal, state, and/or local) and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes based
upon or measured by gross receipts, income, profits, sales,
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use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) The Company, as of the Closing Date,
will have prepared and filed all required domestic and foreign returns,
estimates, information statements and reports (collectively, "RETURNS") relating
to any and all Taxes concerning or attributable to the Company or its operations
and such Returns are true and correct and have been completed in accordance with
applicable law.
(ii) The Company, as of the Closing Date:
(A) will have paid or accrued all Taxes it is required to pay or accrue and (B)
will have withheld with respect to its employees all Taxes required to be
withheld.
(iii) The Company has not been delinquent in
the payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) To the best of the Company's knowledge,
no audit or other examination of any Return of the Company is currently in
progress, nor has the Company been notified of any request for such an audit or
other examination.
(v) To the best of the Company's knowledge
the Company does not have any liabilities for unpaid Taxes which have not been
accrued or reserved against on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company does not have any knowledge
of any basis for the assertion of any such liability attributable to the
Company, or its assets or operations.
(vi) There are (and as of immediately
following the Closing Date will be) no Liens on the assets of the Company
relating to or attributable to Taxes.
(vii) The Company does not have any
knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Company.
2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no
agreement (non-compete or otherwise), commitment, judgment, injunction, order or
decree to which the Company is a party or otherwise binding upon the Company
which has or reasonably could be
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expected to have the effect of prohibiting or impairing any business practice
of the Company, any acquisition of property (tangible or intangible) by the
Company or the conduct of business by the Company. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.11 TITLE TO PROPERTIES; ABSENCE OF LIENS.
(a) The Company does not own real property, nor has
the Company ever owned any real property. Except as described in the notes to
the Company Financials, the Company does not lease any real property. The
description of the terms of any Company leases contained in the notes to the
Company Financials are complete and accurate in all material respects. All such
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company has good and valid title to, or, in
the case of leased properties and assets, valid leasehold interests in, all of
its tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
Company Financials and except for Liens for taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
2.12 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following
terms have the following definitions:
"INTELLECTUAL PROPERTY" means any or all of the following and
all rights in, arising out of, or associated therewith: (i) all United States,
Israeli, international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether or not patentable or
patented), invention disclosures, improvements, trade secrets, proprietary
information, know-how, technology, technical data and customer lists; (iii) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world; (iv) all industrial designs
and any registrations and applications therefor throughout the world; (v) all
trade names, logos, common law trademarks and service marks; (vi) all trademark
and service xxxx registrations and applications therefor and all goodwill
associated therewith throughout the world; (vii) all domain names, uniform
resource locators and other Internet or similar addresses or identifiers
("DOMAIN NAMES"); (viii) all databases and data
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collections and all rights therein throughout the world; and (ix) all computer
software including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is recorded;
(x) any similar, corresponding or equivalent rights to any of the foregoing and
(xi) all documentation related to any of the foregoing.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that (i) is owned by (ii) is exclusively licensed to or (iii) was
developed or created by the Company.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United
States, Israeli, international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks or service
marks, applications to register trademarks or service marks, intent-to-use
applications, or other registrations or applications related to trademarks or
service marks; (iii) registered copyrights and applications for copyright
registration; (iv) Domain Name registrations and other registrations,
subscriptions and memberships related to the Internet; and (v) any other Company
Intellectual Property that is subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any
domestic or foreign regulatory, standards, government or other public or private
legal authority.
(b) SCHEDULE 2.12(b) lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"COMPANY REGISTERED INTELLECTUAL PROPERTY") and lists (i) any proceedings or
actions before any domestic or foreign court, tribunal (including the United
States Patent and Trademark Office (the "PTO"), Internet registration authority
or equivalent authority anywhere in the world related to any of the Company
Registered Intellectual Property and (ii) the date on which such registrations
will expire or by which time the rights in the Intellectual Property related to
such registrations will have to be renewed or extended to prevent expiration,
lapse or other loss.
(c) Each item of Company Intellectual Property,
including all Company Registered Intellectual Property, is free and clear of any
Liens. To the best of Company's knowledge, the Company (i) is the exclusive
owner of, and has the right to use exclusively, all Trademarks and Domain Names,
used in connection with the operation or conduct of the business of the Company,
including the sale of any products or technology or the provision of any
services by the Company and (ii) owns exclusively, and has good title to, (x)
all copyrighted works that are Company products (including all copyrights
related to any World Wide Web other similar Internet sites operated by or on
behalf of the Company) or (y) other works of authorship that the Company
otherwise purports to own.
(d) To the extent that any Intellectual Property
(including any software, Internet sites or other products or materials of the
Company) has been developed or created by any person other than the Company for
which the Company has, directly or indirectly, paid, the Company has a written
agreement with such person with respect thereto
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and the Company thereby has obtained ownership of, and is the exclusive owner
of, all such Intellectual Property. To the extent that the Company has acquired
any Intellectual Property from a third party, to the maximum extent provided for
by, and in accordance with, applicable laws and regulations, the Company has
recorded each such assignment with the relevant authorities.
(e) The Company has not transferred ownership of or
granted any license of or right to use or authorized the retention of any rights
to use any Intellectual Property that is or was Company Intellectual Property,
to any other person.
(f) Other than "shrink-wrap" and similar widely
available commercial end-user licenses, the contracts, licenses and agreements
listed in SCHEDULE 2.12(f) include all contracts, licenses and agreements, to
which the Company is a party and which are reasonably necessary for the conduct
of the Company's business, with respect to any Intellectual Property of any
person other than the Company. No person other than the Company has ownership
rights to improvements made by the Company in Intellectual Property which has
been licensed to the Company.
(g) SCHEDULE 2.12(g) lists all contracts, licenses
and agreements between the Company and any other person wherein or whereby the
Company has agreed to, or assumed, any material obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
material obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property of any person other than the Company.
(h) To the best of the Company's knowledge, the
operation of the business of the Company as such business is currently conducted
or is reasonably contemplated to be conducted (including, without limitation,
products, technology or services currently under development and the design,
development, manufacture, use, import and sale of the products, technology and
services of the Company) does not, and the Company has not received notice that
the operation of the business of the Company as such is currently conducted
(including, without limitation, products, technology or services currently under
development and the design, development, manufacture, use, import and sale of
the products, technology and services of the Company), infringes or
misappropriates the Intellectual Property of any person, violate the rights of
any person or entity (including rights to privacy or publicity), constitute
unfair competition or trade practices under the laws of any jurisdiction, or
violate the laws or regulations of any jurisdiction. To the best of the
Company's knowledge, none of the advertising or other similar activities of the
Company violates any public or private codes or regulations governing such
activities.
(i) There are neither contracts, licenses nor
agreements between the Company on one hand and any other person on the other
with respect to Company Intellectual Property under which there is any dispute
known to the Company regarding the scope of such
12
agreement or performance under such agreement including with respect to any
payments to be made or received by the Company thereunder.
(j) To the Company's knowledge, no person is
infringing or misappropriating any Company Intellectual Property.
(k) The Company has taken reasonable steps in
accordance with normal industry practice to protect the Company's rights in
confidential information and trade secrets of the Company or provided by any
other person to the Company.
(l) No Company Intellectual Property or product,
technology or service of the Company is subject to any proceeding or outstanding
decree, order, judgment, agreement or stipulation that restricts in any manner
the use, transfer or licensing thereof by the Company or may affect the
validity, use or enforceability of such Company Intellectual Property.
(m) To the knowledge of the Company, no (i) product,
technology, service or publication of the Company, (ii) material published or
distributed by the Company or (iii) conduct or statement of the Company,
constitutes obscenity, defames any person, constitutes false advertising or
otherwise violates any law or regulation.
(n) The Company has not used or accessed (including
by hyperlinks or framing) the content or materials of any third party, including
a third party's Internet site, in manner that violates any laws or regulations
or misappropriates or infringes the Intellectual Property of such third party.
(o) The Company has taken reasonable steps to ensure
that its products (including existing products and technology and products and
technology currently under development) will accurately record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"YEAR 2000 COMPLIANT"). The Company has taken reasonable steps to ensure that
its products (i) will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000 and (ii) will be
interoperable with other products used and distributed by Jenkon that may
reasonably deliver records to the Company's products or receive records from the
Company's products, or interact with the Company's products, including but not
limited to back-up and archived data. All of the Company's internal computer and
technology products and systems are Year 2000 Compliant.
2.13 AGREEMENTS, CONTRACTS AND COMMITMENTS.
13
(a) Except as set forth on SCHEDULE 2.13(a) or as
specifically set forth in the Company Financials (including the notes thereto),
the Company does not have, is not a party to and is not bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that
contain any severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation,
pension, profit sharing or retirement plans, or any other employee benefit plans
or arrangements,
(iv) any employment or consulting agreement,
contract or commitment (excluding "at will" employee relationships) with an
employee or individual consultant or salesperson or any consulting or sales
agreement, contract or commitment under which any firm or other organization
provides services to the Company,
(v) any agreement or plan, including,
without limitation, any stock option plan, stock appreciation rights plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement,
(vi) any lease of personal property having a
value individually in excess of $25,000,
(vii) any agreement of indemnification or
guaranty,
(viii) any agreement, contract or commitment
containing any covenant limiting the freedom of the Company to engage in any
line of business or to compete with any person,
(ix) any agreement, contract or commitment
relating to capital expenditures and involving future payments in excess of
$25,000,
(x) any agreement, contract or commitment
relating to the disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of the Company's business,
(xi) any mortgages, indentures, loans or
credit agreements, security agreements or other agreements or instruments
relating to the borrowing of money or extension of credit, including guaranties,
14
(xii) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty
(30) days.
(b) The Company has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under,
any of the terms or conditions of any agreement, contract or commitment
required to be set forth on SCHEDULE 2.13(a) or SCHEDULE 2.12(b) (any such
agreement, contract or commitment, a "CONTRACT"). Each Contract is in full
force and effect and is not subject to any material default thereunder, of
which the Company has knowledge, by any party obligated to the Company pursuant
thereto. Following the Closing Date, the Company will be permitted to exercise
all of the Company's rights under the Contracts without the payment of any
additional amounts or consideration other than ongoing fees, royalties or
payments which the Company would otherwise be required to pay had the
transactions contemplated by this Agreement not occurred.
2.14 INTERESTED PARTY TRANSACTIONS. Except as specifically
disclosed in the notes to the Company Financials, no officer, director or
Stockholder of the Company (nor any ancestor, sibling, descendant or spouse of
any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an interest), has or has had, directly or
indirectly, (i) an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells,
or proposes to furnish or sell, (ii) an economic interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any Contract.
2.15 COMPLIANCE WITH LAWS. The Company has not received any notices
of violation with respect to any foreign or domestic statute, law or regulation
and, to the Company's knowledge, has complied in all material respects with
such statutes, laws and regulations.
2.16 LITIGATION. There is no action, suit or proceeding of any
nature pending, or to the Company's knowledge, threatened against the Company,
its properties or any of its officers or directors, in their respective
capacities as such. To the Company's knowledge, there is no investigation
pending or threatened against the Company, its properties or any of its
officers or directors by or before any Governmental Entity. No Governmental
Entity has at any time challenged or questioned the legal right of the Company
to manufacture, offer or sell any of its products in the present manner or
style thereof.
2.17 INSURANCE. The Company maintains valid and enforceable
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company, and
such insurance policies and fidelity bonds contain provisions which are
reasonable and customary in the Company's industry, and there is no claim by
the Company pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and
15
the Company is otherwise in material compliance with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.18 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.19 EMPLOYMENT MATTERS. The Company (i) to Company's knowledge, is
in compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each
case, with respect to its employees; (ii) has withheld all amounts required by
law or by agreement to be withheld from the wages, salaries and other payments
to employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent
with past practice). To the Company's knowledge, no employee of the Company (i)
is in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed
to be conducted by the Company or to the use of trade secrets or proprietary
information of others and (ii) has given notice to the Company, nor is the
Company otherwise aware, that any employee intends to terminate his or her
employment with the Company. No employee has any claim or right to any
ownership interest in or royalties from any Company Intellectual Property.
2.20 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. The Company
possesses all material consents, licenses, permits, grants or other
authorizations issued to the Company by a Governmental Entity (i) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (ii) which is required for the operation of its business or the
holding of any such interest therein (collectively, "COMPANY AUTHORIZATIONS"),
which Company Authorizations are in full force and effect and constitute all
Company Authorizations required to permit the Company to operate or conduct its
business or hold any interest in its properties or assets.
2.21 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company in this Agreement (as modified by the Company's
Disclosure Schedules), nor any statement made in any schedule or certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or
16
delivered to the Stockholders in connection with soliciting their consent to
this Agreement and the Stock Exchange, contains or will at the Closing Date
contain, any untrue statement of a material fact, or omits or will omit at the
Closing Date to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder, severally but not jointly, represents and warrants
to, and agrees with, Jenkon that:
3.1 TITLE TO THE SHARES. Each Stockholder is the owner of,
beneficially and of record, and has good and marketable title to the number of
Stockholder's Shares set forth after such Stockholder's name in EXHIBIT A; such
shares will be transferred and conveyed to Jenkon pursuant hereto, free and
clear of any and all covenants, conditions, restrictions, security agreements,
equities, voting trust arrangements, Liens, options and adverse claims or
rights whatsoever, and the Stockholder owns no other stock or other equity
interest, or right to any equity interest, in the Company.
3.2 AUTHORITY. Stockholder has the full right, power and authority
to enter into this Agreement to transfer the Stockholder's Shares to Jenkon
hereunder, and upon consummation of the exchange contemplated hereby, Jenkon
will acquire from the Stockholder good and marketable title to the
Stockholder's Shares, free and clear of any and all covenants, conditions,
restrictions, security agreements, equities, voting trust arrangements, Liens,
options and adverse claims or rights whatsoever. This Agreement constitutes a
valid and legally binding obligation of Stockholder, enforceable in accordance
with its terms.
3.3 NO LEGAL BAR. Stockholder is not a party to, subject to or
bound by any agreement or judgment, order, writ, prohibition, injunction or
decree of any court or other governmental body which would prevent, prohibit,
condition or limit the execution, delivery or consummation of this Agreement by
the Stockholder to Jenkon or the transfer of the Stockholder's Shares to be
conveyed by the Stockholder to Jenkon pursuant hereto.
3.4 BROKERS' FEES AND FINDERS' FEES. Stockholder has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
3.5 NO CLAIMS AGAINST THE COMPANY. Stockholder has no claims for
17
payment or reimbursement or any other claim against the Company other than those
claims specifically set forth in the Company Financials.
3.6 INVESTOR REPRESENTATIONS.
(a) Stockholder is acquiring the Jenkon Common Stock, Series
B Preferred and Series C Preferred (collectively, the "JENKON SECURITIES") for
Stockholder's own account as principal, not as a nominee or agent, for
investment purposes only, and not with a view to, or for, resale, distribution
thereof in whole or in part (except as such resale may be permitted under
applicable securities laws), and no other person has a direct or indirect
beneficial interest in such shares. Further, Stockholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant an interest in all or any portion of the Jenkon Securities to
any third person.
(b) Stockholder understands that the issuance of the Jenkon
Securities pursuant to this Agreement is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "SECURITIES
ACT") by virtue of Section 4(2) of the Securities Act and the provisions of
Regulation D promulgated thereunder ("REGULATION D"). In furtherance thereof,
Stockholder represents and warrants to and agrees with the Jenkon and its
affiliates as follows:
(i) Stockholder realizes that the basis for the
exemption may not be present if, notwithstanding such representations,
Stockholder has in mind merely acquiring the Jenkon Securities for a fixed or
determinable period in the future, or with a view towards sale of such shares
or a portion thereof;
(ii) Stockholder has the financial ability to bear the
economic risk of his investment, has adequate means for providing for his
current needs and personal contingencies and has no need for liquidity with
respect to Stockholder's investment in the Jenkon;
(iii) Stockholder has such knowledge and experience in
financial and business matters, including experience in, familiarity with, and
knowledge of (i) the software industry, (ii) the business and affairs of Jenkon
and its affiliates, and (iii) investment and other securities matters, as to be
capable of evaluating the merits and risks of the prospective investment; and
(iv) Stockholder represents that he is an "accredited
investor" as that term is defined in Rule 501(a) promulgated under Regulation D.
(c) Stockholder has been given the opportunity for a
reasonable time prior to the date hereof to ask questions of, and receive
answers from Jenkon concerning Jenkon and the Stockholder's investment in
Jenkon, and has been given the opportunity for a
18
reasonable time prior to the date hereof to obtain such additional information
necessary in order for him to evaluate the merits and risk of purchase of the
Jenkon Securities to be issued to such Stockholder hereunder. In this regard,
the Stockholder has been provided the opportunity to review a copy of that
certain Confidential Private Placement Memorandum of Jenkon, dated September 10,
1999, relating to the private placement described in Section 7.1 below (the
"PPM"), a copy of which has been provided to the Stockholders Agent. Stockholder
has reviewed the section of the PPM entitled "Risk Factors."
(d) Stockholder understands that investment in Jenkon is an
illiquid investment. In particular, Stockholder recognizes that he may not and
represents, warrants and agrees that he will not sell or otherwise transfer any
Jenkon Securities or shares of Jenkon Common Stock issuable upon conversion of
any shares of Series C Preferred or Series B Preferred without registration
under the Securities Act or an exemption therefrom and a favorable opinion of
counsel for Jenkon to that effect is obtained (if requested by Jenkon). The
Stockholder fully understands and agrees that he must bear the economic risk of
his purchase because, among other reasons, neither the Jenkon Securities nor
the shares of Jenkon Common Stock underlying such securities, have not been
registered under the Securities Act or under the securities laws of any state
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless such shares is subsequently registered under the Securities Act and
under the applicable securities laws of such states or an exemption from such
registration is available. Stockholder agrees that the certificates
representing the Jenkon Securities and any shares of Jenkon Common Stock
issuable upon conversion thereof shall bear such restrictive legend(s) as
Xxxxxx xxxxx necessary or desirable to reflect the restrictions on transfer
under applicable law or this Agreement.
3.7 LIMITATION ON STOCKHOLDER LIABILITY. Notwithstanding anything
to the contrary contained herein, each Stockholder shall be liable for a breach
of the representations, warranties and covenants of such Stockholder contained
in this Agreement only for an amount not exceeding the value of the Jenkon
Securities received by such Stockholder (valued at the fair market value of
such shares on the Closing Date which determination shall be made on an
as-converted basis based upon the last sale price of Jenkon Common Stock on The
Nasdaq Small Cap Market on the Closing Date).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF JENKON
Jenkon represents and warrants to and for the benefit of each of the
Stockholders as follows:
4.1 ORGANIZATION AND QUALIFICATION. Jenkon is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Jenkon has the corporate power to own, lease and operate its
properties and to carry on its business as now
19
being conducted. Jenkon is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on Jenkon as a whole.
4.2 AUTHORITY. Jenkon has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Jenkon. This Agreement has
been duly executed and delivered by Jenkon and constitutes the valid and
binding obligations of Jenkon, enforceable in accordance with its terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors'
rights generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. The
execution and delivery of this Agreement by Jenkon does not, and, as of the
Closing Date, the consummation of the transactions contemplated hereby will
not, constitute a Conflict with (i) any provision of the Certificate of
Incorporation or Bylaws of Jenkon, or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Jenkon or its properties or assets, except, with respect to the
preceding clause (ii), for any Conflict which could not reasonably be expected
to have a material adverse effect on the business, financial condition, results
of operations, assets (including intangible assets), liabilities or prospects
of Jenkon (hereinafter referred to as a "JENKON MATERIAL ADVERSE EFFECT"). No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or any third party (so as
not to trigger any Conflict) is required by or with respect to Jenkon in
connection with Jenkon's execution and delivery of this Agreement or its
consummation of the transactions contemplated hereby, except such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws,
and (iii) where the failure to obtain or make any such consent, waiver,
approval, order, authorization, registration, declaration or filing could not
reasonably be expected to have a Jenkon Material Adverse Effect.
4.3 CAPITALIZATION.
(a) As of the date of this Agreement, the authorized capital
stock of Jenkon consists of (i) 20,000,000 shares of Common Stock, par value
$.001 per share, of which 4,537,836 shares were issued and outstanding as of
December 13, 1999, (ii) 1,500,000 shares of Series A Preferred Stock, par value
$.001 per share, none of which are issued and outstanding. In addition (i)
150,000 shares of Jenkon Common Stock are subject to issuance upon the exercise
of warrants issued the underwriters of Jenkon's initial public offering in
1998, (ii) 117,321 shares of Jenkon Common Stock are subject to issuance upon
the exercise of warrants issued in connection with a 1998 private placement,
(iii) 161,760 shares of Jenkon Common Stock are subject to issuance upon the
exercise of warrants issued in connection with
20
a 1996 private placement, and (iv) 1,000,000 shares are reserved for issuance
upon the exercise of options granted under Jenkon's Stock Option Plan of which
options to purchase approximately 700,000 shares of Jenkon Common Stock are
currently outstanding. All of the outstanding shares of Jenkon Common Stock are
validly issued, fully paid, nonassessable and free of preemptive rights.
(b) The shares of Jenkon Common Stock, Series B Preferred
and Series C Preferred to be issued pursuant to the Stock Exchange, when
issued, will be duly authorized, validly issued, fully paid and non-assessable,
and free of preemptive rights.
4.4 SEC DOCUMENTS; JENKON FINANCIAL STATEMENTS. Jenkon has
furnished or made available to the Company true and complete copies of all
reports or registration statements filed by it with the United States
Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934 (the "EXCHANGE ACT") for all periods since the date of its initial
public offering, all in the form so filed (all of the foregoing being
collectively referred to as the "SEC DOCUMENTS"). As of their respective filing
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC. Jenkon has filed all SEC Documents required to
be filed under the Securities Act or Exchange Act, as the case may be. The
financial statements of Jenkon, including the notes thereto, included in the
SEC Documents (the "JENKON FINANCIAL STATEMENTS") comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with US GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC) and present fairly the consolidated
financial position of Jenkon at the dates thereof and the consolidated results
of its operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal audit adjustments). There has been no
change in Jenkon accounting policies except as described in the notes to the
Jenkon Financial Statements.
4.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in Jenkon's most recently filed report on Form 10-QSB or Form 10-KSB,
Jenkon has conducted its business in the ordinary course and there has not
occurred: (a) any amendment or change in the Certificate of Incorporation or
Bylaws of Jenkon (other than any amendment to the Certificate of Incorporation
necessary to give effect to the Certificates of Designation, Preferences and
Rights for the Series B Preferred and the Series C Preferred), or (b) any
damage to, destruction or loss of any assets of the Jenkon (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of Jenkon. Jenkon has incurred significant losses in
fiscal the fiscal year ended June 30, 1999 and the first quarter of fiscal 2000
and expects to report significant losses in at least the second and third
21
quarters of fiscal 2000. In addition, absent the proceeds of the private
placement contemplated by Section 7.1 of this Agreement, Jenkon lacks the
financial resources to continue its operations significantly beyond December 15,
1999. Accordingly, Jenkon makes no representation or warranty to the
Stockholders as to its current financial condition. The Stockholders acknowledge
and agree that, notwithstanding anything to the contrary contained in this
Agreement, any deterioration of Jenkon's financial condition or prospects, or
any claims resulting from such financial deterioration (including the initiation
of any delisting proceedings by the Nasdaq Stock Market), shall not be deemed a
breach of any representation and warranty under this Agreement.
4.6 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Jenkon has received any
notice of assertion against Jenkon, which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement.
4.7 DISCLOSURE. No statement by Jenkon contained in this Agreement
and the exhibits attached hereto and any written statement or certificate
furnished or to be furnished to the Company pursuant hereto or in connection
with the transactions contemplated hereby (when read together) contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made.
ARTICLE V.
CONDUCT PRIOR TO THE CLOSING DATE
5.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period, if any,
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement and the Closing Date, the Company agrees (except
to the extent that Jenkon shall otherwise consent in writing or to the extent
set forth in SCHEDULE 5.1) to carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, to
pay its debts and Taxes when due, to pay or perform other obligations when due,
and, to the extent consistent with such business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it, all with the goal of preserving unimpaired its goodwill and ongoing
businesses at the Closing Date. The Company shall promptly notify Jenkon of any
event or occurrence or emergency not in the ordinary course of its business,
and any material event involving or adversely affecting the Company or its
business. Except as expressly contemplated by this Agreement, the Company shall
not, without the prior written consent of Jenkon:
22
(a) Enter into any commitment, activity or
transaction not in the ordinary course of business.
(b) Transfer to any person or entity any rights to
any Company Intellectual Property other than in the ordinary course of
business;
(c) Amend or otherwise modify (or agree to do so),
except in the ordinary course of business, or violate the terms of, any
Contract;
(d) Commence or settle any litigation or any
dispute resolution process;
(e) Declare, set aside or pay any dividends on or
make any other distributions (whether in cash, stock or property) in respect
of any capital stock of the Company, or split, combine or reclassify any
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of capital stock of the Company (or options, warrants or other rights
exercisable therefor);
(f) Except for the issuance of shares of capital
stock upon exercise or conversion of presently outstanding options or
warrants, issue, grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, any shares of capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any character obligating it to issue
any such shares or other convertible securities;
(g) Cause or permit any amendments to its Articles
of Incorporation or Bylaws, or equivalent organizational documents;
(h) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of the Company;
(i) Sell, lease, license or otherwise dispose of
any of its properties or assets, except in the ordinary course of business
and consistent with past practice;
(j) Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or purchase or guarantee any debt securities of others or amend the
terms of any outstanding loan agreement;
(k) Grant any severance or termination pay to any
director, officer,
23
employee or consultant, except payments made pursuant to written agreements
outstanding on the date hereof (which such agreements are disclosed on
SCHEDULE 5.1(k)) or otherwise hire employees other than hirings in the
ordinary course of business;
(l) Adopt or amend any employee benefit plan,
program, policy or arrangement (including without limitation any amendment
which accelerates vesting under any such employee benefit plan, program,
policy or arrangement), or enter into any employment contract, extend any
employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the
salaries or wage rates of its employees;
(m) Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business and
consistent with past practice;
(n) Pay, discharge or satisfy, in an amount in
excess of $25,000, in any one case, or $50,000, in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business of liabilities reflected or reserved
against in the Company Financials;
(o) Fail to pay or otherwise satisfy its monetary
obligations as they become due, except such as are being contested in good
faith;
(p) Cancel, materially amend or renew any
insurance policy other than in the ordinary course of business; or
(q) Take, or agree in writing or otherwise to
take, any of the actions described in Sections 5.1(a) through (p) above, or
any other action that would prevent the Company from performing or cause the
Company not to perform its covenants hereunder.
5.2 NO SOLICITATION.
(a) Until the earlier of the Closing Date and the
date of termination of this Agreement pursuant to the provisions of Section
10.1 hereof, the Company will not (nor will the Company permit any of the
Company's officers, directors, shareholders, agents, representatives or
affiliates to) directly or indirectly, take any of the following actions with
any party other than Jenkon and its designees: (i) solicit, initiate,
entertain, or encourage any proposals or offers from, or conduct discussions
with or engage in negotiations with, any person relating to any possible
acquisition of the Company (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its capital
stock or assets or any equity interest in the Company, (ii) provide
information with respect to it to any person, other than Jenkon and its
affiliates, relating to, or otherwise cooperate with,
24
facilitate or encourage any effort or attempt by any such person with regard
to, any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any material
portion of its capital stock or assets or any equity interest in the Company,
(iii) enter into an agreement with any person, other than Jenkon and its
affiliates, providing for the acquisition of the Company (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its capital stock or assets or any equity interest in the
Company, or (iv) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company (whether
by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company by any person, other than by Jenkon and its
affiliates. The Company shall immediately cease and cause to be terminated
any such contacts or negotiations with third parties relating to any such
transaction or proposed transaction.
(b) In addition to the foregoing, if the Company
receives prior to the Closing Date or the termination of this Agreement any
offer or proposal or request, directly or indirectly, relating to any of the
above, the Company shall immediately notify Jenkon thereof, including
information as to the identity of the offeror or the party making any such
offer or proposal and the specific terms of such offer or proposal, as the
case may be, and such other information related thereto as Jenkon may
reasonably request. Except as contemplated by this Agreement, disclosure by
the Company of the terms of this Agreement (other than the prohibition of
this section) shall be deemed to be a violation of this Section 5.2.
(c) Until the earlier of the Closing Date and the
date of termination of this Agreement pursuant to the provisions of Section
10.1 hereof, Jenkon will not (nor will Jenkon permit any of its officers,
directors, shareholders, agents, representatives or affiliates to) directly
or indirectly, take any of the following actions with any party other than
the Company: (i) solicit, initiate, entertain, or encourage any proposals or
offers from, or conduct discussions with or engage in negotiations with, any
person relating to any possible acquisition of Jenkon (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its capital stock or assets or any equity interest in the
Jenkon, (ii) provide information with respect to it to any person, other than
the Company, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any
possible acquisition of Jenkon (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its capital
stock or assets or any equity interest in Jenkon, (iii) enter into an
agreement with any person, other than the Company, providing for the
acquisition of the Jenkon (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its capital
stock or assets or any equity interest in Jenkon, or (iv) make or authorize
any statement, recommendation or solicitation in support of any possible
acquisition of Jenkon (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its capital stock
or assets or any equity interest in Jenkon by any person, other than by the
Company. Notwithstanding the foregoing, the provisions of this Section 5.2
25
shall not prohibit or restrict any shareholder of Jenkon from voting such
shareholder's shares in favor of a business combination of Jenkon with any
party.
5.3 CONDUCT OF BUSINESS OF JENKON. During the period, if
any, from the date of this Agreement and continuing until the earlier of the
termination of this Agreement and the Closing Date, Jenkon agrees (except to
the extent that the Company shall otherwise consent in writing) to carry on
its business in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted, to pay its debts and Taxes when due, to
pay or perform other obligations when due, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired its goodwill and ongoing businesses at the Closing
Date. Jenkon shall promptly notify the Company of any event or occurrence or
emergency not in the ordinary course of its business, and any material event
involving or adversely affecting Jenkon or its business. Except as expressly
contemplated by this Agreement, Jenkon shall not, without the prior written
consent of the Company:
(a) Enter into any commitment, activity or
transaction not in the ordinary course of business.
(b) Transfer to any person or entity any rights to
any Intellectual Property of Jenkon other than in the ordinary course of
business;
(c) Amend or otherwise modify (or agree to do so),
except in the ordinary course of business, or violate the terms of, any
Contract of Jenkon;
(d) Commence or settle any litigation or any
dispute resolution process;
(e) Declare, set aside or pay any dividends on or
make any other distributions (whether in cash, stock or property) in respect
of any capital stock of Jenkon, or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of capital stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of capital
stock of Jenkon or options, warrants or other rights exercisable therefor);
(f) Except for the issuance of shares of capital
stock upon exercise or conversion of presently outstanding options or
warrants (other than issuance of options under Jenkon's existing stock option
plan, securities issued in connection with the private placement described in
Section 7.1 hereof, and the issuance of 50,000 shares to Xxxxx Xxxxxxx in
connection with a separation agreement to be executed at or after the
Closing),
26
issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, any shares of capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
(g) Cause or permit any amendments to its Articles
of Incorporation or Bylaws, or equivalent organizational documents except as
contemplated by this Agreement;
(h) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of Jenkon;
(i) Sell, lease, license or otherwise dispose of
any of its properties or assets, except in the ordinary course of business
and consistent with past practice;
(j) Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of
Jenkon or purchase or guarantee any debt securities of others or amend the
terms of any outstanding loan agreement other than debt incurred in
connection with the private placement described in Section 7.1;
(k) Grant any severance or termination pay to any
director, officer, employee or consultant, except payments made pursuant to
written agreements outstanding on the date hereof or pursuant to a separation
agreement with Xxxxx Xxxxxxx the terms of which have been previously reviewed
by the Company (and which may be documented following the Closing) and
includes the issuance of 50,000 shares of Common Stock of Jenkon, the payment
of $50,000 (such $50,000 to be paid only fro the proceeds of the Financing
(as defined below) allocated to Xxxxxx Xxxxxxxxxx pursuant to Section 7.1
below) as well as the forgiveness of certain indebtedness of Xxxxx Xxxxxxx to
the Company incurred in the first quarter of fiscal 1999, or otherwise hire
employees other than hirings in the ordinary course of business;
(l) Adopt or amend any employee benefit plan,
program, policy or arrangement (including without limitation any amendment
which accelerates vesting under any such employee benefit plan, program,
policy or arrangement), or enter into any employment contract, extend any
employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the
salaries or wage rates of its employees;
(m) Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business and
consistent with past practice;
27
(n) Pay, discharge or satisfy, in an amount in
excess of $25,000, in any one case, or $50,000, in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business of liabilities reflected or reserved
against in Jenkon's financial statements or incurred in the ordinary course;
(o) Fail to pay or otherwise satisfy its monetary
obligations as they become due, except such as are being contested in good
faith;
(p) Cancel, materially amend or renew any
insurance policy other than in the ordinary course of business; or
(q) Take, or agree in writing or otherwise to
take, any of the actions described in Sections 5.1(a) through (p) above, or
any other action that would prevent the Company from performing or cause
Jenkon not to perform its covenants hereunder.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1 ADDITIONAL ASSURANCES. At the request of Jenkon, the
Company and the Stockholders shall execute and deliver to Jenkon such
instruments and do and perform such acts and things as Jenkon may deem
reasonably necessary or desirable for complying with all applicable
securities laws and state corporate law in connection with the Exchange
Transaction or any registrations contemplated by Section 6.2 to this
Agreement.
6.2 REGISTRATION RIGHTS.
(a) REGISTRATION STATEMENT ON FORM SB-2/S-3.
Jenkon shall use its commercially reasonable efforts to file, at least
fifteen (15) days prior to the date of the meeting of Jenkon stockholders at
which Stockholder Approval is proposed to be obtained, a Registration
Statement on Form SB-2 or S-3 with the SEC covering the resale of not less
than 6,750,000 shares of Jenkon Common Stock issued to the Stockholders at
the Closing or issuable upon conversion of Preferred Stock. Such registration
may also include shares of Jenkon Common Stock issuable upon conversion of
debt issued in private placement described in Section 7.1 of this Agreement.
The allocation of such registration rights among the Stockholders shall be as
set forth in SCHEDULE 6.2(a) to this Agreement. As a condition to
registration of any Jenkon Common Stock on behalf of a Stockholder, the
Stockholder shall provide such information and complete such questionnaires
as the Jenkon may reasonably require in order to comply with applicable state
and federal securities laws. In addition, each Stockholder shall agree to
customary indemnification of Jenkon and its officers, directors, agents and
affiliates with respect to any information provided by such Stockholder.
28
(b) DEMAND REGISTRATION RIGHTS. At any time
commencing one hundred eighty (180) days following the Closing Date and
ending two years following the Closing Date, upon the written request of
holders ("HOLDERS") of more than 50% of the "Registerable Securities" (as
defined below) (the "INITIATING HOLDERS") that Jenkon file a registration
statement or similar document under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), then Jenkon shall promptly notify all other Holders
of such request and shall use its best efforts to cause all Registerable
Securities that such Holders have requested to be included in such
registration statement within 15 days after receipt of such written notice,
to be registered under the Securities Act. Jenkon shall be obligated to
effect not more than one registration pursuant to these demand registration
rights. "REGISTERABLE SECURITIES" as used herein means (i) shares of Jenkon
Common Stock issued pursuant to this Agreement, (ii) shares of Jenkon Common
Stock issued or issuable upon conversion of shares of Series B Preferred or
Series C Preferred, which constitute "restricted securities" as defined in
Regulation D of the Securities Act and which have not already been registered
pursuant to Section 6.2(a) above or otherwise registered and sold to the
public.
(c) PIGGY-BACK REGISTRATION RIGHTS. If, at any
time or from time to time, Jenkon shall determine to register any of its
securities, either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration (i) relating solely to employee benefit plans on Form S-8 or
similar forms which may be promulgated in the future, (ii) a registration
pursuant to Section 6.2(a) above, (iii) registration of no more than 125,000
shares of Jenkon Common Stock issuable upon exercise of warrants issued in
connection with a private placement of notes and warrants by Jenkon in June
1998, or (iv) a registration on Form S-4 or similar forms which may be
promulgated in the future relating solely to a Securities and Exchange
Commission Rule 145 or similar transaction, Jenkon will (1) promptly give to
each Holder written notice thereof and (2) include in such registration (and
any related qualification under Blue-Sky laws or other compliance), and in
any underwriting involved therein, all Registerable Securities of such
Holders as specified in a written request or requests made within 15 days
after receipt of such written notice from Jenkon.
(d) CUT-BACKS. Notwithstanding anything to the
contrary contained in this Section 6.2, in the event of an underwritten
offering of securities by Jenkon, if the underwriter shall advise Jenkon in
writing that marketing factors (including, without limitation, an adverse
effect on the per share offering price) require a limitation of the number of
shares to be underwritten, then Jenkon shall so advise all Holders of
Registerable Securities that have requested and are entitled to registration
in accordance with the provisions of Section 6.2(c). In such event, the
number of shares of Registerable Securities that may be included in the
registration and underwriting shall be allocated pro rata among the Holders
of Registerable Securities whose shares would have been registered in
proportion, as nearly as practicable, to the respective amounts of
Registerable Securities held by such Holders at the time of filing of the
registration statement. No Registerable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.
29
(e) EXPENSES OF REGISTRATION. All registration
expenses incurred in connection with any registration, qualification or
compliance pursuant to Paragraphs 6.2 (a), (b) and (c), exclusive of the fees
and expenses of any special counsel to the selling Holders as well as any
underwriter discounts or non-accountable expense allowances payable with respect
to any Registerable Securities sold, shall be borne by Jenkon.
(f) REGISTRATION PROCEDURES. In the case of each
registration, qualification or compliance effected by Jenkon pursuant to this
Section 6.2, Jenkon will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense Jenkon will, among other things, (i) keep
such registration, qualification or compliance effective for a period of
three years with respect to or until the Holder or Holders have completed the
distribution described in the registration relating thereto, whichever first
occurs, and (ii) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(g) TERMINATION OF REGISTRATION RIGHTS. The
registration rights granted pursuant to this Section 6.2 shall be
non-transferrable and shall automatically terminate with respect to any
Registerable Securities upon the sale, transfer or assignment of such
Registerable Securities other than sales, transfers or assignments made by
the Holder (i) to wholly-owned affiliates of the Holder or shareholders,
partners or other equity owners of such Holder, (ii) to members of the
Holder's immediate family, (iii) to trusts created for estate planning
purposes for which the beneficiaries are the Holder and/or members of the
Holder's immediate family, or (iv) in accordance with applicable state and
federal securities laws as evidenced by an opinion of counsel to such effect
in a form and from counsel reasonably acceptable to Jenkon. In addition,
notwithstanding anything to the contrary set forth in this Section 6.2, the
registration rights granted in this Section 6.2 shall terminate with respect
to any Registerable Securities at such time as such Registerable Securities
(which may be less than all Registerable Securities then outstanding) may be
legally sold by the Holder in the public market without Rule 144 volume
limitations.
(h) INDEMNIFICATION. Jenkon shall indemnify and
hold harmless each Holder of Registerable Securities from and against any and
all losses, claims, damages and liabilities caused by any untrue statement of
a material fact contained in any registration statement filed by Jenkon under
the Securities Act by reason of this Section 6.2, any post-effective
amendment to such registration statement, or any prospectus included therein,
or caused by any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by
any such untrue statement or omission based upon information furnished or
required to be furnished in writing to Jenkon by a Holder (or the authorized
representatives or agents of the Holder) expressly for use therein, which
indemnification shall include each person, if any, who controls the Holder
within the meaning
30
of the Securities Act and each officer, director, employee and agent of the
Holder; provided, however, that Jenkon shall not be obligated to so indemnify
the Holder or any other person referred to above unless the Holder or other
person, as the case may be, shall at the same time indemnify Jenkon, its
directors, each officer signing the registration statement and each person,
if any, who controls Jenkon within the meaning of the Securities Act, from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement of a material fact contained in any registration statement
or any prospectus required to be filed or furnished in connection with such
public offering or caused any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, insofar as such losses, claims, damages or liabilities are caused
by any untrue statement or omission based upon information furnished in
writing to Jenkon by the Holder expressly for use therein.
If for any reason the indemnification provided for
in the preceding paragraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and
the indemnifying party, as well as any other relevant equitable
considerations.
6.3 LOCK-UP. Notwithstanding anything to the contrary
herein, the Stockholders agree to a lock-up of their Jenkon Common Stock
(including Common Stock into which Series B Preferred and Series C Preferred
is convertible), but not including the 6,750,000 shares referred to in
Section 6.2(a), for 12 months except (i) for sales permitted by a majority of
the disinterested members of Board of Directors of Jenkon, (ii) at any time
after the closing sales price of the common stock of Jenkon has been at least
$6 for 20 consecutive trading days, or (iii) at any time after Jenkon has
completed any public offering of its Common Stock for cash other than upon
the exercise of presently existing option or warrants or the financing
transaction contemplated by Section 7.1 of this Agreement. Any release from
the lock-up provisions described in this Agreement must be made pro rata
among all locked-up Stockholders.
6.4 CHAIRMAN OF THE BOARD. After Stockholder Approval has
been obtained or such earlier date as Xxxxx Xxxxxx indicates a willingness in
writing to accept appointment, it is contemplated that Xxxxx Xxxxxx shall be
appointed as the Chairman of the Board of Directors of Jenkon; provided that
Xx. Xxxxxx will not be obligated to accept appointment as Chairman at any
time than Jenkon's Common Stock is not listed on the Nasdaq Stock Market or
are subject to any notification or proceeding relating to such delisting.
6.5 CANCELLATION OF INDEBTEDNESS. After the Closing Date,
Jenkon agrees to
31
use its best reasonable efforts to cause the cancellation of the personal
guaranties of officers, directors or Stockholders of the Company which have
been issued to bank lenders with respect to indebtedness of the Company.
6.6 ACCESS TO INFORMATION. Each party shall afford the
other and their accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Closing
Date to (a) all of its properties, books, contracts, commitments and records,
and (b) all other information concerning its business, properties and
personnel (subject to restrictions imposed by applicable law) as the others
may reasonably request, subject, in the case of Jenkon, to reasonable limits
on access to its technical and other nonpublic information. No information or
knowledge obtained in any investigation pursuant to this Section 6.6 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions of the parties to consummate the Stock Exchange. The
parties will enter into a confidentiality agreement for the confidential
treatment of the information exchanged during the due diligence process.
6.7 CONFIDENTIALITY. Each of the parties hereto hereby
agrees to keep such information or knowledge obtained in any investigation
pursuant to Section 6.6, or pursuant to the negotiation and execution of this
Agreement or the effectuation of the transactions contemplated hereby,
confidential, and also agrees not to use such knowledge or information;
provided, however, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession on a non-confidential basis prior to the disclosure thereof by the
other party, (b) is generally known to the public and did not become so known
through any violation of law, (c) became known to the public through no fault
of such party, (d) is later lawfully acquired by such party from other
sources, (e) is required to be disclosed by order of court or government
agency with subpoena powers or (f) which is disclosed in the course of any
litigation between any of the parties hereto.
6.8 FAIRNESS OPINION. At its option, the Company shall, at
its expense, obtain a fairness opinion relating to the Stock Exchange.
6.9 EXPENSES. If the Stock Exchange is not consummated, all
fees and expenses incurred in connection with the Stock Exchange including,
without limitation, all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties ("THIRD PARTY EXPENSES")
incurred by a party in connection with the negotiation and effectuation of
the terms and conditions of this Agreement and the transactions contemplated
hereby shall be the obligation of the respective party incurring such fees
and expenses.
6.10 PUBLIC DISCLOSURE. Unless otherwise required by law
(including, without limitation, federal and state securities laws) or, as to
Jenkon, by the rules and regulations of The Nasdaq Stock Market Inc. prior to
the Closing Date, no disclosure (whether or not in response to an inquiry) of
the subject matter of this Agreement shall be made by any party hereto unless
approved by Jenkon and the Company prior to release, provided that such
32
approval shall not be unreasonably withheld or delayed.
6.11 CONSENTS. The Company shall use its commercially
reasonable efforts to obtain the consents, waivers and approvals of parties
to any Contract as may be required in connection with the Stock Exchange, or
for any such Contract to remain in full force and effect without limitation,
modification or alteration after the Closing Date so as to preserve all
rights of and benefits to the Company and Jenkon thereunder.
6.12 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms
and conditions provided in this Agreement, each of the parties hereto shall
use its commercially reasonable efforts to ensure that its representations
and warranties remain true and correct in all material respects, and to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals, to effect
all necessary registrations and filings, and to remove any injunctions or
other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the
purpose of securing to the parties hereto the benefits contemplated by this
Agreement; provided that Jenkon shall not be required to agree to any
divestiture by Jenkon or the Company or any of Jenkon's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property
of Jenkon or its subsidiaries or affiliates or the Company or its affiliates,
or the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
6.13 NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Jenkon, and Jenkon shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event, the occurrence
or non-occurrence of which is likely to cause any representation or warranty
of the Company and Jenkon, respectively, contained in this Agreement to be
untrue or inaccurate at or prior to the Closing Date and (ii) any failure of
the Company or Jenkon, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.13 shall not limit or otherwise affect any remedies available
to the party receiving such notice.
6.14 NASDAQ SMALL CAP LISTING. Jenkon shall authorize for
listing on The Nasdaq Small Cap Market the shares of Jenkon Common Stock
issuable, and those required to be reserved for issuance, in connection with
the Stock Exchange, promptly following the Closing and in accordance with the
rules of The Nasdaq Small Cap Market.
6.15 COMPANY'S AUDITORS. The Company will use its
commercially reasonable efforts to cause its management and its independent
auditors to facilitate on a timely basis (i) the preparation of financial
statements (including pro forma financial statements if
33
required) as required by Jenkon to comply with applicable SEC regulations,
(ii) the review ofthe Company's audit work papers for up to the past three
years, including interim periods and access for review or examination of
selected interim financial statements and data, and (iii) the delivery of
such representations from the Company's independent accountants as may be
reasonably requested by Jenkon or its accountants.
6.16 NO ADVICE AS TO TAX EFFECTS ON STOCKHOLDERS.
Notwithstanding anything to the contrary contained in this Agreement or any
document, certificate, transaction or correspondance contemplated hereby,
neither Jenkon, its officer, directors, stockholders, attorneys or accounts
has advised the Company or any Stockholder or has made any representations or
warranties to the Company or the Stockholders with respect to the tax effects
of the Stock Exchange on the Stockholders. The Company and the Stockholders
have been advised by Jenkon and its counsel as to the possibility that the
Stock Exchange would a taxable transaction which could result in significant
tax liabilities to the Stockholders. The Company and the Stockholders
acknowledge that they have had the opportunity to consult with their own tax
counsel with respect to the tax effects of the transaction under applicable
United States and Israel tax laws.
6.17 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each
party hereto, at the request of the other party hereto, shall execute and
deliver such other instruments and do and perform such other acts and things
as may be reasonably necessary or desirable for effecting completely the
consummation of this Agreement and the transactions contemplated hereby.
6.18 MEETING OF JENKON STOCKHOLDERS. Promptly following the
Closing Date, Jenkon agrees to prepare and file with the SEC all requisite
proxy materials and hold a special or annual meeting of stockholders to
consider (i) conversion of the Series B and Series C Preferred Stock into
Common Stock, (ii) conversion of any convertible securities issued in
connection with the private placement described in Section 7.1 into Common
Stock, (iii) an amendment of Jenkon's Certificate of Incorporation to
increase the number of authorized shares of Common Stock, and (iv) such other
matters as the Board of Directors of Jenkon shall determine in its sole
discretion. The Board of Directors of Jenkon shall recommend approval of all
such shareholder action items.
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF EACH PARTY
The respective obligations of each party to this Agreement
to effect the transactions contemplated herein shall be subject to the
fulfillment, at or prior to the Closing Date, of all the conditions set forth
in this Article VII.
7.1 FINANCING.
34
(a) Jenkon shall have raised gross proceeds (after
deduction of commissions and non-accountable expense allowances payable) of at
least $4,500,000 through the offering of unsecured convertible debt described in
the PPM (the "FINANCING").
(b) The parties hereto agree that the first
$500,000 of net proceeds of the Financing have been released from escrow
prior to the Closing Date and were allocated to the current business
operations of Jenkon. The first $500,000 of additional net proceeds from the
Financing will be allocated to the Company (as a separate operating division
of Jenkon). Thereafter, any additional proceeds of the Financing will be
divided equally between Jenkon International, Inc., a Washington corporation
(as a separate operating division of Jenkon) ("XXXXXX XXXXXXXXXX") and the
Company (as a separate operating division of Jenkon). The parties agree that
(i) funds allocated to Xxxxxx Xxxxxxxxxx will not be utilized for the
repayment of indebtedness or other obligations of the Company or for any
purposes other than the operation of Xxxxxx Xxxxxxxxxx'x business, and (ii)
funds allocated to the Company's operations will not be utilized for the
repayment of indebtedness or other obligations of Jenkon and that such
proceeds will be applied substantially as described in SCHEDULE 7.1 attached
hereto. All legal fees of Jenkon's counsel relating to this Agreement and the
transactions and registrations contemplated thereby shall be paid out of the
funds designated for Xxxxxx Xxxxxxxxxx. The parties hereto agree that the
proceeds of the Financing allocable to the Company shall be sent by wire
transfer to a trust account of the Stockholder Agent, as representative of
the Company.
7.2 GOVERNMENTAL APPROVALS. All approvals of governments
and governmental agencies necessary to consummate the transactions hereunder
shall have been received.
7.3 CONSENTS. All consents, waivers and approvals of
parties to any Contract as may be required in connection with the Stock
Exchange, or for any such Contract to remain in full force and effect without
limitation, modification or alteration after the Closing Date so as to
preserve all rights of and benefits to the Company and Jenkon thereunder
shall have been received.
7.4 NO LITIGATION. Neither the Company nor Jenkon shall be
a party to any litigation that would reasonably be expected to have a
Material Adverse Effect on either the Company or Jenkon, other than pending
or threatened litigation currently disclosed in Jenkon's filings with the SEC.
7.5 NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal or regulatory restraint
or prohibition preventing the consummation of the Stock Exchange shall be in
effect.
7.6 XXXXXX XXXXXXXXXX. Xxxxxx Xxxxxxxxxx shall have entered
into an
35
employment agreement with Jenkon on terms acceptable to both Xx. Xxxxxxxxxx
and Jenkon.
ARTICLE VIII.
CONDITIONS TO OBLIGATIONS OF THE STOCKHOLDERS
The obligation of each Stockholder to exchange the
Stockholder's Shares for Jenkon Common Stock under this Agreement and to
otherwise effect the transactions contemplated herein are, at the option of
each Stockholder, subject to the satisfaction, at or prior to the Closing
Date, of all the conditions set forth in this Article VIII. Any Stockholder
may, as to such Stockholder, waive any or all of these conditions as a whole
or in part without prior notice, provided, however, that such a waiver of any
condition shall not constitute a waiver by such Stockholder of any of its
other rights or remedies, at law or in equity, if Jenkon should be in default
of any of its representations, warranties or covenants under this Agreement.
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Jenkon contained in this Agreement shall be true and correct in
all material respects (except for those representations and warranties which
are by their terms qualified by a statement of materiality, which
representations and warranties shall be true and correct in all respects) on
and as of the Closing Date, except for changes contemplated by this Agreement
and except for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date), with the same force and effect as if made on and as of the Closing
Date, except, in all such cases, for such breaches, inaccuracies or omissions
of such representations and warranties which have neither had nor reasonably
would be expected to have a material adverse effect on Jenkon; and the
Company shall have received a certificate to such effect signed on behalf of
Jenkon by a duly authorized officer of Jenkon.
8.2 AGREEMENTS AND COVENANTS. Jenkon shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Closing Date, and the Company shall have received a certificate
to such effect signed by a duly authorized officer of Jenkon.
8.3 EMPLOYMENT AGREEMENTS. Xxxxxx Xxxxxxxxxx or any
operating subsidiary thereof shall have assumed the obligations of Jenkon
under the existing employment agreements between each of Xxxxx Xxxxxxx and
Xxxxxx Xxxxxx, on the one hand, and Jenkon on the other hand.
8.4 NASDAQ LISTING. The Common Stock of Jenkon shall, at
the Closing, continue to be listed on the Nasdaq Small Cap Market and no
inquiry or proceeding by The Nasdaq Stock Market, Inc. shall then be in
progress for the possible delisting of such shares; provided, however, that
absent a final and unappealable delisting decision, notice from The
36
Nasdaq Stock Market, Inc. regarding Jenkon's possible delisting due to (i)
failure to have two independent directors, (ii) failure to maintain
sufficient net tangible assets, or (iii) the going concern qualification
contained in any financial statements of Jenkon shall not, in itself, be
deemed to be a violation of this condition of Closing. Jenkon has provided
the Stockholders Agent with a complete copy of all written correspondence
received from the Nasdaq Stock Market, Inc. regarding any possible delisting.
8.5 BOARD AUTHORIZATION. Jenkon shall have delivered to the
Company, reasonable evidence of approval by Jenkon's Board of Directors of
this Agreement and the transactions contemplated hereby.
ARTICLE IX.
CONDITIONS TO OBLIGATIONS OF JENKON
The obligation of Jenkon to exchange Jenkon Common Stock
for each Stockholder's Shares under this Agreement and to otherwise effect
the transactions contemplated herein are subject to the satisfaction, at or
prior to the Closing Date, of all the conditions set forth below in this
Article IX. Jenkon may waive any or all of these conditions as a whole or in
part without prior notice, provided, however, that such waiver of any
condition shall not constitute a waiver by Jenkon of any of its other rights
or remedies, at law or in equity, if any of the Stockholders should be in
default of any of its representations, warranties or covenants under this
Agreement.
9.1 REPRESENTATIONS AND WARRANTIES AT SIGNING. The
representations and warranties of (i) the Company contained in this
Agreement, and (ii) by the Stockholders only as set forth in Article 3 or
EXHIBIT A hereto, shall have been true and correct in all material respects
(except for those representations and warranties which are by their terms
qualified by a standard of materiality, which representations and warranties
shall have been true and correct in all respects) as of the date of this
Agreement.
9.2 REPRESENTATIONS AND WARRANTIES AT CLOSING. The
representations and warranties of (i) the Company contained in this
Agreement, and (ii) the Stockholders only as set forth in Article 3 or
EXHIBIT A hereto, shall be true and correct in all material respects (except
for those representations and warranties which are by their terms qualified
by a standard of materiality, which representations and warranties shall be
true and correct in all respects) on and as of the Closing Date (without
regard to any updates to the Company's Disclosure Schedules, unless otherwise
agreed by Jenkon), except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as
of a particular date (which shall remain true and correct as of such date),
with the same force and effect as if made on and as of the Closing Date,
except, in all such cases, for such breaches, inaccuracies or omissions of
such representations and warranties which have neither had nor reasonably
would be expected to have a materal adverse effect on the business,
37
financial condition, results of operations, assets (including intangible
assets), liabilities or prospects of the Company or Jenkon (hereinafter
referred to as a "MATERIAL ADVERSE EFFECT"); and Jenkon shall have received a
certificate to such effect signed on behalf of the Company by the chief
executive officer and chief financial officer of the Company.
9.3 AGREEMENTS AND COVENANTS. The Company and Stockholders
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
it or them on or prior to the Closing Date, except for non-performance of
such agreements and covenants which neither has, nor reasonably could be
expected to have, a Substantial Adverse Effect, and Jenkon shall have
received a certificate to such effect signed by a duly authorized officer of
the Company.
9.4 LEGAL OPINION. Jenkon shall each have received
customary written opinions from Israeli counsel to the Company, in a form and
substance reasonably satisfactory to Jenkon, as to, among other things, the
due authorization, execution and delivery of the Agreement by the
Stockholders and the Company and the enforceability of such Agreement and the
Stock Exchange.
9.5 REVIEW OF FINANCIAL STATEMENTS. Jenkon and its
accountants shall have completed their review of the Company Financials. The
historical audited financial statements must, in the opinion of the
accountants for Jenkon, be suitable or readily adaptable for incorporation in
the registration statements, prospectuses and annual reports to be filed by
Jenkon with the SEC under the Securities Act and the Exchange Act.
9.6 MATERIAL ADVERSE CHANGE. There shall not have occurred
any adverse change in the business, assets (including intangible assets),
liabilities, financial condition, results of operations or prospects of the
Company since the date of this Agreement having a Material Adverse Effect.
9.7 RESIGNATION OF DIRECTORS. The directors of the Company
in office immediately prior to the Closing Date other than Xxxxxx Xxxxxxxxxx
shall have resigned as directors of the Company effective immediately
following the Closing Date. Xxxxxx Xxxxxxxxxx shall continue as a director
and chief executive officer of the Company. To the extent permitted by
applicable law, promptly following the Closing, Xxxxxx Xxxxxxxxxx, the
Company and Jenkon shall cause a majority of the Board of Directors (or
equivalent governing body) of the Company to be current members of the Board
of Directors of Jenkon.
ARTICLE X.
INDEMNIFICATION
10.1 INDEMNIFICATION BY JENKON. Jenkon shall indemnify,
save and hold harmless each of the Company Parties and their respective
officers, directors, employees,
38
affiliates, accountants and attorneys, from and against any and all costs,
losses, liabilities, damages, lawsuits, deficiencies, claims and expenses
(whether or not arising out of third-party claims), including, without
limitation, interest, penalties, reasonable attorneys' fees and all amounts
paid in investigation, defense or settlement of any of the foregoing (herein,
"DAMAGES"), incurred in connection with or arising out of or resulting from
(i) any breach of any covenant of Jenkon pursuant to this Agreement; or (ii)
the inaccuracy of any representation, made by Jenkon in or pursuant to this
Agreement or any instrument delivered by Jenkon at the Closing.
10.2 INDEMNIFICATION BY COMPANY PARTIES.
(a) The Company shall indemnify and save and hold
harmless Jenkon and its employees, directors, officers, affiliates, agents,
accountants, and attorneys from and against any and all Damages incurred in
connection with or arising out of or resulting from any breach of any
covenant or warranty, or the inaccuracy of any representation, made by any
Company Party in or pursuant to this Agreement or any instrument delivered by
such Company Party at the Closing.
(b) The Stockholders shall, severally but not
jointly, indemnify and save and hold harmless Jenkon and its employees,
directors, officers, affiliates, agents, accountants, and attorneys from and
against any and all Damages incurred in connection with or arising out of or
resulting from any breach of any covenant or warranty, or the inaccuracy of
any representation, made by such Stockholder in Article 3 or EXHIBIT A of
this Agreement.
10.3 DEFENSE OF CLAIMS. If a claim for Damages is to be
made by a party entitled to indemnification hereunder against the
indemnifying party, the party entitled to such indemnification shall give
written notice (the "CLAIM NOTICE") to the indemnifying party as soon as
practicable after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Article X. The Claim Notice shall
set forth, with reasonable specificity, the facts, conditions, or events
which may give rise to Damages for which indemnification may be sought under
this Article X. If any lawsuit or enforcement action is filed against any
party entitled to the benefit of indemnity hereunder, written notice thereof
shall be given to the indemnifying party as promptly as practicable (and in
any event within thirty (30) days after the service of the citation or
summons); provided, that the failure of any indemnified party to give timely
notice shall not affect rights to indemnification hereunder except to the
extent that the indemnifying party demonstrates actual damage caused by such
failure. After such notice, if the indemnifying party shall acknowledge in
writing to the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection with such
lawsuit or action, the indemnifying party shall be entitled, if it so elects,
to take control of the defense and investigation of such lawsuit or action
and to employ and engage attorneys of its own choice to handle and defend the
same, at the indemnifying party's cost, risk and expense provided that the
indemnifying party and its counsel shall proceed with
39
diligence and in good faith with respect thereto. The indemnified party shall
cooperate in all reasonable aspects with the indemnifying party and such
attorneys in the investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom; provided, however, that the indemnified
party may, at its own cost, participate in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom.
10.4 LIMITATIONS ON INDEMNIFICATIONS. All representations
and warranties made by the parties herein or in any instrument or document
furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto and
shall expire on the first anniversary of the Closing Date, and shall no
longer be of any force or effect and no claim may be made thereafter or with
respect thereto, forever, except (i) as to any matter as to which a claim is
submitted in writing to the indemnifying party prior to such second
anniversary and identified as a claim for indemnification pursuant to this
Agreement, (ii) as to any matter which is based upon willful fraud by the
indemnifying party, with respect to which the representations and warranties
set forth in this Agreement shall expire only upon expiration of the
applicable statute of limitations, and (iii) with respect to any breach of
the representations and warranties Sections 2.3, 2.9, 3.1, 3.2 hereof, with
respect to which the representations and warranties set forth in this
Agreement shall expire upon expiration of the applicable statute of
limitations for claims against the indemnified party. The term "Damages" as
used in Article X does not include consequential damages to the party
requesting indemnification.
10.5 EXCLUSIVE REMEDIES. After the Closing, except in
respect of any common law fraud or willful misconduct of any party hereto and
any equitable remedies available to enforce the terms of this Agreement, the
indemnities set forth in this Article XI shall be the exclusive remedies of
the parties hereto for any misrepresentation, breach of warranty or
nonfulfillment or failure to be performed of any covenant or agreement
contained in this Agreement, and the parties shall not be entitled to a
rescission of this Agreement or to any further rights or claims of any nature
whatsoever in respect thereof, all of which the parties hereto hereby waive.
ARTICLE XI.
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION. Subject to the provisions of Sections
11.2 and 11.3 below, this Agreement may be terminated and the Stock Exchange
abandoned at any time prior to the Closing Date:
(a) by mutual written consent of the Stockholders
and Jenkon;
(b) by Jenkon or the Company if: (i) the Closing
Time has not occurred before 11:59 p.m. (Israel time) on December 31, 1999
(provided that the right to
40
terminate this Agreement under this clause 11.1(b)(i) shall not be available
to any party whose willful failure to fulfill any obligation hereunder has
been the primary cause of, or resulted in, the failure of the Closing to
occur on or before such date); (ii) there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Stock Exchange; or (iii) there shall be any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Stock
Exchange by any governmental entity that would make consummation of the Stock
Exchange illegal;
(c) by Jenkon if there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Stock Exchange, by any Governmental Entity, which
would (i) prohibit Jenkon's or the Company's ownership or operation of all or
any portion of the business of the Company or (ii) compel Jenkon or the
Company to dispose of or hold separate all or a material portion of the
business or assets of the Company or Jenkon as a result of the Merger;
(d) by Jenkon if it is not in material breach of
its obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of the Company and (i) such breach has not been cured within ten
(10) business days after written notice to the Company (provided that, no
cure period shall be required for a breach which by its nature cannot be
cured), and (ii) as a result of such breach the conditions set forth in
Section 9.1, 9.2 or 9.3, as the case may be, would not then be satisfied;
(e) by the Company if it is not in material breach
of its obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of Jenkon and (i) such breach has not been cured within ten (10)
business days after written notice to Jenkon (provided that, no cure period
shall be required for a breach which by its nature cannot be cured), and (ii)
as a result of such breach the conditions set forth in Section 8.1 or 8.2, as
the case may be, would not then be satisfied.
Where action is taken to terminate this Agreement pursuant
to this Section 10.1, it shall be sufficient for such action to be authorized
by the Board of Directors, with respect to Jenkon, or the Stockholders
holding a majority of the voting capital stock of the Company, with respect
to the Company.
11.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement as provided in Section 11.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of
Jenkon, the Company, or their respective officers, directors or stockholders,
provided that each party shall remain liable for any breaches of this
Agreement prior to its termination; and provided further that, the provisions
of Articles X, XI and XII of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
41
11.3 AMENDMENT. This Agreement may be amended by the
parties hereto at any time by execution of an instrument in writing signed on
behalf of each of the parties hereto.
11.4 EXTENSION; WAIVER. At any time prior to the
Closing Date, Jenkon, on the one hand, and the Stockholders and the Company,
on the other, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive
any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE XII.
MISCELLANEOUS
12.1 SURVIVAL OR REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. All representations, warranties, covenants and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing.
12.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally or by commercial delivery service, or mailed by registered or
certified mail (return receipt requested) or sent via facsimile (with
acknowledgment of complete transmission) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Jenkon, addressed to:
Jenkon International, Inc.
0000 XX 00xx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: President
Fax: (000) 000-0000
With copies to:
Jeffer, Mangels, Xxxxxx & Xxxxxxx LLP
2121 Avenue of the Stars, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn.: Xxxxxx X. Xxxxxxxxx
Facsimile No.: (000) 000-0000
42
(b) If to the Company, addressed to:
Multimedia K.I.D. -- Intelligence in Education Ltd.
00 Xxxxxxxxxxxxxxxxxxx Xxxxxx
Xxxxx Xxxxx, Xxxxxx
Attention: Xxxxxx Xxxxxxxxxx
With copies to:
The Law Offices of Xxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx
Fax: (000) 000-0000
(c) If to any Stockholder:
To the address set forth under the Stockholder's
name on EXHIBIT A attached hereto or to such other
address or person as any party shall have last
designated by such notice to the other party
hereto with a copy to the Stockholders Agent set
forth in (b) above.
12.3 INTERPRETATION. The words "include," "includes"
and "including" when used herein shall be deemed in each case to be followed
by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
12.4 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, in person or by facimile, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to
the other party, it being understood that all parties need not sign the same
counterpart.
12.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the
Disclosure Schedules and Exhibits hereto, and the documents and instruments
and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
43
12.6 SEVERABILITY. In the event that any provision of
this Agreement or the application thereof, becomes or is declared by a court
of competent jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the application
of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
12.7 OTHER REMEDIES. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party of
any one remedy will not preclude the exercise of any other remedy.
12.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof. Each of the parties hereto agrees
that process may be served upon them in any manner authorized by the laws of
the State of New York for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction
and such process.
12.9 ARBITRATION. As to any disputes or controversies
arising out of, relating to, or in connection with the Agreement:
(a) The parties shall attempt in good faith to agree
upon the rights of the respective parties with respect to any dispute or
controversy arising out of, relating to, or in connection with this Agreement or
the interpretation, validity, construction, performance, breach or complete
termination thereof. In the event that no such agreement can be reached, any
such dispute or controversy shall be submitted to arbitration in accordance with
the rules of the American Arbitration Association, as then in effect.
(b) Judgment upon any award rendered by the
arbitrator may be entered in any court having jurisdiction. Any such
arbitration shall be held in Vancouver, Washington. Each of the parties to
this Agreement hereby irrevocably submits to the jurisdiction of the
arbitrator in Vancouver, Washington and waives any defense in an arbitration
based upon any claim that such party is not subject personally to the
jurisdiction of such arbitrator, that such arbitration is brought in an
inconvenient forum or that such venue is improper. The arbitral award shall
be in writing and shall be final and binding on each of the parties hereto.
Judgment upon the award may be entered by any court having jurisdiction
thereof or having jurisdiction over the parties or their assets. For purposes
of this Section 11.9, in any arbitration hereunder, the non-prevailing party
to an arbitration shall pay its own expenses, the fees of the arbitrator, the
administrative costs of the arbitration and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the
44
other party to the arbitration.
12.10 RULES OF CONSTRUCTION. The parties hereto agree
that they have been represented by counsel during the negotiation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
12.11 SPECIFIC PERFORMANCE. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions
of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
45
IN WITNESS WHEREOF, each of the parties hereto has caused this
Stock Exchange Agreement and Plan of Reorganization to be signed and delivered
effective as of the date first set forth above.
JENKON INTERNATIONAL, INC., a Delaware
corporation
By:
--------------------------------------------
Xxxxx Xxxxxxx, Chief Executive Officer
By:
--------------------------------------------
Xxxxxx Xxxxxx, President
MULTIMEDIA K.I.D. - INTELLIGENCE IN
EDUCATION, LTD., an Israeli corporation
By:
--------------------------------------------
Xxxxxx Xxxxxxxxxx, Director
By:
--------------------------------------------
THE STOCKHOLDERS:
------------------------------------
XXXXXX XXXXXX
------------------------------------ ------------------------------------
XXXXX XXXXXXXXX XXXXXX LAZKRON
------------------------------------ ------------------------------------
XXXXX XXXXXX XXXXXX XXXXXXXXXX
------------------------------------ ------------------------------------
XXXX XXXXXX XXXX XXXXXXXXXX
ALLIED INTERNATIONAL FUND, INC. LAWJESS PARTNERS, LTD.
By: By:
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
XXXXXXXX XXXXXXXXX & COMPANY BNR FAMILY PARTNERS LTD.
By: By:
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
VAC WORLDWIDE, INC. OLD OAK FUND, INC.
By: By:
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
XXXXXX PORTFOLIO INC. CONGREGATION AHAVAS
TZEDOKAH V'CHESED
By: By:
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
------------------------------------ ------------------------------------
XXXX XXXXXXXXXX XXXXXXX XXXXXXX
------------------------------------ ------------------------------------
XXXXXXX XXXXXXXXXXX XXXXXXXXXX XXXXXXX
------------------------------------ ------------------------------------
XXXXXX XXXXXXX XXXX XXXXXX
------------------------------------ ------------------------------------
XXXX XXXXXXXXX XXXXXXXXX XXXXXX
------------------------------------ ------------------------------------
XXXXX XXXXX XXXXX XXXXXXX
EXHIBIT A
COMPANY SHAREHOLDER LIST
----------------------------------------------------------------------------------------------------------------
JENKON JENKON SERIES JENKON SERIES
COMPANY COMMON B PREFERRED C PREFERRED
SHARES STOCK TO BE STOCK TO BE STOCK TO BE
NAME AND ADDRESS OWNED RECEIVED RECEIVED RECEIVED
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXX 1,466 286,381 326,616 326,616
Adv. Xxxxxx
00 Xxxxxxxx
Xxx-Xxxx, Xxxxxx
----------------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 733 143,190 163,303 163,302
00 Xxxxxxx Xxxx
Xxxxxx, XX 00000
----------------------------------------------------------------------------------------------------------------
XXXXX XXXXXXXXX 733 143,190 163,302 163,303
000 Xxxxxxxx Xxxxxxxx
Xxxxxxxx, XX 00000
----------------------------------------------------------------------------------------------------------------
XXXXXX XXXXXXXXXX 1,200 234,418 267,349 267,349
00 Xxxxxxxx Xxxxxxxxxxxx
Xxxxxx Xxxxx, Xxxxxx
----------------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXXX 50 9,767 11,140 11,140
23 Halutzat Hapardesanut
Petach Tikva, Israel
----------------------------------------------------------------------------------------------------------------
XXXXXX LAZKRON 50 9,767 11,140 11,140
x/x Xxx. Xxxxxx
00 Xxxxxxxx
Xxx-Xxxx, Xxxxxx
----------------------------------------------------------------------------------------------------------------
XXXX XXXXXX 68 13,287 15,150 15,150
c/o The Law Offices of
Xxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
----------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
ALLIED INTERNATIONAL FUND, 244.76 0 56,916 56,916
INC.
000-00 00xx Xxxxxx
Xxxxxxx, XX 00000
--------------------------------------------------------------------------------------------------
LAWJESS PARNTERS, LTD 114.31 0 26,584 26,584
00 Xxxx Xxxxxx, XXX 000
Xxx Xxxx, XX 00000
--------------------------------------------------------------------------------------------------
XXXX XXXXXXXXXX 8.6 0 2,000 2,000
0 Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
--------------------------------------------------------------------------------------------------
BNR FAMILY PARTNERS LTD 112.16 0 26,084 26,084
X.X. Xxx 000
Xxxxxxx Xxxx, XX 00000
--------------------------------------------------------------------------------------------------
XXXXXXX XXXXXXX 37.62 0 8,750 8,750
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
--------------------------------------------------------------------------------------------------
XXXXXXX XXXXXXXXXXX 37.62 0 8,750 8,750
000 Xxxx Xxxxx Xxxxxx
Xxxx Xxxxx, XX 00000
--------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXXXXX & 75.25 0 17,500 17,500
COMPANY
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
--------------------------------------------------------------------------------------------------
VAC WORLDWIDE, INC. 21.5 0 5,000 5,000
X.X. Xxx 000
Xxxxxxx, XX 00000
--------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXXX 7.52 0 1,750 1,750
000 Xxxxxxxx Xxxxxx
Xxxxxxx Xxxx, XX 00000
--------------------------------------------------------------------------------------------------
XXXXXX XXXXXXX 8.6 0 2,000 2,000
0000 Xxxx 0xx Xxxxxx
Xxxxxxxx, XX 00000
--------------------------------------------------------------------------------------------------
XXXX XXXXXX 37.62 0 8,750 8,750
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
--------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXX 16.12 0 3,750 3,750
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
------------------------------------------------------------------------------------------------------
XXXXXXXXX XXXXXX 5.37 0 1,250 1,250
0000 Xxxxx 00xx Xxxxxx
Xxxxxxxx, XX 00000
------------------------------------------------------------------------------------------------------
OLD OAK FUND, INC. 195.3 0 45,416 45,416
000 Xxxxxxx Xxxxxx
0xx Xxxxx
Xxx Xxxx, XX 00000
------------------------------------------------------------------------------------------------------
XXXXX XXXXX 12.9 0 3,000 3,000
00 Xxxxxxx Xxxxx
Xxx Xxxxx, XX 00000
------------------------------------------------------------------------------------------------------
XXXXXX PORTFOLIO, INC. 64.5 0 15,000 15,000
c/o Xx. X. Xxxxxxxxx
Xxxxxxxx Xxxxxx 00
0000 Xxxxxx
------------------------------------------------------------------------------------------------------
XXXXX XXXXXXX 43 0 10,000 10,000
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
------------------------------------------------------------------------------------------------------
EZER M'ZION 10.75 0 2,500 2,500
000 Xxxxxxxx Xxxxxxxx
Xxxxxxxx, XX 00000
------------------------------------------------------------------------------------------------------
CONGREGATION AHAVAS 21.5 0 5,000 5,000
TZEDOKAH V'CHESED
00 Xxxxxxx Xxxx
Xxxxxx, XX 00000
------------------------------------------------------------------------------------------------------
TOTALS 5,375 840,000 1,208,000 1,208,000
------------------------------------------------------------------------------------------------------
SCHEDULE 6.2(a)
ALLOCATION OF REGISTRATION RIGHTS
------------------------------------------------------------------------------------------------------
SHARES OF JENKON COMMON STOCK TO BE
REGISTERED ON BEHALF OF STOCKHOLDER
(INCLUDING SHARES ISSUABLE UPON
NAME CONVERSION OF SERIES B AND SERIES C
PREFERRED STOCK)
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
XXXXXX XXXXXX 2,200,000
------------------------------------------------------------------------------------------------------
XXXXX XXXXXX 1,050,000
------------------------------------------------------------------------------------------------------
XXXXX HUBEFELD 1,050,000
------------------------------------------------------------------------------------------------------
XXXXXX XXXXXXXXXX 0
------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXXX 0
------------------------------------------------------------------------------------------------------
XXXXXX LAZKRON 0
------------------------------------------------------------------------------------------------------
XXXX XXXXXX 100,000
------------------------------------------------------------------------------------------------------
ALLIED INTERNATIONAL FUND, INC. 384,848
------------------------------------------------------------------------------------------------------
LAWJESS PARNTERS, LTD 237,533
------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXXX 20,000
------------------------------------------------------------------------------------------------------
BNR FAMILY PARTNERS LTD 237,533
------------------------------------------------------------------------------------------------------
XXXXXXX XXXXXXX 175,000
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
XXXXXXX XXXXXXXXXXX 175,000
------------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXXXXX & 0
COMPANY
------------------------------------------------------------------------------------------------------
VAC WORLDWIDE, INC. 100,000
------------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXXX 35,000
------------------------------------------------------------------------------------------------------
XXXXXX XXXXXXX 20,000
------------------------------------------------------------------------------------------------------
XXXX XXXXXX 125,000
------------------------------------------------------------------------------------------------------
XXXX XXXXXXXXX 75,000
------------------------------------------------------------------------------------------------------
XXXXXXXXX XXXXXX 25,000
------------------------------------------------------------------------------------------------------
OLD OAK FUND, INC. 360,086
------------------------------------------------------------------------------------------------------
XXXXX XXXXX 30,000
------------------------------------------------------------------------------------------------------
XXXXXX PORTFOLIO, INC. 150,000
------------------------------------------------------------------------------------------------------
XXXXX XXXXXXX 100,000
------------------------------------------------------------------------------------------------------
EZER M'ZION 0
------------------------------------------------------------------------------------------------------
CONGREGATION AHAVAS TZEDOKAH 100,000
V'CHESED
------------------------------------------------------------------------------------------------------
TOTALS 6,750,000
------------------------------------------------------------------------------------------------------
